Law on Sales
5. Onerous – as opposed to gratuitous, because
I. INTRODUCTION
A. Definition of sale
Art. 1458. By the contract of sale one of the
contracting parties obligates himself to transfer the
ownership and to deliver a determinate thing, and the
other to pay therefor a price certain in money or its
equivalent.
A contract of sale may be absolute or conditional.
(1445a)
The definition in Art 1458 brings about the creation of
two sets of obligations: for the seller, (1) to transfer
ownership and (2) deliver possession of the subject
matter; for the buyer: to pay the price. Obligations,
as referred to in the Article, are obligations to give;
thus it may be the subject of actions for specific
performance. (Villanueva)
B. Characteristics of a contract of sale
1. Nominate – it has a peculiar name and form as
prescribed in the law
2. Consensual – it is founded upon and completed
by mere consent of the contracting parties 1 (See
Article 1475)
Art. 1475. The contract of sale is perfected at the
moment there is a meeting of minds upon the thing
which is the object of the contract and upon the price.
From that moment, the parties may reciprocally
demand performance, subject to the provisions of the
law governing the form of contracts. (1450a)
3. Commutative – it is a contract in which each of
the contracting parties gives a thing of value and
receives an equivalent
4. Bilateral – it is a contract in which both the
contracting parties are bound to fulfill the obligations
reciprocally towards each other (i.e. the vendor
becomes bound to deliver the thing sold and the
vendee to pay the price for it)
1 public is a manufacturer. The fact that the windows and
QUIJADA V. CA: Sale being a consensual contract, is
perfected by mere consent, which is manifested the moment
there is a meeting of the minds as to the offer and acceptance
thereof on 3 elements: price, subject matter and terms of
payment. Ownership by the seller on the thing sold at the time of
perfection of the contract of sale is not an element for its
perfection. What the law requires is that the seller has the right to
transfer ownership at the time the thing sold is delivered.
1
the thing is sold in consideration of a price and
vice versa
6. Principal – it can stand on its own; unlike an
accessory contract
C. Kinds of a contract of sale
1. Absolute – where the sale is not subject to
any condition whatsoever and where title passes
to the buyer upon the delivery of the thing sold.
2. Conditional – where the sale contemplates a
contingency and in general, where the contract is
subject to certain conditions (usually the full
payment of the purchase price). Conditions are
attached to the contract; the title will only pass
once the conditions have been fulfilled.
D. Sale as distinguished from other contracts
1. sale vs. contract for a piece of work2
Art. 1467. A contract for the delivery at a
certain price of an article which the vendor in the
ordinary course of his business manufactures or
procures for the general market, whether the
same is on hand at the time or not, is a contract
of sale, but if the goods are to be manufactured
specially for the customer and upon his special
order, and not for the general market, it is a
contract for a piece of work. (n)
Art. 1713. By the contract for a piece of work
the contractor binds himself to execute a piece of
work for the employer, in consideration of a
certain price or compensation. The contractor
may either employ only his labor or skill, or also
furnish the material. (1588a)
Art. 1714. If the contractor agrees to produce
the work from material furnished by him, he
shall deliver the thing produced to the employer
and transfer dominion over the thing. This
contract shall be governed by the following
articles as well as by the pertinent provisions on
2
CELESTINO V. COLLECTOR: A factory which habitually
makes sash, windows and doors, and sells the goods to the
doors are made by it only when customers place their
orders and according to such form or combination as suit
the fancy of the purchasers does not alter the nature of the
establishment;
COMMISSIONER V. ENGINEERING: The test of a
contractor is that he renders service in the course of an
independent occupation, representing the will of his
employer only as to the result of his work, and not as to the
means by which it is accomplished.
warranty of title and against hidden defects and the
payment of price in a contract of sale. (n)
Art. 1715. The contract shall execute the work in
such a manner that it has the qualities agreed upon
and has no defects which destroy or lessen its value
or fitness for its ordinary or stipulated use. Should the
work be not of such quality, the employer may
require that the contractor remove the defect or
execute another work. If the contract fails or refuses
to comply with this obligation, the employer may
have the defect removed or another work executed,
at the contractor's cost. (n)
a) In a contract for work, labor or materials or for a
piece of work, the thing transferred is one not in
existence and which never would have existed but for
the order of the party desiring to acquire it; while in a
contract of sale, the thing transferred is one which
would have existed and been the subject of sale to
some other person, even if the order had not been
given. (De Leon)
b) This follows the Massachusetts Rule: a contract for
the delivery at a certain price of an article which the
vendor, in the ordinary course of his business,
manufactures or procures for the general market,
whether the same is on hand at the time or not, is a
contract of sale. But if the goods are to be
manufactured specially for the customer and upon his
special order and not for the general market, it is a
contract for a piece of work. (Baviera)
2. sale vs. agency to buy and sell3
Art. 1466. In construing a contract containing
provisions characteristic of both the contract of sale
and of the contract of agency to sell, the essential
clauses of the whole instrument shall be considered.
(n)
3. sale vs. barter or exchange
Art. 1468. If the consideration of the contract
consists partly in money, and partly in another thing,
the transaction shall be characterized by the manifest
intention of the parties. If such intention does not
clearly appear, it shall be considered a barter if the
value of the thing given as a part of the consideration
3
QUIROGA V. PARSONS: In the contract in the instant case,
what was essential, constituting its cause and subject matter, was
that the plaintiff was to furnish the defendant with the beds which
the latter might order, at the stipulated price, and that the
defendant was to pay this price in the manner agreed upon.
These are precisely the essential features of a contract of
purchase and sale. There was the obligation on the part of the
plaintiff to supply the beds, and, on that of the defendant, to pay
their price. These features exclude the legal conception of an
agency or older to sell whereby the mandatory or agent receives
the thing to sell it, and does not pay its price, but delivers to the
principal the price he obtains from the sale of the thing to a third
person, and if he does not succeed in selling it, he returns it,
2
exceeds the amount of the money or its
equivalent; otherwise, it is a sale. (1446a)
Art. 1638. By the contract of barter or exchange
one of the parties binds himself to give one thing
in consideration of the other's promise to give
another thing. (1538a)
Art. 1639. If one of the contracting parties,
having received the thing promised him in
barter, should prove that it did not belong to the
person who gave it, he cannot be compelled to
deliver that which he offered in exchange, but he
shall be entitled to damages. (1539a)
Art. 1640. One who loses by eviction the thing
received in barter may recover that which he
gave in exchange with a right to damages, or he
may only demand an indemnity for damages.
However, he can only make use of the right to
recover the thing which he has delivered while
the same remains in the possession of the other
party, and without prejudice to the rights
acquired in good faith in the meantime by a third
person. (1540a)
Art. 1641. As to all matters not specifically
provided for in this Title, barter shall be
governed by the provisions of the preceding Title
relating to sales. (1541a)
4. sale vs. dacion en pago
Art. 1245. Dation in payment, whereby property
is alienated to the creditor in satisfaction of a
debt in money, shall be governed by the law of
sales. (n)
Dacion En Pago Sale
Presupposes a Obligations are
preexisting debt & created from the
extinguishes the debt perfection of the
contract
Price is the value of the Fixing of the price is
thing given more freely agreed
upon
(Manresa)
5. sale vs. donation
Art. 725. Donation is an act of liberality
whereby a person disposes gratuitously of a
thing or right in favor of another, who accepts it.
Under Art 1471, when the price of the contract of
sale is simulated, the sale may be void but the
act may be shown to have been in reality a
donation x x x On the other hand, a purported
donation may have other considerations placed
on the donee, thus it becomes critical to
determine what rule applies (law on sales or law on
donations) (Villanueva)
6. summation: tests to determine the nature of
the contract
Where necessaries are those sold and delivered
to a minor or other person without capacity to
act, he must pay a reasonable price therefor.
Necessaries are those referred to in Article 290.
(1457a)

4 Tests Sale = object: Piece of Art. 1490. The husband and the wife cannot
transfer of Work = sell property to each other, except:
ownership object:
service (1) When a separation of property was agreed
(mental, upon in the marriage settlements; or
physical (2) When there has been a judicial separation or
labor) property under Article 191. (1458a)
1. Nature of Ordinary Extra-
business ordinary
Art. 1491. The following persons cannot acquire
2. Existence Does not Depends on
by purchase, even at a public or judicial auction,
of thing order
either in person or through the mediation of
3. Market General Specific
another:
Clientele
4. Statute of Covered Not covered
(1) The guardian, the property of the person or
frauds
persons who may be under his guardianship;

4 Tests (but Sale Agency to Sell (2) Agents, the property whose administration or
the ultimate sale may have been entrusted to them, unless
test is: the consent of the principal has been given;
intention of
the parties) (3) Executors and administrators, the property of
1. Risk of Loss Borne by Borne by the estate under administration;
seller principal, not
agent (4) Public officers and employees, the property
2. Payment Buyer Principal, not of the State or of any subdivision thereof, or of
agent any government-owned or controlled
3. Exclusive Remittance test corporation, or institution, the administration of
Dealership which has been intrusted to them; this provision
4. Return of None Mandatory shall apply to judges and government experts
unsold goods who, in any manner whatsoever, take part in the
sale;

Sale Barter (5) Justices, judges, prosecuting attorneys,

1. Intention of clerks of superior and inferior courts, and other
parties officers and employees connected with the
2. Value of Money > Thing > administration of justice, the property and rights
thing vs. Value thing Money in litigation or levied upon an execution before
of money the court within whose jurisdiction or territory
they exercise their respective functions; this
prohibition includes the act of acquiring by
assignment and shall apply to lawyers, with
2 Tests Sale Dacion En Pago
respect to the property and rights which may be
1. Debt None Pre-existing
the object of any litigation in which they may
2. Stage of Perfection Extinguishment
take part by virtue of their profession.
contract
(6) Any others specially disqualified by law.
(1459a)
II. PARTIES TO A CONTRACT OF SALE

A. Capacity of parties Art. 1492. The prohibitions in the two preceding

articles are applicable to sales in legal
redemption, compromises and renunciations. (n)
Art. 1489. All persons who are authorized in this
Code to obligate themselves, may enter into a
contract of sale, saving the modifications contained in 1. absolute incapacity
the following articles.

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Those who have the legal capacity to give consent to
contracts may validly enter into a contract of sale,
unless specifically prohibited by law. However, when
necessaries are sold and delivered to a minor or other
incapacitated person, the latter must pay a
reasonable price therefore. Necessaries are those
indispensable for sustenance, clothing, dwelling,
education, and medical treatment.
2. relative incapacity
a) married persons (as regards contracts with third
parties)
Art. 73. Either spouse may exercise any legitimate
profession, occupation, business or activity without
the consent of the other. The latter may object only
on valid, serious, and moral grounds.
In case of disagreement, the court shall decide
whether or not:
(1) The objection is proper; and
(2) Benefit has occurred to the family prior to the
objection or thereafter. If the benefit accrued prior to
the objection, the resulting obligation shall be
enforced against the separate property of the spouse
who has not obtained consent.
The foregoing provisions shall not prejudice the rights
of creditors who acted in good faith. (117a)
Art. 96. The administration and enjoyment of the
community property shall belong to both spouses
jointly. In case of disagreement, the husband's
decision shall prevail, subject to recourse to the court
by the wife for proper remedy, which must be availed
of within five years from the date of the contract
implementing such decision.
In the event that one spouse is incapacitated or
otherwise unable to participate in the administration
of the common properties, the other spouse may
assume sole powers of administration. These powers
do not include disposition or encumbrance without
authority of the court or the written consent of the
other spouse. In the absence of such authority or
consent, the disposition or encumbrance shall be
void. However, the transaction shall be construed as
a continuing offer on the part of the consenting
spouse and the third person, and may be perfected as
a binding contract upon the acceptance by the other
spouse or authorization by the court before the offer
is withdrawn by either or both offerors. (206a)
Art. 124. The administration and enjoyment of the
conjugal partnership shall belong to both spouses
jointly. In case of disagreement, the husband's
decision shall prevail, subject to recourse to the court
by the wife for proper remedy, which must be availed
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of within five years from the date of the contract
implementing such decision.
In the event that one spouse is incapacitated or
otherwise unable to participate in the
administration of the conjugal properties, the
other spouse may assume sole powers of
administration. These powers do not include
disposition or encumbrance without authority of
the court or the written consent of the other
spouse. In the absence of such authority or
consent, the disposition or encumbrance shall be
void. However, the transaction shall be
construed as a continuing offer on the part of the
consenting spouse and the third person, and
may be perfected as a binding contract upon the
acceptance by the other spouse or authorization
by the court before the offer is withdrawn by
either or both offerors. (165a)
b) married persons (as regards contracts
between spouses)
Art. 87. Every donation or grant of gratuitous
advantage, direct or indirect, between the
spouses during the marriage shall be void,
except moderate gifts which the spouses may
give each other on the occasion of any family
rejoicing. The prohibition shall also apply to
persons living together as husband and wife
without a valid marriage. (133a)
Art. 1490. The husband and the wife cannot sell
property to each other, except:
(1) When a separation of property was agreed
upon in the marriage settlements; or
(2) When there has been a judicial separation or
property under Article 191. (1458a)
There is a potential circumvention of the policy
of the law if sales between spouses are allowed if
there was a judicial separation of property, since
undue influence is not completely erased by the
separation of property. This prohibition also
applies to common-law unions4. (Villanueva)
c) special disqualifications (see Articles 1491 and
1492 in the previous page)
1) It is immaterial that no damage is
suffered by the owner. The contract is
4
CALIMLIM-CANULLAS V. FORTUN: …if transfers or
conveyances between spouses were allowed during
marriage, that would destroy the system of conjugal
partnership. It was also designed to prevent the exercise of
undue influence by one spouse over the other, as well as to
protect the institution of marriage, which is the cornerstone
of family law. The prohibitions apply to a couple living as
husband and wife without benefit of marriage, otherwise,
"the condition of those who incurred guilt would turn out to
be better than those in legal union."
 void as the law seeks to prevent said persons manufactured, raised, or acquired by the seller
from being tempted to take advantage of after the perfection of the contract of sale, in this
their position. They occupy a position of Title called "future goods."
trust and confidence in relation to the
property under their administration or There may be a contract of sale of goods, whose
jurisdiction. acquisition by the seller depends upon a
contingency which may or may not happen. (n)
2) Agents can not buy the property of their
principalj without the consent of the latter.
Art. 1347. All things which are not outside the
BROKERS, however, do not come within the
commerce of men, including future things, may
prohibition, as their authority consists merely
be the object of a contract. All rights which are
in looking for a buyer or seller, and to bring
not intransmissible may also be the object of
the latter and his principal together to
contracts.
consummate the transaction. Of course,
after the agency is terminated, the agent can
No contract may be entered into upon future
buy the property of the principal, which was
inheritance except in cases expressly authorized
formerly under his administration.
by law.
3) Although executors and administrators can
All services which are not contrary to law,
not buy the property under their
morals, good customs, public order or public
administration, an executor may buy the
policy may likewise be the object of a contract.
hereditary rights of an heir to the estate
(1271a)
under his administration, because the buyer,
in such case, can not get the share of the
Emption rei speratai – If the parties make the
heir in the estate until after the
contract depend upon the existence of a thing,
administration is ended.
so that if the thing does not come into existence
the contract is considered as not made ad there
4) With regard to the lawyers, the prohibition
is no obligation to pay the price, such contract is
does not apply to other properties of the
valid under [Art. 1461 (2), CC; it is what the
client, nor to assignments of the property
Roman law designates as emptio rei speratae
formerly in litigation when such assignment
(purchase of an expected thing).
will take effect only after final judgment
(compensation of lawyers payable on a
Emptio spei – If the parties intend the contract
contingent basis, unless unconscionable).5
to exist at all events, so that the buyer will have
to pay the price even if the thing does not
5) Examples of other persons especially
actually came into existence . . . it is called
disqualified by law are: (1) aliens purchasing
emtio spei (purchase of hope or expectancy”.
private agricultural lands (Art XII, Secs 3 &
This contract is, however, void under Art. 1461.
7, Consti); (2) an unpaid seller having a right
(Tolentino)
of lien…(Art 133 par 5) (Baviera)

Art. 1461. Things having a potential existence

III. SUBJECT MATTER may be the object of the contract of sale.

The efficacy of the sale of a mere hope or

A. Requisites of a valid subject matter expectancy is deemed subject to the condition
that the thing will come into existence.
1. must be existing, future, or contingent
The sale of a vain hope or expectancy is void. (n)
Art. 1348. Impossible things or services cannot be
the object of contracts. (1272) Art. 1347. All things which are not outside the
commerce of men, including future things, may
be the object of a contract. All rights which are
Art. 1462. The goods which form the subject of a
not intransmissible may also be the object of
contract of sale may be either existing goods, owned
contracts.
or possessed by the seller, or goods to be
No contract may be entered into upon future
5
RUBIAS V. BATILLER: the purchase by a lawyer of the inheritance except in cases expressly authorized
property in litigation from his client is categorically prohibited by by law.
Art. 1491, paragraph (5) of the Civil Code, and that consequently,
plaintiff's purchase of the property in litigation from his client was
All services which are not contrary to law,
void and could produce no legal effect
morals, good customs, public order or public

5
policy may likewise be the object of a contract.
(1271a)
a) Law prohibits sale of future inheritance. The rights
to succession are transmitted from the moment of the
death of the decedent so one cannot sell or promise
to sell what he expects to inherit from a living person.
But the law allows an heir to sell his interests in an
inheritance
b) The object of the contract of sale must be licit,
meaning within the commerce of man, and
determinate. Determinate has been expanded to
cover generic things, future things and things in
potential existence 6.
c) Things subject to a resolutory condition may be the
object of the contract of sale.(Article 1465)
2. must be licit
Art. 1347. All things which are not outside the
commerce of men, including future things, may be
the object of a contract. All rights which are not
intransmissible may also be the object of contracts.
No contract may be entered into upon future
inheritance except in cases expressly authorized by
law.
All services which are not contrary to law, morals,
good customs, public order or public policy may
likewise be the object of a contract. (1271a)
Art. 1459. The thing must be licit and the vendor
must have a right to transfer the ownership thereof at
the time it is delivered. (n)
Art. 1575. The sale of animals suffering from
contagious diseases shall be void.
A contract of sale of animals shall also be void if the
use or service for which they are acquired has been
stated in the contract, and they are found to be unfit
therefor. (1494a)
a) The sale of narcotics or dangerous drugs except
upon prescription, or any wild bird or mammal, or
rare wild plants protected by law or of tubli or other
poisonous plants or fruits, dynamited fish or other
aquatic animals, gunpowder, dynamite, explosives or
blasting supplies, firearms or ammunitions are
prohibited by law therefore are illicit.
6 matters of a contract of sale provided (1) they
PICHEL V. ALONZO: The subject matter of the contract of sale
in question are the fruits of the coconut trees on the land during
the years from September 15, 1968 up to January 1, 1976, which
subject matter is a determinate thing. Under Art. 1461 of the New
Civil Code, things having a potential existence may be the object
of the contract of sale;
SIBAL VS. VALDEZ: pending crops which have potential
existence may bethe subject matter of sale.
6
b) Properties belonging to the State or its
political subdivision which are intended for public
use or public service or for the development of
natural wealth are outside the commerce of
man.
c) Churches are also outside the commerce of
man.
d) But public property when no longer intended
for public use or service form part of the
patrimonial property of the State and therefore
can be leased or sold.
3. must be determinate
Art. 1460. A thing is determinate when it is
particularly designated or physical segregated
from all other of the same class.
The requisite that a thing be determinate is
satisfied if at the time the contract is entered
into, the thing is capable of being made
determinate without the necessity of a new or
further agreement between the parties. (n)
a) Determinate v. determinable7: a thing is
determinate if it can be physically segregated,
particularly designated; capable of being made
determinate without need of another agreement.
It is determinable if it is capable of being
determined via another agreement.
4. particular kinds
a) generic things
Art. 1246. When the obligation consists in the
delivery of an indeterminate or generic thing,
whose quality and circumstances have not been
stated, the creditor cannot demand a thing of
superior quality. Neither can the debtor deliver a
thing of inferior quality. The purpose of the
obligation and other circumstances shall be
taken into consideration. (1167a)
Art. 1409. The following contracts are inexistent
and void from the beginning:
(6) Those where the intention of the parties
relative to the principal object of the contract
cannot be ascertained;
Generic things could also become subject
7
MELLIZA V. CITY OF ILOILO: The requirement of the law
that a sale must have for its object a determinate thing, is
fulfilled as long as, at the time the contract is entered into,
the object of the sale is capable of being made determinate
without the necessity of a new or further agreement
between the parties
have been physically segregated8 / particularly
designated, and (2) they are capable of substitution
b) future goods
Art. 1462. The goods which form the subject of a
contract of sale may be either existing goods, owned
or possessed by the seller, or goods to be
manufactured, raised, or acquired by the seller after
the perfection of the contract of sale, in this Title
called "future goods."
There may be a contract of sale of goods, whose
acquisition by the seller depends upon a contingency
which may or may not happen. (n)
c) sale of undivided interest or share
Art. 1463. The sole owner of a thing may sell an
undivided interest therein. (n)
Art. 1464. In the case of fungible goods, there may
be a sale of an undivided share of a specific mass,
though the seller purports to sell and the buyer to
buy a definite number, weight or measure of the
goods in the mass, and though the number, weight or
measure of the goods in the mass is undetermined.
By such a sale the buyer becomes owner in common
of such a share of the mass as the number, weight or
measure bought bears to the number, weight or
measure of the mass. If the mass contains less than
the number, weight or measure bought, the buyer
becomes the owner of the whole mass and the seller
is bound to make good the deficiency from goods
d) sale of things in litigation
Art. 1381. The following contracts are rescissible:
(4) Those which refer to things under litigation if they
have been entered into by the defendant without the
knowledge and approval of the litigants or of
competent judicial authority;
Art. 1385. (2) Neither shall rescission take place
when the things which are the object of the contract
are legally in the possession of third persons who did
not act in bad faith.
8
YU TEK V. GONZALEZ: This court has consistently held that
there is a perfected sale with regard to the "thing" whenever the
article of sale has been physically segregated from all other
articles. In the case at bar the undertaking of the defendant was
to sell to the plaintiff 600 piculs of sugar of the first and second
classes. There was no delivery under the contract. Now, if called
upon to designate the article sold, it is clear that the defendant
could only say that it was "sugar." He could only use this generic
name for the thing sold. We conclude that the contract in the case
at bar was merely an executory agreement; a promise of sale and
not a sale.
7
1) Sales of things under litigation entered into by
defendants without the knowledge & approval
of the litigants or of the court are rescissible.
2) However, rescission cannot take place when
the things are legally in the possession of 3 rd
persons who did not act in bad faith (&
without knowledge of defect)
3) In an action affecting the title or the right of
possession of real property, the plaintiff may
record in the office of the Registrar of Deeds
of the Province which the property is situated,
a notice of the pendency of the action.
4) From the moment of the filing of such notice,
3rd persons are charged with notice of the
litigation & take the property subject to the
outcome of the litigation. (Baviera and De
Leon)
e. things subject to a resolutory condition
Art. 1465. Things subject to a resolutory
condition may be the object of the contract of
sale. (n)
5. quantity of subject matter9
Art. 1349. The object of every contract must be
determinate as to its kind. The fact that the
quantity is not determinate shall not be an
obstacle to the existence of the contract,
provided it is possible to determine the same,
without the need of a new contract between the
parties. (1273)
IV. OBLIGATION OF THE SELLER TO
TRANSFER OWNERSHIP
A. Sale by a person not the owner
Art. 1636. In the preceding articles in this Title
governing the sale of goods, unless the context
or subject matter otherwise requires:
(1) "Document of title to goods" includes any bill
of lading, dock warrant, "quedan," or warehouse
receipt or order for the delivery of goods, or any
other document used in the ordinary course of
business in the sale or transfer of goods, as
proof of the possession or control of the goods,
9
SCHUBACK V. CA: Although the quantity to be ordered
was made determinate only on December 29, 1981,
quantity is immaterial in the perfection of a sales contract.
What is of importance is the meeting of the minds as to the
object and cause, which from the facts disclosed, show that
as of December 24, 1981, these essential elements had
already concurred.
or authorizing or purporting to authorize the
possessor of the document to transfer or receive,
either by endorsement or by delivery, goods
represented by such document.
"Goods" includes all chattels personal but not things
in action or money of legal tender in the Philippines.
The term includes growing fruits or crops.
"Order" relating to documents of title means an order
by endorsement on the documents.
"Quality of goods" includes their state or condition.
"Specific goods" means goods identified and agreed
upon at the time a contract of sale is made.
An antecedent or pre-existing claim, whether for
money or not, constitutes "value" where goods or
documents of title are taken either in satisfaction
thereof or as security therefor.
(2) A person is insolvent within the meaning of this
Title who either has ceased to pay his debts in the
ordinary course of business or cannot pay his debts
as they become due, whether insolvency proceedings
have been commenced or not.
(3) Goods are in a "deliverable state" within the
meaning of this Title when they are in such a state
that the buyer would, under the contract, be bound to
take delivery of them. (n)
Art. 559. The possession of movable property
acquired in good faith is equivalent to a title.
Nevertheless, one who has lost any movable or has
been unlawfully deprived thereof may recover it from
the person in possession of the same.
If the possessor of a movable lost or which the owner
has been unlawfully deprived, has acquired it in good
faith at a public sale, the owner cannot obtain its
return without reimbursing the price paid therefor.
(464a)
Art. 1505. Subject to the provisions of this Title,
where goods are sold by a person who is not the
owner thereof, and who does not sell them under
authority or with the consent of the owner, the buyer
acquires no better title to the goods than the seller
had, unless the owner of the goods is by his conduct
precluded from denying the seller's authority to sell.
Nothing in this Title, however, shall affect:
(1) The provisions of any factors' act, recording laws,
or any other provision of law enabling the apparent
owner of goods to dispose of them as if he were the
true owner thereof;
8
(2) The validity of any contract of sale under
statutory power of sale or under the order of a
court of competent jurisdiction;
(3) Purchases made in a merchant's store, or in
fairs, or markets, in accordance with the Code of
Commerce and special laws. (n)
Art. 1431. Through estoppel an admission or
representation is rendered conclusive upon the
person making it, and cannot be denied or
disproved as against the person relying thereon.
General Rule:
No one can transfer a better title than what he
has over the property sold. Only the owner of
the goods or one authorized by the owner to sell
can transfer title thereto to the buyer10.
Exceptions:
1. Estoppel (Art 1505)
Even if the person who sold the thing was not
the owner, if he should subsequently acquire
ownership thereof, his conveyance is deemed
valid & his title passes by operation of law to the
buyer11
If the owner of the goods is precluded by his
conduct from denying the seller’s authority to
sell, buyer may acquire a better title, although
the seller had neither the title nor the authority
to sell the goods.
2. Recording Laws; Torrens System – PD
1529
10
AZNAR V. YAPDIANGCO: In the case on hand, the car
in question was never delivered to the vendee by the
vendor as to complete or consummate the transfer of
ownership by virtue of the contract. It should be recalled
that while there was indeed a contract of sale between
Vicente Marella and Teodoro Santos, the former, as
vendee, took possession of the subject matter thereof by
stealing the same while it was in the custody of the latter's
son. Art. 712 above contemplates that the act be coupled
with the intent of delivering the thing.
11
SIY CONG BIEN V. HSBC: Since plaintiff had voluntarily
clothed the person who negotiated the quedans with all the
attributes of ownership and upon which the bank relied, it is
estopped to deny that the bank had a valid title to the
quedans;
JALBUENZA V. LIZARRAGA: Bigelow on Estoppel says:
". . . it is now a well established principle that where the true
owner of property, for however short a time, holds out
another, or, with knowledge of his own right, allows another
to appear, as the owner of or as having full power of
disposition over the property, the same being in the latter's
actual possession, and innocent third parties are thus led
into dealing with some [such] apparent owner, they will be
protected." (as cited in Hernaez vs. Hernaez)
None in the Phils. But NCC relies on the general
principle of law that one deals with an agent at his
own risk.
3. Court orders
The general principle that the vendor must be the
owner or the one authorized by the owner to sell the
goods in order to pass title over them to the buyer
does not apply when the sale takes place by virtue of
a power granted by law or by a court. Thus a sale by
the sheriff, or by other execution or subject of
foreclosure, is valid even if the owner did not
authorize or consent to the sale (Baviera).
Validity of sale under statutory power (legal sale –
e.g. law authorizing sale of patrimonial property to a
specific person at auction) or of court to sell (judicial
sale e.g. writ of execution levying upon the debtor’s
property at auction)
4. Purchase at a merchant’s store, market or
fair12
Purpose of the exception: (1) to protect innocent
purchasers who buy at merchant stores, market or
fair (2) To facilitate commercial sales in movables (3)
To give stability to business transactions
B. Sale by one having a voidable title
Art. 1506. Where the seller of goods has a voidable
title thereto, but his title has not been avoided at the
time of the sale, the buyer acquires a good title to the
goods, provided he buys them in good faith, for
value, and without notice of the seller's defect of title.
(n)
Art. 559. The possession of movable property
acquired in good faith is equivalent to a title.
Nevertheless, one who has lost any movable or has
been unlawfully deprived thereof may recover it from
the person in possession of the same.
If the possessor of a movable lost or which the owner
has been unlawfully deprived, has acquired it in good
faith at a public sale, the owner cannot obtain its
return without reimbursing the price paid therefor.
(464a)
12
SUN BROTHERS V. VELASCO: The policy of the law has
always been that, where the rights and interests of a vendor
come into clash with that of an innocent buyer for value, the latter
must be protected. The rule
appears to be a wise and necessary rule not only to facilitate
commercial sales on movables but to give stabilityto business
transactions.
MASICLAT V. CENTENO: The transaction between Ramon
Masiclat and his unknown seller took place on Miranda Street
and not in the public market and this is . . . conclusive. Hence,
Art. 1505 CC, invoked by the petitioners, has no application.
9
1. Seller can transfer a valid title to an innocent
purchaser for value, unless title was annulled.
2. So long as the goods are still in the
possession of the 1st buyer, they may still be
recovered by the vendor in an action for
annulment.
3. But once it has been transferred to an
innocent purchaser for value before the
contract is annulled, the latter acquired a
valid title13.
4. An antecedent or pre-existing claim, WON for
money constitutes “value” where goods or
document of titloe are taken in satisfaction
thereof or as security therefore
V. PRICE14
Art 1469. Should such person or persons be
unable or unwilling to fix it, the contract shall be
inefficacious, unless the parties subsequently
agree upon the price.
If the third person or persons acted in bad faith or
by mistake, the courts may fix the price.
Where such third person or persons are
prevented from fixing the price or terms by fault
of the seller or the buyer, the party not in fault
may have such remedies against the party in fault
as are allowed the seller or the buyer, as the case
may be. (1447a)
Art. 1470. Gross inadequacy of price does not
affect a contract of sale, except as it may indicate
a defect in the consent, or that the parties really
intended a donation or some other act or
contract. (n)
13
DE GARCIA V. CA: Respondent Angelina D. Guevara,
having been unlawfully deprived of the diamond ring in
question, was entitled to recover it from petitioner Consuelo
S. de Garcia who was found in possession of the same.
The only exception the law allows is when there is
acquisition in good faith of the possessor at a public sale, in
which case the owner cannot obtain its return without
reimbursing the price. (Cruz v. Pahati; Aznar v.
Yapdiangco);
REBULLIDA V. BUSTAMANTE: It appearing that the ring
in question was lost or was stolen from the place where the
lawful owner deposited it, the case squarely falls under Art.
464 of the Civil Code, which provides that the “one who has
lost personal property or who has been unlawfully deprived
of it may recover it from whoever is possessing it.” The
mere fact that the possessor, even in good faith, ad
purchased the ring from another person would not bar the
right of the owner to recover it once the identity and the
owner’s deprivation are established.
14
INCHAUSTI V. CROMWELL: Price is the sum stipulated
as the equivalent of the thing sold and also every incident
taken into consideration for the fixing of the price put to the
debit of the buyer and agreed to by him
 Art. 1471. If the price is simulated, the sale is void,
but the act may be shown to have been in reality a
donation, or some other act or contract. (n)
Art. 1472. The price of securities, grain, liquids, and
other things shall also be considered certain, when the
price fixed is that which the thing sold would have on
a definite day, or in a particular exchange or market,
or when an amount is fixed above or below the price
on such day, or in such exchange or market, provided
said amount be certain. (1448)
Art. 1473. The fixing of the price can never be left to
the discretion of one of the contracting parties.
However, if the price fixed by one of the parties is
accepted by the other, the sale is perfected. (1449a)
Art. 1474. Where the price cannot be determined in
accordance with the preceding articles, or in any other
manner, the contract is inefficacious. However, if the
thing or any part thereof has been delivered to and
appropriated by the buyer he must pay a reasonable
price therefor. What is a reasonable price is a question
of fact dependent on the circumstances of each
particular case. (n)
1. A contract of sale is null & void and produces no
effect whatsoever if the same is without cause or
consideration or that the price which appears to
have been paid has in fact never been paid.
2. The existence of a contract is permanent &
incurable.
3. The statement of a false cause in contracts shall
render them void if it should not be proven that
were founded upon another cause which is true &
lawful (1471, 1353)
4. If the price is simulated, the sale is void but the act
may be shown to have been in reality a donation, or
some other act or contract (1471)
A. Requisites of a valid price
1. must be real
Art. 1471. If the price is simulated, the sale is void,
but the act may be shown to have been in reality a
donation, or some other act or contract. (n)
Art. 1386. Rescission referred to in Nos. 1 and 2 of
Article 1381 shall not take place with respect to
contracts approved by the courts. (1296a)
Art. 1353. The statement of a false cause in
contracts shall render them void, if it should not be
proved that they were founded upon another cause
which is true and lawful. (1276)
Art. 1354. Although the cause is not stated in the
contract, it is presumed that it exists and is lawful,
unless the debtor proves the contrary. (1277)
10
Art. 1470. Gross inadequacy of price does not
affect a contract of sale, except as it may
indicate a defect in the consent, or that the
parties really intended a donation or some other
act or contract. (n)
Art. 1381. The following contracts are
rescissible:
(1) Those which are entered into by guardians
whenever the wards whom they represent suffer
lesion by more than one-fourth of the value of
the things which are the object thereof;
(2) Those agreed upon in representation of
absentees, if the latter suffer the lesion stated in
the preceding number;
(3) Those undertaken in fraud of creditors when
the latter cannot in any other manner collect the
claims due them;
(4) Those which refer to things under litigation if
they have been entered into by the defendant
without the knowledge and approval of the
litigants or of competent judicial authority;
(5) All other contracts specially declared by law
to be subject to rescission. (1291a)
1. False Price – there is a true price but it was
not written down or stipulated in the contract.
There was a consideration although it was not
found in the contract (Real consideration not
stated)
2. Simulated Price15 – There was no price paid.
The parties merely said there was a price and
“created” their own price (no consideration
but stated)
2. must be in money or its equivalent
Art. 1458. By the contract of sale one of the
contracting parties obligates himself to transfer
15
MAPALO V. MAPALO: a contract of purchase and sale
is null and void and produces no effect whatsoever where
the same is without cause or consideration in that the
purchase price which appears thereon as paid has in fact
never been paid by the purchaser to the vendor;
BAGNAS V. CA: upon the consideration alone that the
apparent gross, not to say enormous, disproportion
between the stipulated price (in each deed) of P1.00 plus
unspecified and unquantilled services and the undisputably
valuable real estate allegedly sold — worth at least
P10,500.00 going only by assessments for tax purposes
which, it is well-known, are noteriously low indicators of
actual value — plainly and unquestionably demonstrates
that they state a false and fictitious consideration, and no
other true and lawful cause having been shown, the Court
finds both said deeds, insofar as they purport to be sales,
not merely voidable, but void ab initio.
the ownership and to deliver a determinate thing, and
the other to pay therefor a price certain in money or
its equivalent.
A contract of sale may be absolute or conditional.
(1445a)
Art. 1468. If the consideration of the contract
consists partly in money, and partly in another thing,
the transaction shall be characterized by the manifest
intention of the parties. If such intention does not
clearly appear, it shall be considered a barter if the
value of the thing given as a part of the consideration
exceeds the amount of the money or its equivalent;
otherwise, it is a sale. (1446a)
1. The price should be in money or its
equivalent16 (e.g. letters of credit & other
negotiable instruments). Otherwise, the
transaction might be barter or an innominate
contract.
2.Property given to the creditor in satisfaction of a
debt in money with the PRICE PAID IN ADVANCE is
a sale.
DATION IN PAYMENT SALE
Presupposes a prior Obligations are
existing credit & created from the
extinguishes the perfection of the
obligation contract
3. Fixing of the price is more or less arrived at with
ample
contractual freedom than the value of the thing
given in
dation.
3. Must be certain or ascertainable at time of
perfection17
16
REPUBLIC V. PHIL. RESOURCES: Although Art. 1458 of the
new Civil Code provides that price . . . is always paid in terms of
money and the supposed payment being in kind it is no payment
at all," yet the same article provides that the purchaser may pay
"a price certain in money or its equivalent" which means that
payment of the price need not be money.
17
TOYOTA SHAW V. CA: Article 1458 of the Civil Code defines
a contract of sale and Art. 1475 specifically provides when it is
deemed perfected. The document (in Exhibit “A”, see case),
executed and signed by the petitioner's sales representative, is
not a contract of sale. No obligation on the part of Toyota to
transfer ownership of a determinate thing to Sosa and no
correlative obligation on the part of the latter to pay therefor a
price certain appears therein. The provision on the downpayment
of P100,000 made no specific reference to a sale of a vehicle. If it
was intended for a contract of sale, it could only refer to a sale on
installment basis, as the VSP executed the following day
confirmed. But nothing was mentioned about the full purchase
price and the manner the installments were to be paid. This Court
had already ruled that a definite agreement on the manner of
payment of the price is an essential element in the formation of a
binding and enforceable contract of sale. This is so because the
agreement as to the manner of payment goes into the price such
that a disagreement on the manner of payment is tantamount to a
11
Art. 1474. Where the price cannot be
determined in accordance with the preceding
articles, or in any other manner, the contract is
inefficacious. However, if the thing or any part
thereof has been delivered to and appropriated
by the buyer he must pay a reasonable price
therefor. What is a reasonable price is a question
of fact dependent on the circumstances of each
particular case. (n)
Art. 1469. In order that the price may be
considered certain, it shall be sufficient that it be
so with reference to another thing certain, or
that the determination thereof be left to the
judgment of a special person or persons.
Should such person or persons be unable or
unwilling to fix it, the contract shall be
inefficacious, unless the parties subsequently
agree upon the price.
If the third person or persons acted in bad faith
or by mistake, the courts may fix the price.
Where such third person or persons are
prevented from fixing the price or terms by fault
of the seller or the buyer, the party not in fault
may have such remedies against the party in
fault as are allowed the seller or the buyer, as
the case may be. (1447a)
Art. 1470. Gross inadequacy of price does not
affect a contract of sale, except as it may
indicate a defect in the consent, or that the
parties really intended a donation or some other
act or contract. (n)
Art. 1471. If the price is simulated, the sale is
void, but the act may be shown to have been in
reality a donation, or some other act or contract.
(n)
Art. 1472. The price of securities, grain, liquids,
and other things shall also be considered certain,
when the price fixed is that which the thing sold
would have on a definite day, or in a particular
exchange or market, or when an amount is fixed
above or below the price on such day, or in such
exchange or market, provided said amount be
certain. (1448)
Art. 1473. The fixing of the price can never be
left to the discretion of one of the contracting
parties. However, if the price fixed by one of the
parties is accepted by the other, the sale is
perfected. (1449a)
failure to agree on the price. Definiteness as to the price is
an essential element of a binding agreement to sell
personal property.
4. Manner of Payment must be agreed upon18
5. How price is determined
Art. 1469. In order that the price may be considered
certain, it shall be sufficient that it be so with
reference to another thing certain, or that the
determination thereof be left to the judgment of a
special person or persons.
Should such person or persons be unable or unwilling
to fix it, the contract shall be inefficacious, unless the
parties subsequently agree upon the price.
If the third person or persons acted in bad faith or by
mistake, the courts may fix the price.
Where such third person or persons are prevented
from fixing the price or terms by fault of the seller or
the buyer, the party not in fault may have such
remedies against the party in fault as are allowed the
seller or the buyer, as the case may be. (1447a)
a) by a third person19
b) by the courts
Art. 1469. (3) If the third person or persons acted in
bad faith or by mistake, the courts may fix the price.
c) by reference to definite day, particular exchange
market20
18
VELASCO V. CA: It is not difficult to glean from the
aforequoted averments that the petitioners themselves admit that
they and the respondent still had to meet and agree on how and
when the down-payment and the installment payments were to
be paid. Such being the situation, it cannot, therefore, be said
that a definite and firm sales agreement between the parties had
been perfected over the lot in question. Indeed, this Court has
already ruled before that a definite agreement on the manner of
payment of the purchase price is an essential element in the
formation of a binding and enforceable contract of sale. The fact,
therefore, that the petitioners delivered to the respondent the sum
of P10,000 as part of the down-payment that they had to pay
cannot be considered as sufficient proof of the perfection of any
purchase and sale agreement between the parties under Art.
1482 of the new Civil Code;
NAVARRO V. SUGAR’S PRODUCERS: When the manner of
payment of purchase price is discussed after acceptance,, then
such acceptance did not produce a binding and enforceable
contract of sale. There was no complete meeting of the minds
19
BARRETTO V. SANTA MARINA: It is necessary to a
perfected sale that the parties agree upon the thing sold and that
the price be fixed, it being sufficient for the latter purpose that the
price be left to the judgment of a specified person.
20
Price is certain at the point of perfection by reference to
another thing certain, such as to certain invoices then in
existence and clearly identified by the agreement
(MCCOLLOUGH V. AENLLE) or known factors or stipulated
formula (MITSUI V. MANILA)
12
Art. 1472. The price of securities, grain, liquids,
and other things shall also be considered certain,
when the price fixed is that which the thing sold
would have on a definite day, or in a particular
exchange or market, or when an amount is fixed
above or below the price on such day, or in such
exchange or market, provided said amount be
certain. (1448)
d) by reference to another thing certain
e) never by one party
Art. 1473. The fixing of the price can never be
left to the discretion of one of the contracting
parties. However, if the price fixed by one of the
parties is accepted by the other, the sale is
perfected. (1449a)
6. Inadequacy of price21
Art. 1355. Except in cases specified by law,
lesion or inadequacy of cause shall not invalidate
a contract, unless there has been fraud, mistake
or undue influence. (n)
Art. 1470. Gross inadequacy of price does not
affect a contract of sale, except as it may
indicate a defect in the consent, or that the
parties really intended a donation or some other
act or contract. (n)
Art. 1381. The following contracts are
rescissible:
(1) Those which are entered into by guardians
whenever the wards whom they represent suffer
lesion by more than one-fourth of the value of
the things which are the object thereof;
(2) Those agreed upon in representation of
absentees, if the latter suffer the lesion stated in
the preceding number;
(3) Those undertaken in fraud of creditors when
the latter cannot in any other manner collect the
claims due them;
(4) Those which refer to things under litigation if
they have been entered into by the defendant
without the knowledge and approval of the
litigants or of competent judicial authority;
(5) All other contracts specially declared by law
to be subject to rescission. (1291a)
Art. 1602. The contract shall be presumed to be
an equitable mortgage, in any of the following
cases:
21
ERENETE V. BEZORE: That the consideration in the
sale was "cheap" is not a ground for the infirmity of the sale.
Inadequacy of cause in a contract does not of itself
invalidate the contract.

1) When the price of a sale with right to repurchase is
unusually inadequate;
(2) When the vendor remains in possession as lessee
or otherwise;
(3) When upon or after the expiration of the right to
repurchase another instrument extending the period
of redemption or granting a new period is executed;
(4) When the purchaser retains for himself a part of
the purchase price;
(5) When the vendor binds himself to pay the taxes
on the thing sold;
(6) In any other case where it may be fairly inferred
that the real intention of the parties is that the
transaction shall secure the payment of a debt or the
performance of any other obligation.
In any of the foregoing cases, any money, fruits, or
other benefit to be received by the vendee as rent or
otherwise shall be considered as interest which shall
be subject to the usury laws. (n)
VI. FORMATION OF THE CONTRACT OF SALE
PREPARATORY STAGE
1. offer
Art. 1475. The contract of sale is perfected at the
moment there is a meeting of minds upon the thing
which is the object of the contract and upon the price.
From that moment, the parties may reciprocally
demand performance, subject to the provisions of the
law governing the form of contracts. (1450a)
a) form of offer22
The offer must be certain. Business
advertisements/advertisements for bidders are mere
invitations to make an offer, unless otherwise stated.
Art. 1319. Consent is manifested by the meeting of
the offer and the acceptance upon the thing and the
cause which are to constitute the contract. The offer
must be certain and the acceptance absolute. A
qualified acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does not bind
the offerer except from the time it came to his
22
VILLONCO V. BORMAHECO: It is true that an acceptance
may contain a request for certain changes in the terms of the
offer and yet be a binding acceptance. 'So long as it is clear that
the meaning of the acceptance is positively and unequivocally to
accept-the offer, whether such request is granted or not, a
contract is formed.'” Thus, it was held that the vendor's change in
a phrase of the offer to purchase, which change does not
essentially change the terms of the offer, does not amount to a
rejection of the offer and the tender of a counter-offer
13
knowledge. The contract, in such a case, is
presumed to have been entered into in the place
where the offer was made. (1262a)
Art. 1325. Unless it appears otherwise, business
advertisements of things for sale are not definite
offers, but mere invitations to make an offer. (n)
Art. 1326. Advertisements for bidders are
simply invitations to make proposals, and the
advertiser is not bound to accept the highest or
lowest bidder, unless the contrary appears. (n)
b) form of acceptance
1. The acceptance must be absolute23.
2.The acceptance must be plain and
unconditional.
3.To bind the offeror, the offeree must comply
with the conditions of the offer. Where the
acceptance was not in accordance with the
terms and conditions of the offer, the offer
lapsed even though the offeree later on was
willing to accept the terms and conditions of
the offer.
c) vices vitiating consent
Art. 1330. A contract where consent is given
through mistake, violence, intimidation, undue
influence, or fraud is voidable. (1265a)
Art. 1331. In order that mistake may invalidate
consent, it should refer to the substance of the
thing which is the object of the contract, or to
those conditions which have principally moved
one or both parties to enter into the contract.
Mistake as to the identity or qualifications of one
of the parties will vitiate consent only when such
identity or qualifications have been the principal
cause of the contract.
A simple mistake of account shall give rise to its
correction. (1266a)
Art. 1338. There is fraud when, through
insidious words or machinations of one of the
contracting parties, the other is induced to enter
into a contract which, without them, he would
not have agreed to. (1269)
2. option contract24
23
ZAYCO V SERRA: In an offer to sell, the acceptance
must be plain and unconditional to have the effect of
converting the offer to sell to a perfect contract. It will not be
so if it involves any new proposal, for in that case it would
not mean conformity with the offer, which is what gives rise
to the generation of the contract.
Art. 1479. A promise to buy and sell a determinate
thing for a price certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a
determinate thing for a price certain is binding upon
the promissor if the promise is supported by a
consideration distinct from the price. (1451a)
Art. 1324. When the offerer has allowed the offeree
a certain period to accept, the offer may be
withdrawn at any time before acceptance by
communicating such withdrawal, except when the
option is founded upon a consideration, as something
paid or promised. (n)
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
determinate object for a price certain,
including the manner of payment thereof
3. PRESTATION: a consideration25 separate and
distinct from the purchase price for the
option given
It must be in writing. [NOTE that the
prescription of written contracts is 4 years.]
3. right of first refusal 26
24
DE LA CAVADA V DIAZ: An option contract is a privilege
existing in one person, for which he had paid a consideration and
which gives him the right to buy certain merchandise or certain
specified property, from another person, if he chooses, at any
time within the agreed period at a fixed price
LIMSON V CA: An option is not of itself a purchase, but merely
secures the privilege to buy. It is not a sale of property, but a sale
of the right to purchase. Its distinguishing characteristic is that it
imposes no binding obligation on the person holding the option,
aside from the consideration for the offer. Although the
consideration of P20,000 was referred to as earnest money, such
was not an earnest money. Rather, it was an option money.
25
SORIANO V BAUTISTA: An option to buy attached to a real
estate mortgage is a valid stipulation, and the mortgagor’s
promise to sell is supported by the same consideration as that of
the mortgage itself, which is distinct and from that which would
support the sale, an additional amount having been agreed upon
to make up the entire price of P3,900 should the option be
exercised. (NOTE: The significance of this ruling is that it shows
the wide range of “consideration” that can validly support an
option contract, e.g., the real mortgage itself);
SANCHEZ V RIGOS: (NOTE: The significance of this ruling is
that it shows that the only importance of a consideration for an
option is that the option cannot be withdrawn by the grantor
during the stipulated period.)
26
EQUATORIAL REALTY DEVELOPMENT, INC. V MAYFAIR
THEATER: In the present case, no fixed price is stated in the
contract of lease of the property in case of sale. Therefore, it
cannot be an option contract; it is more akin to a right of first
refusal, in which no separate consideration is required as it is
already included in the reciprocal obligations of the parties in the
contract of lease. Although it cannot be legally categorized as an
option, it is nevertheless a valid and binding stipulation between
14
4. bilateral promise to buy and sell (See
Article 1479 supra)
1. Both parties are bound by his promise,
although nothing has been paid or
delivered27.
2. An executory contract of sale the promise of
one is the consideration for the promise of
the other.
3. In a bilateral promise, it is necessary that
the thing be determinate and the price
already fixed.
4. It gives the right to demand fulfillment of the
contract but does not pass title or dominion
over the property.
PERFECTION STAGE28
1. when deviation allowed
The rule that “acceptance must be absolute” is
not really absolute because certain deviations
may be made in the acceptance. Even with such
deviations, the offer will still be converted into a
valid and binding contract.
2. sale by auction
Art. 1476. In the case of a sale by auction:
(1) Where goods are put up for sale by auction in
lots, each lot is the subject of a separate
contract of sale.
the parties.
PARAÑAQUE KINGS ENTERPRISES V CA: The basis of
the right of first refusal must be the current offer to sell of
the seller of offer to purchase of any prospective buyer.
Only after could the owner validly offer to sell the property
to a third person under the same terms as offered to the
grantee
27
DE LA CAVADA V DIAZ: A promise made by one party,
if in accordance with the form required by law, may be a
good consideration for a promise made by another. In this
case, the defendant promised to convey the land as soon
as they become registered. The plaintiff promised to pay
the defendant the price in accordance with the terms of
their contract. An option contract is a privilege existing in
one person for which he had paid a consideration, which
gives him the right to buy during the certain period. The
contract of option, being different from the contract, may be
entered into by the parties upon the consummation of the
option, its consideration is likewise entirely different.
28
FULE V CA: Contracts are perfected by mere consent.
From this moment, the parties are bound not only to
fulfillment of what has been expressly stipulated but also to
all consequences which, according to their nature, may be
in keeping with good faith, usage and law. Being
consensual, a contract of sale has the force of law and they
are expected to abide in good faith by their contractual
commitments.
(2) A sale by auction is perfected when the auctioneer
announces its perfection by the fall of the hammer, or
in other customary manner. Until such announcement
is made, any bidder may retract his bid; and the
auctioneer may withdraw the goods from the sale
unless the auction has been announced to be without
reserve.
(3) A right to bid may be reserved expressly by or on
behalf of the seller, unless otherwise provided by law
or by stipulation.
(4) Where notice has not been given that a sale by
auction is subject to a right to bid on behalf of the
seller, it shall not be lawful for the seller to bid
himself or to employ or induce any person to bid at
such sale on his behalf or for the auctioneer, to
employ or induce any person to bid at such sale on
behalf of the seller or knowingly to take any bid from
the seller or any person employed by him. Any sale
contravening this rule may be treated as fraudulent
by the buyer. (n)
1. Contract is perfected when the auctioneer
accepts the bid by the fall of the hammer or
gavel or in any other customary manner.
2. If auction is announced to be “without
reserve,” goods cannot be withdrawn from
the sale after the bid is made.
3. By taking part in the auction and offering
bidding, the buyer voluntarily submitted to
the terms and conditions of the auction sale
announced in the notice.
4. Puffing/by-bidding – means employed by
owner to increase the price of the bids;
illegal.
3. earnest money (cf. option money)
Art. 1482. Whenever earnest money is given in a
contract of sale, it shall be considered as part of the
price and as proof of the perfection of the contract.
(1454a)
Payment of earnest money – considered payment of
part of the price; proof of perfection of the contract;
may be given as a guarantee that the vendee would
not back out.
EARNEST MONEY OPTION MONEY
(LIMSON V. CA –
FOOTNOTE 24)
Part of the purchase Distinct consideration
price for an option contract
Given only when there Given when the sale is
is already a sale not yet perfected
When given, the When given, the would-
buyer is bound to pay be buyer is not bound
the balance to pay the balance; he
may even forfeit it
15
4. place of perfection (See Art. 1319 at page
11) – where the offer was made
FORMALITIES OF THE CONTRACT
1. General rule: form not important
Art. 1483. Subject to the provisions of the
Statute of Frauds and of any other applicable
statute, a contract of sale may be made in
writing, or by word of mouth, or partly in writing
and partly by word of mouth, or may be inferred
from the conduct of the parties. (n)
Art. 1358. The following must appear in a public
document:
(1) Acts and contracts which have for their
object the creation, transmission, modification or
extinguishment of real rights over immovable
property; sales of real property or of an interest
therein a governed by Articles 1403, No. 2, and
1405;
(2) The cession, repudiation or renunciation of
hereditary rights or of those of the conjugal
partnership of gains;
(3) The power to administer property, or any
other power which has for its object an act
appearing or which should appear in a public
document, or should prejudice a third person;
(4) The cession of actions or rights proceeding
from an act appearing in a public document.
2. Exceptions
a) Statute of Frauds
Art. 1403. The following contracts are
unenforceable, unless they are ratified:
(2) Those that do not comply with the Statute of
Frauds as set forth in this number. In the
following cases an agreement hereafter made
shall be unenforceable by action, unless the
same, or some note or memorandum, thereof,
be in writing, and subscribed by the party
charged, or by his agent; evidence, therefore, of
the agreement cannot be received without the
writing, or a secondary evidence of its contents:
(a) An agreement that by its terms is not to be
performed within a year from the making
thereof;
(d) An agreement for the sale of goods, chattels
or things in action, at a price not less than five
hundred pesos, unless the buyer accept and
receive part of such goods and chattels, or the
evidences, or some of them, of such things in action
or pay at the time some part of the purchase money;
but when a sale is made by auction and entry is made
by the auctioneer in his sales book, at the time of the
sale, of the amount and kind of property sold, terms
of sale, price, names of the purchasers and person on
whose account the sale is made, it is a sufficient
memorandum;
(e) An agreement of the leasing for a longer period
than one year, or for the sale of real property or of an
interest therein;
Art. 1405. Contracts infringing the Statute of Frauds,
referred to in No. 2 of Article 1403, are ratified by the
failure to object to the presentation of oral evidence
to prove the same, or by the acceptance of benefit
under them.
PURPOSE OF STATUTE: to prevent fraud and perjury
in the enforcement of obligations depending for their
evidence upon the unassisted memory of witnesses.
EXCEPTIONS TO STATUTE OF FRAUDS
a. When there is a note or memorandum
thereof in writing, and subscribed by the
party charged or his agent
b. When there has been partial consummation
c. When there has been a failure to object to
the presentation of evidence
d. Sales through electronic commerce
b) sale of realty through an agent
d) secondary evidence
1. Before secondary evidence may be introduced
of the terms of the sale, due execution and
subsequent loss of the original instrument must
be proved.
2. Due execution – may be proved by the
testimony of the person who executed it, the
person before whom its execution was
acknowledged, or any person who was present
and saw it executed and delivered, or whom,
after its execution and delivery, saw it and
recognized the signatures, or by a person to
whom the parties to the instrument had
previously confessed the execution thereof.
e) RA 8792 -- Electronic Commerce Act
(pertinent provisions provided infra)
Sec. 7. Legal Recognition of Electronic
documents- Electronic documents shall have the
legal effect, validity or enforceability as any
other document or legal writing, and-
(a) Where the law requires a document
to be in writing, that requirement is met
by an electronic document if the said
electronic document maintains its
integrity and reliability and can be
authenticated so as to be usable for
subsequent reference, in that–

Art. 1874. When a sale of a piece of land or any i. The electronic document has
interest therein is through an agent, the authority of remained complete and unaltered,
the latter shall be in writing; otherwise, the sale shall apart from the addition of any
be void. (n) endorsement and any authorized
change, or any change which arises
The agent’s authority to sell should be in writing; in the normal course of
otherwise, void29. communication, storage and
c) sale of large cattle display; and
ii. The electronic document is
Sec. 529, Revised Administrative Code. No reliable in the light of the purpose
transfer of large cattle shall be valid unless the same for which it was generated and in
is registered and a certificate of transfer obtained as the light of all relevant
herein provided; but large cattle under two years of circumstances.
age may be registered and branded gratis for the
purpose of effecting a valid transfer are made at the (b) Paragraph (a) applies whether the
same time. requirement therein is in the form of an
obligation or whether the law simply
Registration is made with the municipal treasurer. provides consequences for the document
not being presented or retained in its
29 original from.
CITY LITE REALTY V CA: There was no perfected contract
between F.P. Holdings and City Lite. Art. 1874 provides that (c) Where the law requires that a
when the sale of the piece of land or any interest therein is document be presented or retained in its
through an agent, the authority of the agent shall be in writing; original form, that requirement is met by
otherwise, the sale shall be void. The absence of the authority to
an electronic document if-
sell can be determined from the written memorandum issued by
F.P. Holding’s president, requesting Metro Drug’s assistance in
finding buyers. Final evaluation, appraisal and acceptance can i. There exists a reliable assurance
only be made by F.P. Holdings. as to the integrity of the document

16
 from the time when it was first generated
in its final from; and
ii. That document is capable of being
displayed to the person to whom it is to
be presented: Provided, That no
provision of this Act shall apply to vary
any and all requirements of existing laws
on formalities required in the execution
of documents for their validity.
For evidentiary purposes, an electronic document
shall be the functional equivalent of a written
document under existing laws.
This Act does not modify any statutory any statutory
rule relating to admissibility of electronic data
massages or electronic documents, except the rules
relating to authentication and best evidence.
Sec. 8. Legal Recognition of Electronic Signatures.-
An electronic signature on the electronic document
shall be equivalent to the signature of a person on a
written document if the signature is an electronic
signature and proved by showing that a prescribed
procedure, not alterable by the parties interested in
the electronic document, existed under which-
(a) A method is used to identify the party
sought to be bound and to indicate said
party's access to the electronic document
necessary for his consent or approval through
the electronic signature;
(b) Said method is reliable and appropriate
for the purpose for which the electronic
document was generated or communicated,
in the light of all circumstances, including any
relevant agreement;
(c) It is necessary for the party sought to be
bound, in or order to proceed further with the
transaction to have executed or provided the
electronic signature; and
(d) The other party is authorized and enable
to verify the electronic signature and to make
the decision to proceed with the transaction
authenticated by the same.
Sec. 11. Authentication of Electronic Data Messages
and Electronic Documents.- Until the Supreme Court
by appropriate rules shall have so provided, electronic
documents, electronic data messages and electronic
signatures, shall be authenticated by demonstrating,
substantiating and validating a claimed identity of a
user, device, or another entity is an information or
communication system, among other ways, as
follows;
(a) The electronic signatures shall be
authenticated by proof that a letter,
character, number or other symbol in
electronic form representing the persons
named in and attached to or logically
17
associated with an electronic data
message, electronic document, or that
the appropriate methodology or security
procedures, when applicable, were
employed or adopted by such person,
with the intention of authenticating or
approving in an electronic data message
or electronic document;
(b) The electronic data message or
electronic document shall be
authenticated by proof that an
appropriate security procedure, when
applicable was adopted and employed
for the purpose of verifying the
originator of an electronic data message
or electronic document, or detecting
error or alteration in the communication,
content or storage of an electronic
document or electronic data message
from a specific point, which, using
algorithms or codes, identifying words or
numbers, encryptions, answers back or
acknowledgement procedures, or similar
security devices.
The Supreme Court may adopt such other
authentication procedures, including the use of
electronic notarization systems as necessary and
advisable, as well as the certificate of
authentication on printed or hard copies of the
electronic documents or electronic data
messages by electronic notaries, service
providers and other duly recognized or appointed
certification authorities.
The person seeking to introduce an electronic
data message or electronic document in any
legal proceeding has the burden of proving its
authenticity by evidence capable of supporting a
finding that the electronic data message or
electronic document is what the person claims it
on be.
In the absence of evidence to the contrary, the
integrity of the information and communication
system in which an electronic data message or
electronic document is recorded or stored may
be established in any legal proceeding –
a.) By evidence that at all material times
the information and communication
system or other similar device was
operating in a manner that did not affect
the integrity of the electronic data
message or electronic document, and
there are no other reasonable grounds
to doubt the integrity of the information
and communication system,
b.) By showing that the electronic data
message or electronic document was
recorded or stored by a party to the
 proceedings who is adverse in interest to the
party using it; or
c.) By showing that the electronic data message or
electronic document was recorded or stored in the
usual and ordinary course of business by a person
who is not a party to the proceedings and who did not
act under the control of the party using the record.
VII. TRANSFER OF OWNERSHIP
A. Manner of transfer
Art. 1477. The ownership of the thing sold shall be
transferred to the vendee upon the actual or
constructive delivery thereof. (n)
Art. 1496. The ownership of the thing sold is
acquired by the vendee from the moment it is
delivered to him in any of the ways specified in
Articles 1497 to 1501, or in any other manner
signifying an agreement that the possession is
transferred from the vendor to the vendee. (n)
1. General rule
Ownership of thing shall transfer to the vendee upon
the ACTUAL or CONSTRUCTIVE DELIVERY of the thing
sold30
OR: any manner signifying an agreement that
possession is transferred from vendor to vendee (Art.
1496)
a. Contract of sale constitutes a RIGHT to
TRANSFER or ACQUISITION of OWNERSHIP
b. Delivery is the method of accomplishing this
right
2. Exceptions
a) sale on approval, trial, or satisfaction
Art. 1502. When goods are delivered to the buyer
"on sale or return" to give the buyer an option to
return the goods instead of paying the price, the
ownership passes to the buyer of delivery, but he
may revest the ownership in the seller by returning or
tendering the goods within the time fixed in the
contract, or, if no time has been fixed, within a
reasonable time. (n)
When goods are delivered to the buyer on approval or
on trial or on satisfaction, or other similar terms, the
ownership therein passes to the buyer:
30
KUENZIE V. MACKE & CHANDLER: the ownership of
personal property can not be transferred to the prejudice of third
persons except by delivery of the property itself; and that a sale
without delivery gives the would-be purchaser no rights in said
property except those of a creditor
18
(1) When he signifies his approval or acceptance
to the seller or does any other act adopting the
transaction;
(2) If he does not signify his approval or
acceptance to the seller, but retains the goods
without giving notice of rejection, then if a time
has been fixed for the return of the goods, on
the expiration of such time, and, if no time has
been fixed, on the expiration of a reasonable
time. What is a reasonable time is a question of
fact.
a.a) sale on return
i. Ownership passes on delivery but buyer
may revest such ownership to the seller
by returning or tendering goods within
the time fixed or within a reasonable
time
ii. As opposed to a Conditional Sale (where
title passes upon full payment or
satisfaction of condition passing of legal
title), in sale on return, title passes on
delivery
a.b) sale on approval
i. Title passes – in case of goods sent to
the buyer on the hope that the latter will
find them satisfactory and order that
type of goods – when the goods are
used or when they were retained beyond
a reasonable time
a.c) executory sales
i. Ownership of the thing shall not pass
until the price is fully paid
ii. Seller may reserve the right of
possession or ownership in the goods
until certain conditions have been
fulfilled
b) express reservation
Art. 1478. The parties may stipulate that
ownership in the thing shall not pass to the
purchaser until he has fully paid the price. (n)
c) implied reservation
Art. 1503. When there is a contract of sale of
specific goods, the seller may, by the terms of
the contract, reserve the right of possession or
ownership in the goods until certain conditions
have been fulfilled. The right of possession or
ownership may be thus reserved notwithstanding
the delivery of the goods to the buyer or to a
carrier or other bailee for the purpose of
transmission to the buyer.

3. Kinds of delivery
a) real delivery
Art. 1497. The thing sold shall be understood as
delivered, when it is placed in the control and
possession of the vendee. (1462a)
“Delivered” – when placed in the control and
possession of the vendee; conveyance of ownership
without prejudice to the right of vendor to claim
payment of the price31
b) constructive delivery
b.a) symbolic
Art. 1498. When the sale is made through a public
instrument, the execution thereof shall be equivalent
to the delivery of the thing which is the object of the
contract, if from the deed the contrary does not
appear or cannot clearly be inferred.
With regard to movable property, its delivery may
also be made by the delivery of the keys of the place
or depository where it is stored or kept. (1463a)
i) delivery by public instrument32
 When sale is made through a public
instrument, the EXECUTION thereof shall be
equivalent to delivery IF from the deed the
contrary does not appear
o operates as formal/symbolic delivery
31
BEAN V. CADWALLER: Actual manual delivery of an article
sold is not essential to the passing of the title thereto (art 1450,
Civil Code) unless made so by the terms of the contract or by an
understanding of the parties. The parties to the contract may
agree when and on what conditions the property in the subject of
the contract was passed to the prospective owner
32
FLORENDO V. FOZ: It is the material delivery of the property
sold which the defendant must make in compliance with the
contract, inasmuch as the formal delivery de jure was made,
according to the provisions of article 1462, 2nd paragraph, of the
same code: When the sale should be made by means of a public
instrument, the execution thereof shall be equivalent to the
delivery of the thing which is the object of the contract, if in said
instrument the contrary does not appear or may be clearly
inferred. As the contrary does not appear nor is to be inferred
from the public instrument executed by the defendant, its
execution was really a formal or symbolical delivery of the
property sold and authorized the plaintiff to use the tile of
ownership as proof that he was thenceforth the owner of the
property;
MASALLO V. CESAR: As Matea Crispino admits, however, that
she did not have possession of the land when she executed and
delivered her deed to plaintiff, the mere execution and delivery of
the deed did not constitute a delivery of possession
SPOUSES VELARDE V. CA: The general rule, therefore, is that
the execution of public instrument has the same legal effects as
actual or physical delivery, i.e., it transfers ownership of the
subject matter to the buyer, and constitutes valid compliance by
the seller of his obligations under the contract of sale.
19
o authorizes buyer to use such
document as proof of ownership
 Symbolic delivery may produce the
effect of tradition if vendor have had
such control over the thing sold that at
the moment of the sale, its material
delivery could have been made
 GENERAL RULE: he who purchases
through a public instrument should be
deemed a “possessor in fact” and this
presumption should give way before
proof to the contrary
 A person must be in ACTUAL
POSSESSION to be able to transfer
CONSTRUCTIVE POSSESSION through
public instrument
ii) Traditio Longa Manu
Art. 1499. The delivery of movable property
may likewise be made by the mere consent or
agreement of the contracting parties, if the thing
sold cannot be transferred to the possession of
the vendee at the time of the sale, or if the latter
already had it in his possession for any other
reason. (1463a)
Traditio Longa Manu – delivery takes place when
the thing is placed in the sight of the purchaser
so that he can take possession of it at pleasure
iii) Traditio brevi manu
Traditio Brevi Manu33 – delivery of movable
property takes place when the vendee had the
thing already in his possession before the sale
took place, not as owner but as lessee, borrower
or depositary.
iv) Traditio Constitutum
Possessorium
Art. 1500. There may also be tradition
constitutum possessorium. (n)
33
HEIRS OF PEDRO ESCANLAR V. CA: The September
15, 1978 sale of rights, interests and participation as to 1/2
portion pro indiviso of the two subject lots is a contract of
sale for the following reasons: First, private respondents as
sellers did not reserve unto themselves the ownership of
the property until full payment of the unpaid balance of
P225,000.00. Second, there is no stipulation giving the
sellers the right to unilaterally rescind the contract the
moment the buyer fails to pay within the fixed period. 24
Prior to the sale, petitioners were in possession of the
subject property as lessees. Upon sale to them of the
rights, interests and participation as to the 1/2 portion pro
indiviso, they remained in possession, not in concept of
lessees anymore but as owners now through symbolic
delivery known as traditio brevi manu. Under Article 1477 of
the Civil Code, the ownership of the thing sold is acquired
by the vendee upon actual or constructive delivery thereof
 • In traditio constitutum possessorium, the
vendor remains in possession of the property
sold, by virtue of a lease agreement with the
vendee34.
• Vendee became as lessor, the legal possessor
while the vendor is in material possession of
the property in the name and representation
of the vendee.
v) delivery to common carrier
Art. 1503. When there is a contract of sale of specific
goods, the seller may, by the terms of the contract,
reserve the right of possession or ownership in the
goods until certain conditions have been fulfilled. The
right of possession or ownership may be thus
reserved notwithstanding the delivery of the goods to
the buyer or to a carrier or other bailee for the
purpose of transmission to the buyer.
Where goods are shipped, and by the bill of lading the
goods are deliverable to the seller or his agent, or to
the order of the seller or of his agent, the seller
thereby reserves the ownership in the goods. But, if
except for the form of the bill of lading, the ownership
would have passed to the buyer on shipment of the
goods, the seller's property in the goods shall be
deemed to be only for the purpose of securing
performance by the buyer of his obligations under the
contract.
Where goods are shipped, and by the bill of lading the
goods are deliverable to order of the buyer or of his
agent, but possession of the bill of lading is retained
by the seller or his agent, the seller thereby reserves
a right to the possession of the goods as against the
buyer.
Where the seller of goods draws on the buyer for the
price and transmits the bill of exchange and bill of
lading together to the buyer to secure acceptance or
payment of the bill of exchange, the buyer is bound
to return the bill of lading if he does not honor the bill
of exchange, and if he wrongfully retains the bill of
34
BAUTISTA V SIOSON: Even if the vendor sells the property
again to another, the second purchaser cannot acquire ownership
as he bought the property from a mere tenant. In a case which
frequently occurs, where the vendor, on the same date on which
the deed of sale is executed, by means of a constitutum
possessorium agreement converts himself into a tenant or lessee
of the property that he sold, and continues in possession thereof
as such tenant, the purchaser who acquired the property through
delivery or symbolic tradition, with all the consequent effects of a
deed of conveyance, is deemed to be in possession thereof by
the express will of the contracting parties, and therefore, it must
be recognized that, through such constitutum possessorium
agreement, the purchaser, who by that covenant becomes the
lessor, is in lawful possession of the leased property, and that the
vendor, by the same covenant, converted himself into the lessee
and is in material possession of the leased property in the name
and representation of the purchaser, its lawful owner.
20
lading he acquires no added right thereby. If,
however, the bill of lading provides that the
goods are deliverable to the buyer or to the
order of the buyer, or is indorsed in blank, or to
the buyer by the consignee named therein, one
who purchases in good faith, for value, the bill of
lading, or goods from the buyer will obtain the
ownership in the goods, although the bill of
exchange has not been honored, provided that
such purchaser has received delivery of the bill
of lading indorsed by the consignee named
therein, or of the goods, without notice of the
facts making the transfer wrongful. (n)
Art. 1523. Where, in pursuance of a contract of
sale, the seller is authorized or required to send
the goods to the buyer, delivery of the goods to
a carrier, whether named by the buyer or not,
for the purpose of
Unless otherwise agreed, where goods are sent
by the seller to the buyer under circumstances in
which the seller knows or ought to know that it is
usual to insure, the seller must give such notice
to the buyer as may enable him to insure them
during their transit, and, if the seller fails to do
so, the goods shall be deemed to be at his risk
during such transit. (n)
 GENERAL RULE: Delivery of goods to
carrier is considered delivery to the
buyer, and hence, title passed to the
buyer at the point of shipment
 EXCEPTION: Seller may reserve title by
the form of the bill of lading with intent
to remain the owner for all purposes and
not merely for the sole purpose of
securing payment, or unless contrary
intent appears in the contract of sale
a. Terms, “f.o.b.”; “c.i.f.”; “f.a.s.”
i. f.o.b. - “free on board” means that
the seller bears expenses of
transportation up to the f.o.b. point.
ii. c.i.f. - “cost, insurance, freight”
signifies that the price quoted
includes the costs of the goods,
insurance, and freight charges on
the goods up to the place of
destination
iii. f.a.s. – “free alongside” means that
the seller bears the expenses of
transportation until he delivers the
goods alongside a vessel at a named
post.
 These terms may be used only in
connection with fixing the price and will
not be construed as fixing the place of
delivery to the buyer

 Best indication of the intention of parties as
to the place of delivery is the manner and
place of payment agreed upon by the parties
o Where price is payable upon proof of
shipment, then the buyer agrees to
accept delivery at the point of shipment
o Where the price is payable only upon
arrival of the goods at the point of
destination, then that is the place of
delivery to the buyer
vi) effect of form of bill of lading
• Ownership is retained: The seller may
consign the goods to himself or to his agent
and thus prevent title from passing to the
buyer until the latter pays the price
• Mere possession is retained: The seller may
consign the goods to the order of the buyer
on the latter’s agent but by retaining the bill
of lading, he thereby prevents the buyer from
obtaining the goods from the carrier until
price is paid
4. Double Sales
Art. 1544. If the same thing should have been sold
to different vendees, the ownership shall be
transferred to the person who may have first taken
possession thereof in good faith, if it should be
movable property.
Should it be immovable property, the ownership shall
belong to the person acquiring it who in good faith
first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall
pertain to the person who in good faith was first in
the possession; and, in the absence thereof, to the
person who presents the oldest title, provided there is
good faith. (1473)
If the same thing should have been sold by the owner
to different buyers, the question as to who of the
latter acquired ownership depends on the nature of
the thing sold.
a) General Rule – Prior tempore, prior jure35
35
CARBONELL V CA: Jose Poncio sold his lot to Carbonell on
27 Jan 1955 and 4 days later sold the same property to Infante. A
formal deed of sale was executed in favor of Infante. Carbonell,
upon seeing Infante building a wall around the lot, registered an
adverse claim on the property. The deed of sale in favor of
Infante was later registered and the latter was thereafter in
possession of the lot. Held: The second sale was not valid. As
there in inscription, prior registration in good faith is pre-condition
to a superior title. Carbonell registered her adverse claim four
days before the registration of the property by Infante.
21
b) sale of movables36
Art. 1544 (1). If the same thing should have
been sold to different vendees, the ownership
shall be transferred to the person who may have
first taken possession thereof in good faith, if it
should be movable property.
c) sale of immovables
Art. 1544 (2). Should it be immovable
property, the ownership shall belong to the
person acquiring it who in good faith first
recorded it in the Registry of Property.
 To be entitled to priority, the second
buyer must not only show prior
recording of his deed but must have
acted in good faith, without knowledge
of the existence of another alienation by
the vendor to another
 POSSESSOR IN GOOD FAITH: one who
is not aware that there exists in his title
or mode of acquisition any flaw which
invalidates it
o good faith is always
presumed; burden of proof is on
person alleging bad faith
o good faith of second
buyer must continue until his
contract ripens into ownership by
tradition or recording
o as to Torrens title: it is
enough that purchaser examines the
latest certificate of title issued in the
name of his vendor and he need not
trace its origin to prior certificates of
title
d) Sale by virtue of execution or attachment
1. GENERAL RULE: Article 1544 not applicable to
execution sales because the purchaser at
such sales is substituted to or acquires
whatever rights, title or interests the
judgment debtor may have over the property
as of the time of levy. [It is the duty of the
purchaser, before bidding, to ascertain the
rights of the judgment debtor over the
property.]
2. EXCEPTION: Attachment or execution cannot
prejudice prior unrecorded sales made by the
36
RIVERA V ONG: Ong Che has a better title to the
property (over which he and Rivera had overlapping
claims). He was a purchaser of the articles in good faith,
acquired possession by virtue of his purchase, and
therefore has a better title than the first purchaser.
 judgment debtor, and is preferred only over claims
contracted subsequent to its recording
3. EXCEPTION TO THE EXCEPTION: Above rule does
not apply to lands registered under Act 496 which
provides that registration of instruments shall be
the “operative act to convey and affect the land”;
hence, prior unrecorded sale cannot prejudice
execution sales if no third-party claim was
presented before the execution sale took place.
[Third persons are not required to go beyond the
register and determine the condition of the
property.]
e) Unregistered land
P.D. 1529, Sec. 113. Recording of instruments
relating to unregistered lands. - No deed,
conveyance, mortgage, lease, or other voluntary
instrument affecting land not registered under the
Torrens system shall be valid, except as between the
parties thereto, unless such instrument shall have
been recorded in the manner herein prescribed in the
office of the Register of Deeds for the province or city
where the land lies.
(a) The Register of Deeds for each province or city
shall keep a Primary Entry Book and a Registration
Book. The Primary Entry Book shall contain, among
other particulars, the entry number, the names of the
parties, the nature of the document, the date, hour
and minute it was presented and received. The
recording of the deed and other instruments relating
to unregistered lands shall be effected by any of
annotation on the space provided therefor in the
Registration Book, after the same shall have been
entered in the Primary Entry Book.
(b) If, on the face of the instrument, it appears that it
is sufficient in law, the Register of Deeds shall
forthwith record the instrument in the manner
provided herein. In case the Register of Deeds
refuses its administration to record, said official shall
advise the party in interest in writing of the ground or
grounds for his refusal, and the latter may appeal the
matter to the Commissioner of Land Registration in
accordance with the provisions of Section 117 of this
Decree. It shall be understood that any recording
made under this section shall be without prejudice to
a third party with a better right.
(c) After recording on the Record Book, the Register
of Deeds shall endorse among other things, upon the
original of the recorded instruments, the file number
and the date as well as the hour and minute when the
document was received for recording as shown in the
Primary Entry Book, returning to the registrant or
person in interest the duplicate of the instrument,
with appropriate annotation, certifying that he has
recorded the instrument after reserving one copy
thereof to be furnished the provincial or city assessor
as required by existing law.
22
(d) Tax sale, attachment and levy, notice of lis
pendens, adverse claim and other instruments in
the nature of involuntary dealings with respect to
unregistered lands, if made in the form sufficient
in law, shall likewise be admissible to record
under this section.
(e) For the services to be rendered by the
Register of Deeds under this section, he shall
collect the same amount of fees prescribed for
similar services for the registration of deeds or
instruments concerning registered lands.
 Registration requirement is understood to be
without prejudice to third party with a better
right37
 Mere registration of sale in one’s favor does
not give him any right over the land:
o if the vendor was not the owner of the
land
o if the vendor has already parted with his
ownership before such sale in favor of
third party who had previously taken
possession of the land, even though the
prior sale was unrecorded
 A person having a “better right” would be one
who had previously acquired ownership
thereof through the modes of acquiring
ownership under the Civil Code: tradition as a
result of sale, donation, succession and
prescription38
f) First in possession in good faith
If neither vendee registered the sale in his favor
or registration was done in bad faith, the vendee
who was first in possession in good faith
acquired ownership of the land39
37
NAAWAN RURAL BANK V. CA: It is a well-known rule
in this jurisdiction that persons dealing with registered land
have the legal right to rely on the face of the Torrens
Certificate of Title and to dispense with the need to inquire
further, except when the party concerned has actual
knowledge of facts and circumstances that would impel a
reasonably cautious man to make such inquiry.
38
HANOPOL V PILAPIL: A better right which is
unrecorded and which would prevail over a recorded sale is
one which was gained independently of the sale, as title by
prescription.
39
SANCHEZ V RAMOS: Delivery may be actual or
constructive. Thus, if the first sale is evidenced in a public
instrument, there is delivery of the thing sold, if the contrary
does not appear in the deed.
QUIMSON V ROSETE: Possession includes not only
material but also symbolic possession which is acquired
through the execution of a public instrument. As the land
was considered delivered by the execution of the public
instrument, the vendor remained in possession by mere
tolerance of the first vendee. Hence, when the land was
sold again to defendant, the vendor did not transmit
anything to him, and the possession of the latter was a
mere detainer. The first vendee acquired ownership by

g) Oldest title
1. If neither of the vendees registered their deeds of
sale nor acquired possession of the land sold, the
one who can present the oldest title provided
there is good faith, has the better right.
2. “Older title” means any document showing
acquisition of the land in good faith, like a deed of
sale or a receipt for the price;
3. Public document is not included as there is
delivery thru a public instrument, unless the
contrary can be clearly inferred therefrom
VIII. RISK OF LOSS OR DETERIORATION
A. General rule
Art. 1263. In an obligation to deliver a generic thing,
the loss or destruction of anything of the same kind
does not extinguish the obligation. (n)
An obligation to deliver a generic thing is not
extinguished by loss because genus never perishes.
NOTE that the next 3 situations contemplate loss of
specific things
1. When loss occurs before perfection
When loss occurred before perfection, it is borne by
the seller. This is because ownership is still with
him40.
2. When loss occurs at the time of perfection
Art. 1493. If at the time the contract of sale is
perfected, the thing which is the object of the
contract has been entirely lost, the contract shall be
without any effect.
But if the thing should have been lost in part only, the
vendee may choose between withdrawing from the
contract and demanding the remaining part, paying
its price in proportion to the total sum agreed upon.
(1460a)
Art. 1494. Where the parties purport a sale of
specific goods, and the goods without the knowledge
of the seller have perished in part or have wholly or in
a material part so deteriorated in quality as to be
substantially changed in character, the buyer may at
his option treat the sale:
delivery thru the execution of a public instrument.
40
ROMAN V GRIMALT: The sale was not perfected as the buyer
agreed to buy the vessel, provided that the title was in proper
form. As the vendor failed to perfect his title, the loss was borne
by him
23
(1) As avoided; or
(2) As valid in all of the existing goods or in so
much thereof as have not deteriorated, and as
binding the buyer to pay the agreed price for the
goods in which the ownership will pass, if the
sale was divisible. (n)
a) If at the time the sale is perfected, the
thing had been lost entirely, the contract
shall be ineffective. This is because
there can be no contract without an
object.
b) The loss must have occurred before the
contract was entered into, without the
knowledge of both parties.
c) Options of buyer when there is partial
loss and a loss which results in
substantial change in character
O Withdraw from the contract
O Buy the remainder at a proportionate
price
3. When loss occurs after perfection but
before delivery
Art. 1496. The ownership of the thing sold is
acquired by the vendee from the moment it is
delivered to him in any of the ways specified in
Articles 1497 to 1501, or in any other manner
signifying an agreement that the possession is
transferred from the vendor to the vendee. (n)
Art. 1504. Unless otherwise agreed, the goods
remain at the seller's risk until the ownership
therein is transferred to the buyer, but when the
ownership therein is transferred to the buyer the
goods are at the buyer's risk whether actual
delivery has been made or not, except that:
(1) Where delivery of the goods has been made
to the buyer or to a bailee for the buyer, in
pursuance of the contract and the ownership in
the goods has been retained by the seller merely
to secure performance by the buyer of his
obligations under the contract, the goods are at
the buyer's risk from the time of such delivery;
(2) Where actual delivery has been delayed
through the fault of either the buyer or seller the
goods are at the risk of the party in fault. (n)
Art. 1406. When a contract is enforceable under
the Statute of Frauds, and a public document is
necessary for its registration in the Registry of
Deeds, the parties may avail themselves of the
right under Article 1357.
Art. 1189. When the conditions have been
imposed with the intention of suspending the
efficacy of an obligation to give, the following rules
shall be observed in case of the improvement, loss or
deterioration of the thing during the pendency of the
condition:
(1) If the thing is lost without the fault of the debtor,
the obligation shall be extinguished;
(2) If the thing is lost through the fault of the debtor,
he shall be obliged to pay damages; it is understood
that the thing is lost when it perishes, or goes out of
commerce, or disappears in such a way that its
existence is unknown or it cannot be recovered;
(3) When the thing deteriorates without the fault of
the debtor, the impairment is to be borne by the
creditor;
(4) If it deteriorates through the fault of the debtor,
the creditor may choose between the rescission of the
obligation and its fulfillment, with indemnity for
damages in either case;
(5) If the thing is improved by its nature, or by time,
the improvement shall inure to the benefit of the
creditor;
(6) If it is improved at the expense of the debtor, he
shall have no other right than that granted to the
usufructuary. (1122)
Art. 1538. In case of loss, deterioration or
improvement of the thing before its delivery, the
rules in Article 1189 shall be observed, the vendor
being considered the debtor. (n)
When loss occurs after perfection but before delivery,
the seller bears the risk of loss. The buyer does not
bear the risk of loss until the goods are delivered,
actually or constructively. This is because the rule is a
combination of the common-law rule that the owner
bears the risk of loss (res perit domino), and the
Roman law requiring delivery to transfer ownership.
B. When ownership is transferred
GENERAL RULES:
1. The risk of loss shall be borne by the owner.
2. Ownership is transferred upon delivery.
EXCEPTIONS:
1. Contrary stipulation41
41
SUN BROS. APPLIANCES V PEREZ: The law allows an
agreement which stipulates that (1) where goods are sold and
delivered to the buyer, the title is to remain in the seller until full
payment, [but] (2) the loss or destruction of the property while in
the possession of the buyer before payment, does not relieve him
from the obligation to pay the price; in which case, the buyer
suffers the loss. The reasons for its validity are: First, the
absolute and unconditional nature of the vendee’s promise to pay
24
2. Security title42
3. Delay through the fault of the buyer or the
seller43 – at the risk of the party at fault
IX. DOCUMENTS OF TITLE
Document of title – a document used in the
ordinary course of business in the sale or
transfer of goods, as proof of the possession or
control of the goods, or authorizing or purporting
to authorize the possessor of the document to
transfer or receive, either by endorsement or by
delivery, goods represented by such document.
(Art. 1636)44
The functions of documents of title are (1)
Evidence of the possession or control of the
goods described therein (2) Medium of
transferring title and possession over the goods
described therein without having to effect actual
delivery thereof (Villanueva)
Art. 1511. A document of title which is not in
such form that it can be negotiated by delivery
may be transferred by the holder by delivery to a
purchaser or donee. A non-negotiable document
cannot be negotiated and the endorsement of
such a document gives the transferee no
additional right. (n)
for the goods. Second, the vendor has fully performed his
contract and the vendee received what he bargained for.
Third, the policy of providing an incentive to care properly
for the goods, which is under the control and dominion of
the vendee.
42
LAWYER’S COOP. V TABORA: Despite the loss of the
books in a fire, the risk of loss would be borne by the buyer
although he was not the owner yet. This is because the
stipulation “ownership shall only be transferred upon full
payment” was agreed merely to secure the performance by
the buyer of his obligation. Moreover, in the contract, it was
agreed that loss or damage to the books after delivery to
the buyer shall be borne by the buyer.
While under the rule, an obligor should be exempt from
liability when the loss occurs in a fortuitous event, this
cannot be used by the buyer as a defense to exempt
himself from paying. His obligation does not pertain to the
delivery of the subject matter, but to the payment of the
purchase price. The ability to pay in money or legal tender
is never lost through a fortuitous event.
43
NORTH NEGROS SUGAR CO. V CIA. GEN DE
TABACOS: If there was delay in accepting delivery but
there was segregation of goods, such that place of delivery
was at the seller’s warehouse, the buyer bears the risk of
loss. This is because the seller becomes merely a
depositary.
44
PHIL. TRUST CO. V NATIONAL BANK: The purpose of
documents of title is that the seller is allowed by fiction of
law to deal with the goods described therein as though he
had physically delivered them to the buyer; and the buyer
may take the document of title as though he had actually
taken possession and control over the goods described
therein
1. Negotiable documents of title TERMS OF THE HOW
DOCUMENT NEGOTIATED
Art. 1507. A document of title in which it is stated  Goods are deliverable to By delivery of the
that the goods referred to therein will be delivered to bearer document to
the bearer, or to the order of any person named in  Endorsed in blank by the another
such document is a negotiable document of title. (n) person to whose order the
goods were deliverable
Negotiable document of title – a document of title in Goods are deliverable to the By indorsement of
which it is stated that the goods referred to therein order of a specified person such person
will be delivered to the bearer, or to the order of any
person named in such document. b) who may negotiate it
a) how negotiated
Art. 1512. A negotiable document of title may
be negotiated:
Art. 1508. A negotiable document of title may be (1) By the owner therefor; or
negotiated by delivery:
(2) By any person to whom the possession or
(1) Where by the terms of the document the carrier, custody of the document has been entrusted by
warehouseman or other bailee issuing the same the owner, if, by the terms of the document the
undertakes to deliver the goods to the bearer; or bailee issuing the document undertakes to
(2) Where by the terms of the document the carrier, deliver the goods to the order of the person to
warehouseman or other bailee issuing the same whom the possession or custody of the
undertakes to deliver the goods to the order of a document has been entrusted, or if at the time
specified person, and such person or a subsequent of such entrusting the document is in such form
endorsee of the document has indorsed it in blank or that it may be negotiated by delivery. (n)
to the bearer.
c) rights acquired by negotiation
Where by the terms of a negotiable document of title
the goods are deliverable to bearer or where a
negotiable document of title has been indorsed in Art. 1513. A person to whom a negotiable
blank or to bearer, any holder may indorse the same document of title has been duly negotiated
to himself or to any specified person, and in such acquires thereby:
case the document shall thereafter be negotiated only (1) Such title to the goods as the person
by the endorsement of such endorsee. (n) negotiating the document to him had or had
ability to convey to a purchaser in good faith for
value and also such title to the goods as the
Art. 1509. A negotiable document of title may be person to whose order the goods were to be
negotiated by the endorsement of the person to delivered by the terms of the document had or
whose order the goods are by the terms of the had ability to convey to a purchaser in good faith
document deliverable. Such endorsement may be in for value; and
blank, to bearer or to a specified person. If indorsed
to a specified person, it may be again negotiated by (2) The direct obligation of the bailee issuing the
the endorsement of such person in blank, to bearer or document to hold possession of the goods for
to another specified person. Subsequent negotiations him according to the terms of the document as
may be made in like manner. (n) fully as if such bailee had contracted directly with
him. (n)
Art. 1510. If a document of title which contains an
undertaking by a carrier, warehouseman or other A person to whom a document has been
bailee to deliver the goods to bearer, to a specified negotiated acquires
person or order of a specified person or which
contains words of like import, has placed upon it the 1. rights of the vendor
words "not negotiable," "non-negotiable" or the like, 2. rights of the original consignee
such document may nevertheless be negotiated by
the holder and is a negotiable document of title within Thus, a buyer of a document of title may acquire
the meaning of this Title. But nothing in this Title a better title than his vendor, since he acquires
contained shall be construed as limiting or defining the rights of the original consignee.
the effect upon the obligations of the carrier,
warehouseman, or other bailee issuing a document of d) Unauthorized negotiation
title or placing thereon the words "not negotiable,"
"non-negotiable," or the like. (n) Art. 1518. The validity of the negotiation of a
negotiable document of title is not impaired by

25
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. (n)
There is a conflict between Art. 1512 and Art. 1518
since under Art. 1512, only the owner of the
document or one to whom possession of the
document has been entrusted may negotiate it.
However, under Art. 1518, the validity of the
negotiation of a negotiable document of title is not
impaired by the fact that the negotiation was a
breach of duty on the part of the person making the
negotiation, or by the fact that the owner of the
document was deprived of the possession of the same
by loss, theft, fraud, accident, mistake, duress, or
conversion. (Baviera)
e) implied warranties
Art. 1516. A person who for value negotiates or
transfers a document of title by endorsement or
delivery, including one who assigns for value a claim
secured by a document of title unless a contrary
intention appears, warrants:
(1) That the document is genuine;
(2) That he has a legal right to negotiate or transfer
it;
(3) That he has knowledge of no fact which would
impair the validity or worth of the document; and
(4) That he has a right to transfer the title to the
goods and that the goods are merchantable or fit for
a particular purpose, whenever such warranties would
have been implied if the contract of the parties had
been to transfer without a document of title the goods
represented thereby. (n)
Art. 1517. The endorsement of a document of title
shall not make the endorser liable for any failure on
the part of the bailee who issued the document or
previous endorsers thereof to fulfill their respective
obligations. (n)
A person who negotiates a document of title warrants
1. the genuineness and validity of the document;
2. his right to negotiate it; and,
3. all the warranties of a vendor of goods.
But he does not warrant that
26
1. the common carrier will fulfill its obligation to
the deliver the goods; or
2. the previous indorsers will fulfill their
obligation.
f) creditor’s right against the goods
Art. 1519. If goods are delivered to a bailee by
the owner or by a person whose act in conveying
the title to them to a purchaser in good faith for
value would bind the owner and a negotiable
document of title is issued for them they cannot
thereafter, while in possession of such bailee, be
attached by garnishment or otherwise or be
levied under an execution unless the document
be first surrendered to the bailee or its
negotiation enjoined. The bailee shall in no case
be compelled to deliver up the actual possession
of the goods until the document is surrendered
to him or impounded by the court. (n)
Art. 1520. A creditor whose debtor is the owner
of a negotiable document of title shall be entitled
to such aid from courts of appropriate
jurisdiction by injunction and otherwise in
attaching such document or in satisfying the
claim by means thereof as is allowed at law or in
equity in regard to property which cannot readily
be attached or levied upon by ordinary legal
process. (n)
Goods in the hands of the carrier covered by a
negotiable document cannot be attached or
levied upon, UNLESS
1. the document be first surrendered to the
carrier; or
2. impounded by the court; or
3. its negotiation be enjoined.
Rationale for the rule:
A negotiable document of title represents the
goods; hence it is not allowable for a carrier to
deliver the goods without the surrender of the
bill of lading to them, or for the law to allow
attachment on the goods.
2. Non-negotiable documents of title
a) how transferred
Art. 1514. A person to whom a document of
title has been transferred, but not negotiated,
acquires thereby, as against the transferor, the
title to the goods, subject to the terms of any
agreement with the transferor.
If the document is non-negotiable, such person
also acquires the right to notify the bailee who
issued the document of the transfer thereof, and
thereby to acquire the direct obligation of such
bailee to hold possession of the goods for him
according to the terms of the document.
Prior to the notification to such bailee by the
transferor or transferee of a non-negotiable document
of title, the title of the transferee to the goods and
the right to acquire the obligation of such bailee may
be defeated by the levy of an attachment of execution
upon the goods by a creditor of the transferor, or by
a notification to such bailee by the transferor or a
subsequent purchaser from the transfer of a
subsequent sale of the goods by the transferor. (n)
b) rights acquired by transfer of document of title
Art. 1515. Where a negotiable document of title is
transferred for value by delivery, and the
endorsement of the transferor is essential for
negotiation, the transferee acquires a right against
the transferor to compel him to endorse the
document unless a contrary intention appears. The
negotiation shall take effect as of the time when the
endorsement is actually made. (n)
The law makes a distinction between “negotiation”
[negotiable document of title] and “transfer” [non-
negotiable document of title].
Transfer – the assignment of rights of the
consignee of a non-negotiable document of
title to another
– where an order document of title
was sold or assigned, without indorsement
The transferee does not acquire a better title than his
transferor [unlike in a negotiable document of title,
where the buyer may acquire a better title].
X. REMEDIES OF AN UNPAID SELLER
MEANING OF UNPAID SELLER
Art 1524. The seller of goods is deemed to be an
unpaid seller within the meaning of this Title:
(1) When the whole of the price has not been paid or
tendered;
(2) When a bill of exchange or other negotiable
instrument has been received as conditional payment,
and the condition on which it was received has been
broken by reason of the dishonor of the instrument,
the insolvency of the buyer, or otherwise.
In Articles 1525 to 1535 the term "seller" includes an
agent of the seller to whom the bill of lading has been
indorsed, or a consignor or agent who has himself
27
paid, or is directly responsible for the price, or
any other person who is in the position of a
seller. (n)
a) Unpaid seller – if the whole price has not been
paid or tendered, or when the check received as
conditional payment was dishonored by non-
payment or insolvency of the buyer.
b) seller – includes the agent of the seller to
whom the bill of lading was endorsed, or the
consignor or agent who had paid the price or is
responsible for the price, or any other person
who is in the position of a seller.
REMEDIES OF AN UNPAID SELLER
Art 1526. Subject to the provisions of this Title,
notwithstanding that the ownership in the goods
may have passed to the buyer, the unpaid seller
of goods, as such, has:
(1) A lien on the goods or right to retain them
for the price while he is in possession of them;
(2) In case of the insolvency of the buyer, a right
of stopping the goods in transitu after he has
parted with the possession of them;
(3) A right of resale as limited by this Title;
(4) A right to rescind the sale as likewise limited
by this Title.
Where the ownership in the goods has not
passed to the buyer, the unpaid seller has, in
addition to his other remedies a right of
withholding delivery similar to and coextensive
with his rights of lien and stoppage in transitu
where the ownership has passed to the buyer.
(n)
a) If ownership over the goods had not yet
passed to the buyer: the seller, as owner, could
retain the goods or resell them to another,
without prejudice to his liability for damages for
any breach of contract committed by him.
b) If ownership had passed to the buyer but the
goods are still in the possession of the seller or
are in transit to the buyer: the unpaid seller
could withhold delivery or stop the goods in
transit should the buyer become insolvent. As a
consequence of his lien over the goods, the
unpaid seller could resell the goods to another or
resume ownership over them, without court
order, and may still used the buyer for damages
1. Lien
Art 1527. Subject to the provisions of this Title, the
unpaid seller of goods who is in possession of them is
entitled to retain possession of them until payment or
tender of the price in the following cases, namely:
(1) Where the goods have been sold without any
stipulation as to credit;
(2) Where the goods have been sold on credit, but
the term of credit has expired;
(3) Where the buyer becomes insolvent.
The seller may exercise his right of lien
notwithstanding that he is in possession of the goods
as agent or bailee for the buyer. (n)
Art 1528. Where an unpaid seller has made part
delivery of the goods, he may exercise his right of
lien on the remainder, unless such part delivery has
been made under such circumstances as to show an
intent to waive the lien or right of retention. (n)
Art 1529. The unpaid seller of goods loses his lien
thereon:
(1) When he delivers the goods to a carrier or other
bailee for the purpose of transmission to the buyer
without reserving the ownership in the goods or the
right to the possession thereof;
(2) When the buyer or his agent lawfully obtains
possession of the goods;
(3) By waiver thereof.
The unpaid seller of goods, having a lien thereon,
does not lose his lien by reason only that he has
obtained judgment or decree for the price of the
goods. (n)
a) The unpaid seller’s lien implies that he has a right
to retain possession of the goods until payment or
tender of the whole price, unless he agreed to sell on
credit.
b) If the unpaid seller agrees to sell on credit, he may
refuse to deliver them if the buyer becomes insolvent,
or if the term of the credit had expired and the price
has not been paid.
c) Loss of lien: the unpaid seller losses his lien when:
1. he delivers the goods to the carrier or other
bailee, consigning them to the buyer under a straight
or non-negotiable bill of lading, or
2. when the goods were delivered to the buyer, or
3. when he waived his lien.
d) It is not lost on the remainder of the goods when
only partial delivery was made, unless such was
28
intended to operate as symbolical delivery of the
whole. The lien is not lost by the mere fact that
the seller had already obtained judgment for the
price.
e) Revival of lien: the unpaid seller’s lien is
revived if the goods are returned by the buyer in
wrongful repudiation of the contract.
2. Stoppage in Transitu
Art 1530. Subject to the provisions of this Title,
when the buyer of goods is or becomes
insolvent, the unpaid seller who has parted with
the possession of the goods has the right of
stopping them in transitu, that is to say, he may
resume possession of the goods at any time
while they are in transit, and he will then
become entitled to the same rights in regard to
the goods as he would have had if he had never
parted with the possession. (n)
Art 1531. Goods are in transit within the
meaning of the preceding article:
(1) From the time when they are delivered to a
carrier by land, water, or air, or other bailee for
the purpose of transmission to the buyer, until
the buyer, or his agent in that behalf, takes
delivery of them from such carrier or other
bailee;
(2) If the goods are rejected by the buyer, and
the carrier or other bailee continues in
possession of them, even if the seller has
refused to receive them back.
Goods are no longer in transit within the
meaning of the preceding article:
(1) If the buyer, or his agent in that behalf,
obtains delivery of the goods before their arrival
at the appointed destination;
(2) If, after the arrival of the goods at the
appointed destination, the carrier or other bailee
acknowledges to the buyer or his agent that he
holds the goods on his behalf and continues in
possession of them as bailee for the buyer or his
agent; and it is immaterial that further
destination for the goods may have been
indicated by the buyer;
(3) If the carrier or other bailee wrongfully
refuses to deliver the goods to the buyer or his
agent in that behalf.
If the goods are delivered to a ship, freight train,
truck, or airplane chartered by the buyer, it is a
question depending on the circumstances of the
particular case, whether they are in the
possession of the carrier as such or as agent of
the buyer.
If part delivery of the goods has been made to the
buyer, or his agent in that behalf, the remainder of
the goods may be stopped in transitu, unless such
part delivery has been under such circumstances as
to show an agreement with the buyer to give up
possession of the whole of the goods. (n)
Art 1532. The unpaid seller may exercise his right of
stoppage in transitu either by obtaining actual
possession of the goods or by giving notice of his
claim to the carrier or other bailee in whose
possession the goods are. Such notice may be given
either to the person in actual possession of the goods
or to his principal. In the latter case the notice, to be
effectual, must be given at such time and under such
circumstances that the principal, by the exercise of
reasonable diligence, may prevent a delivery to the
buyer.
When notice of stoppage in transitu is given by the
seller to the carrier, or other bailee in possession of
the goods, he must redeliver the goods to, or
according to the directions of, the seller. The
expenses of such delivery must be borne by the
seller. If, however, a negotiable document of title
representing the goods has been issued by the carrier
or other bailee, he shall not obliged to deliver or
justified in delivering the goods to the seller unless
such document is first surrendered for cancellation.
(n)
Art 1533. Where the goods are of perishable nature,
or where the seller expressly reserves the right of
resale in case the buyer should make default, or
where the buyer has been in default in the payment
of the price for an unreasonable time, an unpaid
seller having a right of lien or having stopped the
goods in transitu may resell the goods. He shall not
thereafter be liable to the original buyer upon the
contract of sale or for any profit made by such resale,
but may recover from the buyer damages for any loss
occasioned by the breach of the contract of sale.
Where a resale is made, as authorized in this article,
the buyer acquires a good title as against the original
buyer.
It is not essential to the validity of resale that notice
of an intention to resell the goods be given by the
seller to the original buyer. But where the right to
resell is not based on the perishable nature of the
goods or upon an express provision of the contract of
sale, the giving or failure to give such notice shall be
relevant in any issue involving the question whether
the buyer had been in default for an unreasonable
time before the resale was made.
It is not essential to the validity of a resale that notice
of the time and place of such resale should be given
by the seller to the original buyer.
29
The seller is bound to exercise reasonable care
and judgment in making a resale, and subject to
this requirement may make a resale either by
public or private sale. He cannot, however,
directly or indirectly buy the goods. (n)
Art 1534. An unpaid seller having the right of
lien or having stopped the goods in transitu, may
rescind the transfer of title and resume the
ownership in the goods, where he expressly
reserved the right to do so in case the buyer
should make default, or where the buyer has
been in default in the payment of the price for an
unreasonable time. The seller shall not thereafter
be liable to the buyer upon the contract of sale,
but may recover from the buyer damages for
any loss occasioned by the breach of the
contract.
The transfer of title shall not be held to have
been rescinded by an unpaid seller until he has
manifested by notice to the buyer or by some
other overt act an intention to rescind. It is not
necessary that such overt act should be
communicated to the buyer, but the giving or
failure to give notice to the buyer of the intention
to rescind shall be relevant in any issue involving
the question whether the buyer had been in
default for an unreasonable time before the right
of rescission was asserted. (n)
Art 1535. Subject to the provisions of this Title,
the unpaid seller's right of lien or stoppage in
transitu is not affected by any sale, or other
disposition of the goods which the buyer may
have made, unless the seller has assented
thereto.
If, however, a negotiable document of title has
been issued for goods, no seller's lien or right of
stoppage in transitu shall defeat the right of any
purchaser for value in good faith to whom such
document has been negotiated, whether such
negotiation be prior or subsequent to the
notification to the carrier, or other bailee who
issued such document, of the seller's claim to a
lien or right of stoppage in transitu. (n)
a) Old common law remedy which is an
extension of the lien for the price and entitles
the unpaid seller to resume possession of the
goods while they are in transit before the goods
come in possession of the vendee if the later is
or becomes insolvent.
b) Goods are considered to be in transit from the
time they are delivered to a carrier or other
bailee by the seller for the purpose of
transmission to the buyer, until the buyer or his
agent takes delivery of them from the carrier. To
terminate the transit by delivery to a middleman, it
must be delivery to keep, not to transport.
c) Goods are still considered to be in transit even if
they reached their ultimate destination when the
buyer rejects them and they remain in the possession
of the carrier.
d) Goods are no longer in transit if the buyer or his
agent obtained delivery of the goods even before they
reached their ultimate destination, or when the goods
arrived at the ultimate destination but the carrier or
other bailee wrongfully refuses to deliver the goods to
the buyer or his agent, or when the carrier, upon
arrival of the goods at the ultimate destination, enters
into a new contract with the buyer or his agent.
e) If there was partial delivery of the goods to the
buyer, the remainder of the goods may be stopped in
transitu, unless such part delivery has been made
under such circumstances as to show an agreement
with the buyer to give up possession of the whole.
Where the buyer has taken some portion of the whole
mass which was then susceptible of possession, there
is constructive possession of the whole.
f) Sale of goods in transit: the unpaid seller’s right of
lien or stoppage in transitu is not affected by any sale
or other disposition of the goods which the buyer may
have made unless the seller has assented thereto.
1) Where a negotiable document of title has been
issued for the goods, no seller’s lien or right of
stoppage in transitu cannot defeat the rights of any
purchaser for value in good faith to whom such
document has been negotiated.
2.) Where the document of title is a straight bill of
lading, the seller’s right of stoppage will not be cut off
as the transferee acquires no greater or added rights
than his transferor.
Right of Stoppage; How Exercised-The unpaid seller
may exercise his right by
1. obtaining actual possession of the goods or
2. by giving notice of his claim to the carrier or other
bailee in whose possession the goods are.
When notice of stoppage in transit is given to the
carrier, the latte must redeliver the goods to, or
according to the directions of, the seller. If however,
a negotiable document of title representing the goods
has been issued by the carrier, the latter shall not be
obliged to deliver the goods unless such document is
first surrendered for cancellation.
3. Resale
Art 1533. Where the goods are of perishable nature,
or where the seller expressly reserves the right of
resale in case the buyer should make default, or
where the buyer has been in default in the payment
30
of the price for an unreasonable time, an unpaid
seller having a right of lien or having stopped the
goods in transitu may resell the goods. He shall
not thereafter be liable to the original buyer
upon the contract of sale or for any profit made
by such resale, but may recover from the buyer
damages for any loss occasioned by the breach
of the contract of sale.
Where a resale is made, as authorized in this
article, the buyer acquires a good title as against
the original buyer.
It is not essential to the validity of resale that
notice of an intention to resell the goods be
given by the seller to the original buyer. But
where the right to resell is not based on the
perishable nature of the goods or upon an
express provision of the contract of sale, the
giving or failure to give such notice shall be
relevant in any issue involving the question
whether the buyer had been in default for an
unreasonable time before the resale was made.
It is not essential to the validity of a resale that
notice of the time and place of such resale
should be given by the seller to the original
buyer.
The seller is bound to exercise reasonable care
and judgment in making a resale, and subject to
this requirement may make a resale either by
public or private sale. He cannot, however,
directly or indirectly buy the goods. (n)
a) When the goods are of perishable nature, or
where the seller expressly reserves the right of
resale in case the buyer should default in
payment, or where the buyer has been in default
for an unreasonable length of time, the unpaid
seller, having a right of lien or having stopped
the goods in transitu, may resell the goods and
recover from the buyer damages for breach of
contract.
b) The resale may be in a public or private sale,
but the seller cannot buy them directly or
indirectly. The seller is entitled to any profit he
may make out of the resale.
c) In case he sells them at a loss, he is entitled
to recover the difference from the original buyer.
It is not essential to the validity of a resale that
previous notice of an intention to resell or notice
of the time and place or resale be given to the
original buyer.
d) Damages recoverable: Whether the action is
for damages or to recover loss from a resale, the
purpose is to compensate the seller for loss for
breach of contract. Thus, if the purchaser fails
to take delivery and pay the price, the vendor,
without need of first rescinding the contract judicially,
is entitled to resell, and if obliged to sell for less than
the contract price, the buyer is liable for the
difference.
e) Due diligence must be exercised to secure the
highest price obtainable in the best available market.
The burden of showing it was exercised is on the
vendor.
4. Rescission45
Art 1534. An unpaid seller having the right of lien or
having stopped the goods in transitu, may rescind the
transfer of title and resume the ownership in the
goods, where he expressly reserved the right to do so
in case the buyer should make default, or where the
buyer has been in default in the payment of the price
for an unreasonable time. The seller shall not
thereafter be liable to the buyer upon the contract of
sale, but may recover from the buyer damages for
any loss occasioned by the breach of the contract.
The transfer of title shall not be held to have been
rescinded by an unpaid seller until he has manifested
by notice to the buyer or by some other overt act an
intention to rescind. It is not necessary that such
overt act should be communicated to the buyer, but
the giving or failure to give notice to the buyer of the
intention to rescind shall be relevant in any issue
involving the question whether the buyer had been in
default for an unreasonable time before the right of
rescission was asserted. (n)
a) An unpaid seller having the right of lien or having
stopped the goods in transitu may rescind the
transfer of title and resume ownership in the goods
where he expressly reserved the right to do so in
case the buyer defaults, or where the buyer has been
in default in payment of the price for an unreasonable
time. The transfer of title shall not be held to have
been rescinded by the unpaid seller until he manifests
by notice to the buyer or by some overt act an
intention to rescind. After rescinding the transfer of
title, the seller may still recover damages from the
buyer for breach of contract.
As used in Art. 1534, the term “rescind” is equivalent
to return of the title over the undelivered goods to
45
MERCHANTS REFRIGERATING CORP v TITMAN: A
rescission of the contract would accomplish the following results:
(1) termination of the original contract
(2) return of the title to the undelivered portion of the goods
to the seller
(3) release of the buyer from his obligation to take and pay
for the balance of the goods
(4) the unpaid seller would be free to pursue its remedies on
quantum meruit to recover what it had delivered to the
buyer (Merchants Refrigerating Co. v Benjamin Titman
Corp)
31
the seller and the right to recover damages for
loss due to breach of contract.
XI. PERFORMANCE OF THE CONTRACT
A. DELIVERY OF THE THING SOLD
1. Place, time, and manner of delivery
Art. 1521. Whether it is for the buyer to take
possession of the goods or of the seller to send
them to the buyer is a question depending in
each case on the contract, express or implied,
between the parties. Apart from any such
contract, express or implied, or usage of trade to
the contrary, the place of delivery is the seller's
place of business if he has one, and if not his
residence; but in case of a contract of sale of
specific goods, which to the knowledge of the
parties when the contract or the sale was made
were in some other place, then that place is the
place of delivery.
Where by a contract of sale the seller is bound to
send the goods to the buyer, but no time for
sending them is fixed, the seller is bound to send
them within a reasonable time.
Where the goods at the time of sale are in the
possession of a third person, the seller has not
fulfilled his obligation to deliver to the buyer
unless and until such third person acknowledges
to the buyer that he holds the goods on the
buyer's behalf.
Demand or tender of delivery may be treated as
ineffectual unless made at a reasonable hour.
What is a reasonable hour is a question of fact.
Unless otherwise agreed, the expenses of and
incidental to putting the goods into a deliverable
state must be borne by the seller. (n)
Art. 1169. xxx In reciprocal obligations, neither
party incurs in delay if the other does not comply
or is not ready to comply in a proper manner
with what is incumbent upon him. From the
moment one of the parties fulfills his obligation,
delay by the other begins. (1100a)
Art. 1524. The vendor shall not be bound to
deliver the thing sold, if the vendee has not paid
him the price, or if no period for the payment
has been fixed in the contract. (1466)
a) Generally, payment and delivery of the thing
sold are concurrent acts, in consonance with the
rule in reciprocal obligations. Agreement of the
parties determines whether it is for the buyer to take
possession of the goods or for the seller to send them
to the buyer. Absent stipulation to the contrary, the
ff. rules shall be observed:
1. the buyer should take delivery of the goods from
the seller’s place of business if he has one, and if
none, his residence.
2. In case of sale of specific goods which, at the
time of the sale, are known to the parties to be in
ANOTHER PLACE, the buyer should take delivery
from such place.
3. DEMAND or TENDER of PAYMENT shall be made
at a reasonable hour. Where by agreement, the
seller is bound to send the goods to the buyer, he
is bound to send them within the time agreed
upon, or if no time was fixed, within a reasonable
time. REASONABLE TIME for delivery is
determined by the circumstances attending the
particular transaction
4. Where the goods at the time of the sale are in
the possession of a THIRD PERSON, there is NO
delivery UNLESS and UNTIL such their person
ACKNOWLEDGES to the buyer that the holds the
goods on the latter’s behalf.
5. EXPENSES of placing the goods in a
DELIVERABLE STATE shall be borne by the
SELLER unless otherwise stipulated.
6. If the sale involves a specific thing, the vendor is
bound to deliver the thing sold and its accessions
and accessories in the condition in which they
were upon the perfection of the contract.
7. All of the fruits of the thing shall pertain to the
vendee from the time of the perfection of the
contract but he does not acquire a real right over
it until they are delivered to him.
8. The vendee has the obligation to pay the
expenses incurred by the vendor in the
production, gathering and preservation of the
fruits.
When time is of essence46
46
SMITH BELL v MATTI: In this case, the seller had done all that
could be expected when he placed the machinery at the disposal
of the buyer on Apr 1919. When the time of delivery is not fixed in
the contract, time is not of the essence; delivery could hence
be made within a reasonable time.
SOLER v CHELSEY: Defendant cannot be compelled to accept
delivery as he gave his consent to the contract, on the assurance
of the plaintiff that the goods were “on the way” when as a matter
of fact, they were not yet shipped at the time. This assertion was
an essential element of the contract.
32
Time is of the essence of the contract whenever
the intention of the parties is clear that
performance of its terms shall be accomplished
exactly at the stipulated day or implied from the
nature of the contract itself, the subject matter
or the circumstances under which the contract is
made
When not bound to deliver
Art. 1524. The vendor shall not be bound to
deliver the thing sold, if the vendee has not paid
him the price, or if no period for the payment
has been fixed in the contract. (1466)
Art. 1536. The vendor is not bound to deliver
the thing sold in case the vendee should lose the
right to make use of the terms as provided in
Article 1198. (1467a)
Art. 1198. The debtor shall lose every right to
make use of the period:
(1) When after the obligation has been
contracted, he becomes insolvent, unless he
gives a guaranty or security for the debt;
(2) When he does not furnish to the creditor the
guaranties or securities which he has promised;
(3) When by his own acts he has impaired said
guaranties or securities after their establishment,
and when through a fortuitous event they
disappear, unless he immediately gives new ones
equally satisfactory;
(4) When the debtor violates any undertaking, in
consideration of which the creditor agreed to the
period;
(5) When the debtor attempts to abscond.
(1129a)
The vendor is not bound to deliver the thing sold
in case the vendee should lose the right to make
use of the stipulated term in the following cases:
1. When the vendee becomes insolvent
2. When the vendee does not furnish the
guaranties or securities he has promised
3. When the guaranties or securities given
were impaired through the vendee’s acts or
were lost or destroyed through a fortuitous
event, unless he gives new equally
satisfactory guaranties or securities
REPUBLIC V LITTON: Court ruled for plaintiff. It was
shown that the goods were intended for election purposes,
and the purchase order provided that the stipulated delivery
period shall not be exceeded.
 4. When the vendee violates any condition for
which he was granted the term
5. When the vendee attempts to abscond
NOTE: Art. 1467 has been replaced by Art. 1198
which provides that the vendee shall lose the benefit
of the term when, after the obligation has been
contracted, he becomes insolvent, unless he gives a
guaranty or security. “Insolvency” under this
article cannot be understood in the sense of a
judicially declared insolvency or suspension of
payments, because the debtor cannot give a
security or guaranty in such case. The doctrine
therefore in Visayan Distributors v Flores interpreting
insolvency in Art 1467 old CC as something which
must be judicially declared or something which
involves suspension of payments, no longer holds.
2. Sale of Goods
a. Delivery by installment
Art. 1583. Unless otherwise agreed, the buyer of
goods is not bound to accept delivery thereof by
installments.
Where there is a contract of sale of goods to be
delivered by stated installments, which are to be
separately paid for, and the seller makes defective
deliveries in respect of one or more installments, or
the buyer neglects or refuses without just cause to
take delivery of or pay for one more installments, it
depends in each case on the terms of the contract
and the circumstances of the case, whether the
breach of contract is so material as to justify the
injured party in refusing to proceed further and suing
for damages for breach of the entire contract, or
whether the breach is severable, giving rise to a claim
for compensation but not to a right to treat the whole
contract as broken. (n)
a) GENERAL RULE: the buyer is not bound to accept
delivery of goods by installments. EXCEPTION: When
otherwise stipulated
b) In case of a contract that calls for the delivery of
the goods at stated intervals which are to be paid for
separately, the terms of the contract and the
circumstances surrounding the case would determine
whether prompt payment or delivery is of the essence
such that a delay or breach would entitle the
aggrieved to treat the entire contract as broken OR to
regard each breach as severable. SEVERABILITY
depends on whether the breach is so material as to
justify the aggrieved party in refusing to proceed
further with the entire contract or so immaterial that
the breach is severable, giving rise merely to a claim
for damages
b. Delivery of wrong quantity
33
Art. 1522. Where the seller delivers to the
buyer a quantity of goods less than he
contracted to sell, the buyer may reject them,
but if the buyer accepts or retains the goods so
delivered, knowing that the seller is not going to
perform the contract in full, he must pay for
them at the contract rate. If, however, the buyer
has used or disposed of the goods delivered
before he knows that the seller is not going to
perform his contract in full, the buyer shall not
be liable for more than the fair value to him of
the goods so received.
Where the seller delivers to the buyer a quantity
of goods larger than he contracted to sell, the
buyer may accept the goods included in the
contract and reject the rest. If the buyer accepts
the whole of the goods so delivered he must pay
for them at the contract rate.
Where the seller delivers to the buyer the goods
he contracted to sell mixed with goods of a
different description not included in the contract,
the buyer may accept the goods which are in
accordance with the contract and reject the rest.
In the preceding two paragraphs, if the subject
matter is indivisible, the buyer may reject the
whole of the goods.
The provisions of this article are subject to any
usage of trade, special agreement, or course of
dealing between the parties. (n)
a) GENERAL RULE: The buyer is not bound to
accept delivery of a quantity of goods more or
less than that agreed upon or to accept goods
which are of a description different from that
agreed upon. EXCEPTION: There is usage of
trade, special stipulation or course of dealing to
the contrary.
REMEDIES:
1. Where the seller delivers a quantity less
than that agreed upon, the buyer may
reject them. If the buyer accepts or
retains that goods delivered, knowing
the inability of the seller to deliver the
rest, the buyer is bound to pay for them
at the contract rate. If the buyer has
used or disposed of the goods before
knowing the inability of the seller to
deliver the rest, the buyer shall pay not
more than the fair value of the goods.
(NOTE: “fair value” means the price of
the goods in the open market.)
2. If the quantity delivered is more than
that agreed upon, the buyer may reject
the excess, unless the subject matter is
indivisible, in which case, the buyer may
reject the whole.
 3. Where the seller delivers the goods mixed
with goods of a different description not
included in the contract, the buyer may
accept the goods which are in accordance
with the contract, and reject the rest, unless
the subject matter is indivisible, in which
case, the buyer may reject the whole.
b) Delivery by the seller of only a part of an entire
contract would itself be an indication that he might
not intend to fully perform. PRESUMPTION: Buyer
knows that the seller might intend to not fully
perform, if said purchaser accepts a partial delivery
on an entire contract, absent any statement to the
contrary. (The law applies peculiarly to installment
and divisible contracts.)
3. Sale of Immovables
Art. 1539. The obligation to deliver the thing sold
includes that of placing in the control of the vendee
all that is mentioned in the contract, in conformity
with the following rules:
If the sale of real estate should be made with a
statement of its area, at the rate of a certain price for
a unit of measure or number, the vendor shall be
obliged to deliver to the vendee, if the latter should
demand it, all that may have been stated in the
contract; but, should this be not possible, the vendee
may choose between a proportional reduction of the
price and the rescission of the contract, provided
that, in the latter case, the lack in the area be not
less than one-tenth of that stated.
The same shall be done, even when the area is the
same, if any part of the immovable is not of the
quality specified in the contract.
The rescission, in this case, shall only take place at
the will of the vendee, when the inferior value of the
thing sold exceeds one-tenth of the price agreed
upon.
Nevertheless, if the vendee would not have bought
the immovable had he known of its smaller area of
inferior quality, he may rescind the sale. (1469a)
Art. 1540. If, in the case of the preceding article,
there is a greater area or number in the immovable
than that stated in the contract, the vendee may
accept the area included in the contract and reject
the rest. If he accepts the whole area, he must pay
for the same at the contract rate. (1470a)
Art. 1541. The provisions of the two preceding
articles shall apply to judicial sales. (n)
Art. 1542. In the sale of real estate, made for a
lump sum and not at the rate of a certain sum for a
unit of measure or number, there shall be no increase
34
or decrease of the price, although there be a
greater or less area or number than that stated
in the contract.
The same rule shall be applied when two or more
immovables as sold for a single price; but if,
besides mentioning the boundaries, which is
indispensable in every conveyance of real estate,
its area or number should be designated in the
contract, the vendor shall be bound to deliver all
that is included within said boundaries, even
when it exceeds the area or number specified in
the contract; and, should he not be able to do
so, he shall suffer a reduction in the price, in
proportion to what is lacking in the area or
number, unless the contract is rescinded because
the vendee does not accede to the failure to
deliver what has been stipulated. (1471)
Art. 1543. The actions arising from Articles
1539 and 1542 shall prescribe in six months,
counted from the day of delivery. (1472a)
a. Where price is at certain rate per unit of
measure
The seller is bound to deliver the entire land sold
in accordance with the terms of the contract.
GENERAL RULE: The vendee has to option to
demand a proportionate reduction of the
price or rescission of the contract: if price is
fixed at a certain rate per unit of measure and
the area is delivered is less than that stated in
the contract, or even if the area is correct but
part of the land is not of the quality stated in the
contract
EXCEPTION: Where the entire land is not of the
quality stated in the contract, as in such a case,
the consent must have been obtained by mistake
or fraud (contract may then be voidable.)
Art. 1539. see above.
b. Sale for a lump sum47
Art. 1542. see above.
47
AZARRAGA v GAY: Where the price was for a lump sum
and the area which was stated in the contract to be 98
hectares, turned out to be only 60 hectares, but the
purchaser had previously investigated and inspected the
condition of the land, and had ample opportunity to do so,
the purchaser cannot later on allege that the vendor made
false representation.
ASIAIN v JALANDONI: There was mutual mistake which
was so material as would go into the essence of the
contract. Rescission is proper. The buyer would have not
have bought the land had he known of the smaller area or
inferior quantity.

a) If the sale of real property is for a lump sum, there
shall be no increase or decrease in the price, whether
the actual area delivered turned out to be greater or
less than that stated in the contract.
b) If besides mentioning the boundaries, the area
should also be stated in the contract, the vendor shall
be bound to deliver all that is included within said
boundaries and there shall be no increase or decrease
in the price whether the area so delivered be greater
or less than that stated in the contract.48
c) If the vendor fails to deliver all the land included
within said boundaries, as where part of the land
belongs to a third person, the vendee shall have
the option to demand a reduction in the price in
proportion to the deficiency in the area stated in
the contract or a rescission of the contract
(Actions prescribe in six months from date of
delivery.)
4. Inspections and Acceptance
a. Right of inspection
Art. 1584. Where goods are delivered to the buyer,
which he has not previously examined, he is not
deemed to have accepted them unless and until he
has had a reasonable opportunity of examining them
for the purpose of ascertaining whether they are in
conformity with the contract if there is no stipulation
to the contrary.
Unless otherwise agreed, when the seller tenders
delivery of goods to the buyer, he is bound, on
request, to afford the buyer a reasonable opportunity
of examining the goods for the purpose of
ascertaining whether they are in conformity with the
contract.
Where goods are delivered to a carrier by the seller,
in accordance with an order from or agreement with
the buyer, upon the terms that the goods shall not be
delivered by the carrier to the buyer until he has paid
the price, whether such terms are indicated by
marking the goods with the words "collect on
delivery," or otherwise, the buyer is not entitled to
examine the goods before the payment of the price,
in the absence of agreement or usage of trade
permitting such examination. (n)
The buyer is entitled to examine the goods to decide
whether he will become the owner, and until the
examination is completed or waived, he is under NO
48
ROBLE v ARBASA: A vendee of land, when sold in gross or
with the description "more or less" with reference to its area, does
not thereby ipso facto take all risk of quantity in the land. The use
of "more or less" or similar words in designating quantity covers
only a reasonable excess or deficiency.
35
obligation to accept them. He may however
waive this right by simply refusing to inspect the
goods, taking them as they are or by any other
similar act.
b. Manifestation of acceptance
Art. 1585. The buyer is deemed to have
accepted the goods when he intimates to the
seller that he has accepted them, or when the
goods have been delivered to him, and he does
any act in relation to them which is inconsistent
with the ownership of the seller, or when, after
the lapse of a reasonable time, he retains the
goods without intimating to the seller that he has
rejected them. (n)
a) The buyer is deemed to have accepted the
goods when:
1. he intimates to the seller that the has
accepted them
2. the goods have been delivered to him and
he does any act in relation to them which is
inconsistent with the ownership of the seller
3. after the lapse of a reasonable time, he
retains the goods without intimating to the
seller that he has rejected them.
Exercise of acts of ownership over the goods is a
manifestation of acceptance, such as making use
of them as owner, making alterations in the
goods or subjecting it to the process of
manufacture. EXCEPTION: Buyer’s right to make
a test of goods, but only if necessary, to
enable him to determine whether to accept or
reject the goods.
c. Breach of warranty
Art. 1586. In the absence of express or implied
agreement of the parties, acceptance of the
goods by the buyer shall not discharge the seller
from liability in damages or other legal remedy
for breach of any promise or warranty in the
contract of sale. But, if, after acceptance of the
goods, the buyer fails to give notice to the seller
of the breach in any promise of warranty within
a reasonable time after the buyer knows, or
ought to know of such breach, the seller shall
not be liable therefor. (n)
a) The purpose of the notice of breach of
warranty is to PROTECT the seller against
belated damage claims which would prevent the
seller from making an adequate and proper
investigation of his alleged liability.
b) Acceptance of delivery means an ASSENT to
become OWNER of the goods on the part of the
buyer, but not an assent that the goods fulfill the
description and terms of the contract.
 d. Refusal to accept
Art. 1587. Unless otherwise agreed, where goods are
delivered to the buyer, and he refuses to accept
them, having the right so to do, he is not bound to
return them to the seller, but it is sufficient if he
notifies the seller that he refuses to accept them. If
he voluntarily constitutes himself a depositary
thereof, he shall be liable as such. (n)
Art. 1588. If there is no stipulation as specified in
the first paragraph of article 1523, when the buyer's
refusal to accept the goods is without just cause, the
title thereto passes to him from the moment they are
placed at his disposal. (n)
Art. 1589. The vendee shall owe interest for the
period between the delivery of the thing and the
payment of the price, in the following three cases:
(1) Should it have been so stipulated;
(2) Should the thing sold and delivered produce fruits
or income;
(3) Should he be in default, from the time of judicial
or extrajudicial demand for the payment of the price.
(1501a)
(1) Where delivery of the goods has been made
to the buyer or to a bailee for the buyer, in
pursuance of the contract and the ownership in
the goods has been retained by the seller merely
to secure performance by the buyer of his
obligations under the contract, the goods are at
the buyer's risk from the time of such delivery;
(2) Where actual delivery has been delayed
through the fault of either the buyer or seller the
goods are at the risk of the party in fault. (n)
B. PAYMENT OF PRICE
1. Liability for interest
Art. 1582, 1589. See above.
The buyer shall owe interest on the price from
the time the thing is delivered up to the time of
payment if there is stipulation requiring
interests, or even if there is none, if the thing
delivered produces fruits or income, or if the
buyer incurs in default from the time of judicial
or extra-judicial demand for payment
1. Suspension of Payment

Art. 1590. Should the vendee be disturbed in

the possession or ownership of the thing
a) Unless otherwise agreed, when the goods are
acquired, or should he have reasonable grounds
delivered to the buyer and he has a right to refuse to
to fear such disturbance, by a vindicatory action
accept them, he need not return them. It is
or a foreclosure of mortgage, he may suspend
sufficient that the buyer notifies the seller that he
the payment of the price until the vendor has
refuses to accept the goods, and thereafter, the
caused the disturbance or danger to cease,
former becomes the depository of the rejected goods.
unless the latter gives security for the return of
b) However, where title already passed to the buyer
the price in a proper case, or it has been
and there was a breach of warranty, the buyer may
stipulated that, notwithstanding any such
RESCIND the contract by returning or offering to
contingency, the vendee shall be bound to make
return the goods to the seller and recover the price
the payment. A mere act of trespass shall not
which had been paid.
authorize the suspension of the payment of the
,
price. (1502a)
e. Refusal to accept

a) “disturbance” or threat of disturbance – must

Art. 1582. The vendee is bound to accept delivery
come through a vindicatory action or foreclosure
and to pay the price of the thing sold at the time and
of mortgage, and not through a mere threat or
place stipulated in the contract.
claim of a third person.
If the time and place should not have been stipulated,
b) If the third person claims a servitude on the
the payment must be made at the time and place of
thing sold, the remedy of the buyer is to demand
the delivery of the thing sold. (1500a)
rescission of the contract or payment of the
proper indemnity.

Art. 1504. Unless otherwise agreed, the goods
remain at the seller's risk until the ownership therein
is transferred to the buyer, but when the ownership
therein is transferred to the buyer the goods are at
the buyer's risk whether actual delivery has been
made or not, except that:
c) In order that the buyer may have a right to
suspend payment, it is absolutely necessary that
the cause of disturbance or danger be based on
a fact arising before the sale or if it arose after

36
the sale, the cause is imputable to the vendor or his
successor in interest.49
2. Sale of Real Property
Art. 1592. In the sale of immovable property, even
though it may have been stipulated that upon failure
to pay the price at the time agreed upon the
rescission of the contract shall of right take place, the
vendee may pay, even after the expiration of the
period, as long as no demand for rescission of the
contract has been made upon him either judicially or
by a notarial act. After the demand, the court may
not grant him a new term. (1504a)
Art. 1560. If the immovable sold should be
encumbered with any non-apparent burden or
servitude, not mentioned in the agreement, of such a
nature that it must be presumed that the vendee
would not have acquired it had he been aware
thereof, he may ask for the rescission of the contract,
unless he should prefer the appropriate indemnity.
Neither right can be exercised if the non-apparent
burden or servitude is recorded in the Registry of
Property, unless there is an express warranty that the
thing is free from all burdens and encumbrances.
Within one year, to be computed from the execution
of the deed, the vendee may bring the action for
rescission, or sue for damages.
One year having elapsed, he may only bring an action
for damages within an equal period, to be counted
from the date on which he discovered the burden or
servitude. (1483a)
Art. 1664. The lessor is not obliged to answer for a
mere act of trespass which a third person may cause
on the use of the thing leased; but the lessee shall
have a direct action against the intruder.
There is a mere act of trespass when the third person
claims no right whatever. (1560a)
a. Effect of Non-payment
Art. 1191. The power to rescind obligations is
implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment
and the rescission of the obligation, with the payment
49
BARENG v CA: The vendee had a right to suspend payment
from the time he was informed of the co-owner’s claim. But such
right ceased from the time a compromise was reached between
the co-owners whereby the vendor agreed to give to the co-
owner two-thirds of whatever he could collect from the buyer.
After the compromise, when the vendor brought an action against
the buyer to collect the balance, said buyer owed interests on the
amount from the time of the filing of the complaint.
37
of damages in either case. He may also seek
rescission, even after he has chosen fulfillment,
if the latter should become impossible.
The court shall decree the rescission claimed,
unless there be just cause authorizing the fixing
of a period.
This is understood to be without prejudice to the
rights of third persons who have acquired the
thing, in accordance with Articles 1385 and 1388
and the Mortgage Law. (1124)
In absolute sales of real property, even if there
is a stipulation providing for ipso jure rescission,
in case of default in payment, the law requires
the seller to demand the resolution of the
contract from the buyer judicially or by a notarial
act, before such stipulation could be given effect.
Otherwise, the buyer could still pay the price
EVEN after the expiration of the period to pay. 50
b. R.A. 6553; P.D. 957 (Secs. 23 and 24)
a) Approved on 26 Aug 1972, the Realty
Installment Buyer Protection Act declared
that it is a public policy to protect buyers of real-
estate on installments, including residential
condominiums, apartments, excluding industrial
lots, commercial buildings and lands sold under
R.A. 3844 as amended, against onerous and
oppressive conditions
b) R.A. 6552, sec 2, in sale or financing of real
estate on installment payments where the buyer
has paid at least two years of installments,
provides that in case such buyer defaults in the
payment of the succeeding installments, he has
a right to pay, without additional interests, the
arrears within a grace period of one month
for every year of installment payments
made;
c) In the same case, if the contract is cancelled,
the seller shall refund to the buyer the case
surrender value of payments made, equivalent to
50% of total payments and an additional 5% for
every year after five years of the life of the
contract and its extensions, if any.
d) Actual cancellation shall not take place until
after 30 days from receipt by the buyer of the
notice of cancellation or demand for rescission by
50
DELA CRUZ v LEGAZPI: The injured party may choose
between fulfillment and rescission of the obligation, with
payment of damages in either the rescission claimed unless
there is just cause authorizing the granting of a new period,
as in this case.
a notarial act, and only upon full payment of the cash
surrender value to the buyer.51
e) Down-payments, deposits or options in the
contract shall be included in the computation of the
total number of installments made. The right to pay
the arrears within the grace period could only be
availed of by the buyer once in every five years of the
life of the contract and its extensions, if any.
f) In case of less than two years of installments were
paid, the grace period shall be not less than 60 days
from the date the installment became due. If the
buyer fails to pay within the grace period, the seller
may cancel the contract within 30 days from receipt
by the buyer of the notice of cancellation or demand
for rescission of the contract by a notarial act.
g) During the grace period or before the actual
cancellation of the contract, the buyer shall have the
right to:
1. sell or assign his rights, to be evidenced in a
notarial instrument, to a third person
2. update his account
3. pay in advance any installment or the full
unpaid balance of the price without interest
51
ACTIVE REALTY v DAROYA: In this case, respondent has
already paid in four (4) years a total of P314,860.76 or
P90,835.76 more than the contract price of P224,035.00. Also,
the records clearly show that the petitioner failed to comply with
the mandatory twin requirements for a valid and effective
cancellation under the law,19 i.e., he failed to send a notarized
notice of cancellation and refund the cash surrender value.
VALARAO v CA: The Court held that the rescission of the
contract and the forfeiture of the payments already made could
not be effected as per the pertinent provision of the
aforementioned law. Section 3(a) of Maceda Law provided that a
buyer “…who has paid at least two years of installments is
entitled to pay, without additional interest the unpaid installment
due within the total grace period earned by him, which is
hereby fixed at a rate of one month grace period for every year
of installment payments made. Hence, since the private
respondent was entitled to a one-month grace period for every
year of installments paid, she had a total grace period of three
months from 31 December 1990
OLYMPIA HOUSING v PANASIATIC TRAVEL: Unfortunately for
petitioner, it would be incorrect to apply Layug c IAC to the
instant case. Layug is basically an action for annulment of
contract, a kindred concept of rescission, whereas the instant
case before the Court is one for recovery of possession on the
thesis of a prior rescission of the contract covering the property.
Not only is an action for reconveyance conceptually different from
an action for rescission but that, also, the effects that flow from an
affirmative judgment in either case would be materially dissimilar
in various respects. The judicial resolution of a contract gives rise
to mutual restitution which is not necessarily the situation that can
arise in an action for reconveyance. Additionally, in an action for
rescission (also often termed as resolution), unlike in an action for
reconveyance predicated on an extrajudicial rescission
(rescission by notarial act), the Court, instead of decreeing
rescission, may authorize for a just cause the fixing of a period.
38
XII. WARRANTIES
A. EXPRESS WARRANTIES
a) Warranty – where one party promised that
the contingency or some act fixed by the
contract shall be performed, like a promise that
the goods are of a certain kind and character or
that certain state of facts would exist, the
promise constitutes a warranty, and failure of
which gives rise to an action for its breach.
Breach: the buyer may
1. accept goods + maintain an action for
damages
2. accept goods + set up breach of
warranty as a recoupment in diminution/
extinction of price
3. refuse to accept goods and maintain
action for damages
4. rescind + refuse to accept goods; or
return (or offer to return) goods +
recover price paid
1. Distinguished from condition
Art 1545. Where the obligation of either party
to a contract of sale is subject to any condition
which is not performed, such party may refuse to
proceed with the contract or he may waive
performance of the condition. If the other party
has promised that the condition should happen
or be performed, such first mentioned party may
also treat the nonperformance of the condition
as a breach of warranty.
Where the ownership in the thing has not
passed, the buyer may treat the fulfillment by
the seller of his obligation to deliver the same as
described and as warranted expressly or by
implication in the contract of sale as a condition
of the obligation of the buyer to perform his
promise to accept and pay for the thing. (n)
Condition – an uncertain event or contingency
fixed by parties, the existence or happening of
which was necessary to the efficacy of the
contract, and failure of which permits the injured
party to treat the contract as at an end, but
creates no right of action. Where a condition is
not performed, the buyer may refuse to proceed
with the contract, or accept the goods and waive
performance of the condition.52
52
ROMERO v CA, LIM v CA: distinguished condition
imposed on perfection on the contract vs condition imposed
on performance of obligation; failure to comply with 1 st
condition results in failure of contract, while failure to
comply with 2nd only gives other party option to either refuse
to proceed with the sale or to waive the condition as
mandated under Art 1545.
Distinctions according to Villanueva (Law on Sales , warranty that the goods are merchantable;
2004) mere expression of an opinion53
3. Distinguished from false
Condition Warranty representation54
Generally goes into Goes into the
the root of the performance of such B. IMPLIED WARRANTIES55
existence of the obligation, and in fact
obligation may constitute an 1. Implied warranty of title
obligation in itself
Must be stipulated by May form part of Art 1547. In a contract of sale, unless a
the parties in order to obligation by contract contrary intention appears, there is:
form part of an or provision of law,
obligation without parties having (1) An implied warranty on the part of the seller
agreed thereto that he has a right to sell the thing at the time
May attach itself Whether express or when the ownership is to pass, and that the
either to obligation of implied, relates to buyer shall from that time have and enjoy the
seller to deliver subject matter itself or legal and peaceful possession of the thing;
possession or transfer to the obligations of the
ownership over seller as to the subject (2) An implied warranty that the thing shall be
subject matter of sale matter of the sale free from any hidden faults or defects, or any
charge or encumbrance not declared or known to
the buyer.
2. Distinguished from opinion, dealer’s talk
This Article shall not, however, be held to render
Art 1546. Any affirmation of fact or any promise by liable a sheriff, auctioneer, mortgagee, pledgee,
the seller relating to the thing is an express warranty or other person professing to sell by virtue of
if the natural tendency of such affirmation or promise authority in fact or law, for the sale of a thing in
is to induce the buyer to purchase the same, and if which a third person has a legal or equitable
the buyer purchase the thing relying thereon. No interest. (n)
affirmation of the value of the thing, nor any
statement purporting to be a statement of the seller's Art 1548. Eviction shall take place whenever by
opinion only, shall be construed as a warranty, unless a final judgment based on a right prior to the
the seller made such affirmation or statement as an
expert and it was relied upon by the buyer. (n) 53
SONGCO v SELLNER: Opinion or dealer’s talk is not
warranty. Opinion or dealer’s talk is the usual or ordinary
a) Warranty – an affirmation of fact or any promise means used by sellers to get a high price and is understood
by seller relating to the thing which has a natural as affording to buyers no ground for omitting to make
tendency to induce the buyer to purchase the same, inquiries. Caveat emptor. A man who relies on such an
affirmation does so at his own peril and must take the
relying on such promise of affirmation consequences of his imprudence.
What would make a misrepresentation void: (a) false
b) Opinion/dealer’s talk – an affirmation of the value representation is as to matters of fact substantially affecting
of the thing or any statement of the seller’s opinion buyer’s interest, and not as to matters of opinion, judgment,
shall not be construed as a warranty, unless the seller probability or expectation; (b) the party to the contract who
made such an affirmation as an expert and it was has special/expert knowledge takes advantage of the
relied upon by the buyer ignorance of another to impose upon him the false
representation.
Test: whether the vendor assumes to assert a fact of MOLES v IAC: Ordinarily, what does not appear on the
which the buyer is ignorant, in which case it is a face of the written instrument should be regarded as
warranty, or whether it is merely an expression of an dealer's or trader's talk; conversely, what is specifically
opinion or judgment on the part of the seller on a represented as true in said document, as in the instant
matter of which the seller has no special knowledge case, cannot be considered as mere dealer's talk
and on which the buyer may be expected also to have
54
an opinion or exercise his judgment. PHIL. MANUFACTURING v. Go JUCCO: An intention to
 “In good condition” v. “Excellent quality” – the deceive or mislead the other party to his prejudice is an
first relates to the quantity, kind or condition of essential element of fraud. Concealment of facts does not
the goods sold, it is an affirmation of fact or necessarily amount to false representation, unless there
promise, and not a mere expression of an was an active misstatement of fact or a partial statement of
fact, such that withholding of that which is not stated makes
opinion; the second is not an express warranty
that which is stated absolutely false.
and the purchaser must rely on the implied
55

39
sale or an act imputable to the vendor, the vendee is
deprived of the whole or of a part of the thing
purchased.
The vendor shall answer for the eviction even though
nothing has been said in the contract on the subject.
The contracting parties, however, may increase,
diminish, or suppress this legal obligation of the
vendor. (1475a)
Art 1549. The vendee need not appeal from the
decision in order that the vendor may become liable
for eviction. (n)
Art 1550. When adverse possession had been
commenced before the sale but the prescriptive
period is completed after the transfer, the vendor
shall not be liable for eviction. (n)
Art 1551. If the property is sold for nonpayment of
taxes due and not made known to the vendee before
the sale, the vendor is liable for eviction. (n)
Art 1552. The judgment debtor is also responsible
for eviction in judicial sales, unless it is otherwise
decreed in the judgment. (n) 56
Art 1553. Any stipulation exempting the vendor from
the obligation to answer for eviction shall be void, if
he acted in bad faith. (1476)
Art 1554. If the vendee has renounced the right to
warranty in case of eviction, and eviction should take
place, the vendor shall only pay the value which the
thing sold had at the time of the eviction. Should the
vendee have made the waiver with knowledge of the
risks of eviction and assumed its consequences, the
vendor shall not be liable. (1477)
Art 1555. When the warranty has been agreed upon
or nothing has been stipulated on this point, in case
eviction occurs, the vendee shall have the right to
demand of the vendor:
(1) The return of the value which the thing sold had
at the time of the eviction, be it greater or less than
the price of the sale;
(2) The income or fruits, if he has been ordered to
deliver them to the party who won the suit against
him;
56
SANTIAGO LAND v CA: Although in voluntary sales or
transaction, the vendor can be expected to defend his title
because of his warranty to the vendees: no such obligation is
owed by the owner whose land is sold at execution sale.
40
(3) The costs of the suit which caused the
eviction, and, in a proper case, those of the suit
brought against the vendor for the warranty;
(4) The expenses of the contract, if the vendee
has paid them;
(5) The damages and interests, and ornamental
expenses, if the sale was made in bad faith.
(1478)
Art 1556. Should the vendee lose, by reason of
the eviction, a part of the thing sold of such
importance, in relation to the whole, that he
would not have bought it without said part, he
may demand the rescission of the contract; but
with the obligation to return the thing without
other encumbrances that those which it had
when he acquired it.
He may exercise this right of action, instead of
enforcing the vendor's liability for eviction.
The same rule shall be observed when two or
more things have been jointly sold for a lump
sum, or for a separate price for each of them, if
it should clearly appear that the vendee would
not have purchased one without the other.
(1479a)
Art 1557. The warranty cannot be enforced until
a final judgment has been rendered, whereby
the vendee loses the thing acquired or a part
thereof. (1480)
Art 1558. The vendor shall not be obliged to
make good the proper warranty, unless he is
summoned in the suit for eviction at the instance
of the vendee. (1481a)
Art 1559. The defendant vendee shall ask,
within the time fixed in the Rules of Court for
answering the complaint, that the vendor be
made a co-defendant. (1482a)
2. Implied warranty against hidden
encumbrances or defects57
57
MOLES v IAC : …we have to consider the rule on
redhibitory defects contemplated in Article 1561 of the Civil
Code. A redhibitory defect must be an imperfection or
defect of such nature as to engender a certain degree of
importance. An imperfection or defect of little consequence
does not come within the category of being redhibitory.
INVESTMENTS AND DEV’T INC. v CA: “Implied warranty
against hidden faults or defects under Art 1547 of the Civil
Code cover only those that make the object of the sale unfit
for the use for which it was intended at the time of the sale,
and that in the sale of agricultural land, the existing tenancy
relationship pertaining thereto cannot be considered as

Art 1561. The vendor shall be responsible for
warranty against the hidden defects which the thing
sold may have, should they render it unfit for the use
for which it is intended, or should they diminish its
fitness for such use to such an extent that, had the
vendee been aware thereof, he would not have
acquired it or would have given a lower price for it;
but said vendor shall not be answerable for patent
defects or those which may be visible, or for those
which are not visible if the vendee is an expert who,
by reason of his trade or profession, should have
known them. (1484a)
Art 1562. In a sale of goods, there is an implied
warranty or condition as to the quality or fitness of
the goods, as follows:
(1) Where the buyer, expressly or by implication,
makes known to the seller the particular purpose for
which the goods are acquired, and it appears that the
buyer relies on the seller's skill or judgment (whether
he be the grower or manufacturer or not), there is an
implied warranty that the goods shall be reasonably
fit for such purpose;
(2) Where the goods are brought by description from
a seller who deals in goods of that description
(whether he be the grower or manufacturer or not),
there is an implied warranty that the goods shall be
of merchantable quality. (n)
Art 1563. In the case of contract of sale of a
specified article under its patent or other trade name,
there is no warranty as to its fitness for any particular
purpose, unless there is a stipulation to the contrary.
(n)
Art 1564. An implied warranty or condition as to the
quality or fitness for a particular purpose may be
annexed by the usage of trade. (n)
Art 1565. In the case of a contract of sale by
sample, if the seller is a dealer in goods of that kind,
there is an implied warranty that the goods shall be
free from any defect rendering them unmerchantable
which would not be apparent on reasonable
examination of the sample. (n)
Art 1566. The vendor is responsible to the vendee
for any hidden faults or defects in the thing sold,
even though he was not aware thereof.
This provision shall not apply if the contrary has been
stipulated, and the vendor was not aware of the
hidden faults or defects in the thing sold. (1485)
hidden fault or defect.
41
Art 1567. In the cases of Articles 1561, 1562,
1564, 1565 and 1566, the vendee may elect
between withdrawing from the contract and
demanding a proportionate reduction of the
price, with damages in either case. (1486a)
Art 1568. If the thing sold should be lost in
consequence of the hidden faults, and the
vendor was aware of them, he shall bear the
loss, and shall be obliged to return the price and
refund the expenses of the contract, with
damages. If he was not aware of them, he shall
only return the price and interest thereon, and
reimburse the expenses of the contract which
the vendee might have paid. (1487a)
Art 1569. If the thing sold had any hidden fault
at the time of the sale, and should thereafter be
lost by a fortuitous event or through the fault of
the vendee, the latter may demand of the
vendor the price which he paid, less the value
which the thing had when it was lost.
If the vendor acted in bad faith, he shall pay
damages to the vendee. (1488a)
Art 1570. The preceding articles of this
Subsection shall be applicable to judicial sales,
except that the judgment debtor shall not be
liable for damages. (1489a)
Art 1571. Actions arising from the provisions of
the preceding ten articles shall be barred after
six months, from the delivery of the thing sold.
(1490)
Warranties in sale of animals
Art 1577. The redhibitory action, based on the
faults or defects of animals, must be brought
within forty days from the date of their delivery
to the vendee.
This action can only be exercised with respect to
faults and defects which are determined by law
or by local customs. (1496a)
Art 1578. If the animal should die within three
days after its purchase, the vendor shall be liable
if the disease which cause the death existed at
the time of the contract. (1497a)
Art 1579. If the sale be rescinded, the animal
shall be returned in the condition in which it was
sold and delivered, the vendee being answerable
for any injury due to his negligence, and not
arising from the redhibitory fault or defect.
(1498)
Art 1580. In the sale of animals with redhibitory
defects, the vendee shall also enjoy the right
mentioned in article 1567; but he must make use
thereof within the same period which has been fixed
for the exercise of the redhibitory action. (1499)
Sale by sample or description
Art 1481. In the contract of sale of goods by
description or by sample, the contract may be
rescinded if the bulk of the goods delivered do not
correspond with the description or the sample, and if
the contract be by sample as well as description, it is
not sufficient that the bulk of goods correspond with
the sample if they do not also correspond with the
description.
The buyer shall have a reasonable opportunity of
comparing the bulk with the description or the
sample. (n)
Art 1565. In the case of a contract of sale by
sample, if the seller is a dealer in goods of that kind,
there is an implied warranty that the goods shall be
free from any defect rendering them unmerchantable
which would not be apparent on reasonable
examination of the sample. (n)
3. Implied warranty of quality
Art 1562. In a sale of goods, there is an implied
warranty or condition as to the quality or fitness of
the goods, as follows:
(1) Where the buyer, expressly or by implication,
makes known to the seller the particular purpose for
which the goods are acquired, and it appears that the
buyer relies on the seller's skill or judgment (whether
he be the grower or manufacturer or not), there is an
implied warranty that the goods shall be reasonably
fit for such purpose;
(2) Where the goods are brought by description from
a seller who deals in goods of that description
(whether he be the grower or manufacturer or not),
there is an implied warranty that the goods shall be
of merchantable quality. (n)
Art 1563. In the case of contract of sale of a
specified article under its patent or other trade name,
there is no warranty as to its fitness for any particular
purpose, unless there is a stipulation to the contrary.
(n)
Art 1564. An implied warranty or condition as to the
quality or fitness for a particular purpose may be
annexed by the usage of trade. (n)
Art. 1599. Where there is a breach of warranty by
the seller, the buyer may, at his election:
42
(1) Accept or keep the goods and set up against
the seller, the breach of warranty by way of
recoupment in diminution or extinction of the
price;
(2) Accept or keep the goods and maintain an
action against the seller for damages for the
breach of warranty;
(3) Refuse to accept the goods, and maintain an
action against the seller for damages for the
breach of warranty;
(4) Rescind the contract of sale and refuse to
receive the goods or if the goods have already
been received, return them or offer to return
them to the seller and recover the price or any
part thereof which has been paid.
When the buyer has claimed and been granted a
remedy in anyone of these ways, no other
remedy can thereafter be granted, without
prejudice to the provisions of the second
paragraph of Article 1191.
Where the goods have been delivered to the
buyer, he cannot rescind the sale if he knew of
the breach of warranty when he accepted the
goods without protest, or if he fails to notify the
seller within a reasonable time of the election to
rescind, or if he fails to return or to offer to
return the goods to the seller in substantially as
good condition as they were in at the time the
ownership was transferred to the buyer. But if
deterioration or injury of the goods is due to the
breach or warranty, such deterioration or injury
shall not prevent the buyer from returning or
offering to return the goods to the seller and
rescinding the sale.
Where the buyer is entitled to rescind the sale
and elects to do so, he shall cease to be liable for
the price upon returning or offering to return the
goods. If the price or any part thereof has
already been paid, the seller shall be liable to
repay so much thereof as has been paid,
concurrently with the return of the goods, or
immediately after an offer to return the goods in
exchange for repayment of the price.
Where the buyer is entitled to rescind the sale
and elects to do so, if the seller refuses to accept
an offer of the buyer to return the goods, the
buyer shall thereafter be deemed to hold the
goods as bailee for the seller, but subject to a
lien to secure payment of any portion of the
price which has been paid, and with the
remedies for the enforcement of such lien
allowed to an unpaid seller by Article 1526.
(5) In the case of breach of warranty of quality, such
loss, in the absence of special circumstances showing
proximate damage of a greater amount, is the
difference between the value of the goods at the time
of delivery to the buyer and the value they would
have had if they had answered to the warranty. (n)
4. Additional warranties in sale of
consumer products
Art. 68, RA 7394. Additional Provisions on
Warranties. - In addition to the Civil Code provisions
on sale with warranties, the following provisions shall
govern the sale of consumer products with warranty:
(a) Terms of express warranty. - Any seller or
manufacturer who gives an express warranty shall:
(1) set forth the terms of warranty in clear and
readily understandable language and clearly identify
himself as the warrantor;
(2) identify the party to whom the warranty is
extended;
(3) state the products or parts covered;
(4) state what the warrantor will do in the event
of a defect, malfunction of failure to conform to the
written warranty and at whose expense;
(5) state what the consumer must do to avail of
the rights which accrue to the warranty; and
(6) stipulate the period within which, after notice
of defect, malfunction or failure to conform to the
warranty, the warrantor will perform any obligation
under the warranty.
(b) Express warranty - operative from moment of
sale. - All written warranties or guarantees issued by
a manufacturer, producer, or importer shall be
operative from the moment of sale.
(1) Sales Report. - All sales made by distributors
of products covered by this Article shall be reported
to the manufacturer, producer, or importer of the
product sold within thirty (30) days from date of
purchase, unless otherwise agreed upon. The report
shall contain, among others, the date of purchase,
model of the product bought, its serial number, name
and address of the buyer. The report made in
accordance with this provision shall be equivalent to a
warranty registration with the manufacturer,
producer, or importer. Such registration is sufficient
to hold the manufacturer, producer, or importer
liable, in appropriate cases, under its warranty.
(2) Failure to make or send report. - Failure of
the distributor to make the report or send them the
form required by the manufacturer, producer, or
importer shall relieve the latter of its liability under
the warranty: Provided, however, That the distributor
who failed to comply with its obligation to send the
sales reports shall be personally liable under the
warranty. For this purpose, the manufacturer shall be
obligated to make good the warranty at the expense
of the distributor.
(3) Retail. - The retailer shall be subsidiarily liable
under the warranty in case of failure of both the
43
manufacturer and distributor to honor the
warranty. In such case, the retailer shall
shoulder the expenses and costs necessary to
honor the warranty. Nothing therein shall
prevent the retailer from proceeding against the
distributor or manufacturer.
(4) Enforcement of warranty or guarantee. -
The warranty rights can be enforced by
presentment of a claim. To this end, the
purchaser needs only to present to the
immediate seller either the warranty card of the
official receipt along with the product to be
serviced or returned to the immediate seller. No
other documentary requirement shall be
demanded from the purchaser. If the immediate
seller is the manufacturer's factory or showroom,
the warranty shall immediately be honored. If
the product was purchased from a distributor,
the distributor shall likewise immediately honor
the warranty. In the case of a retailer other than
the distributor, the former shall take
responsibility without cost to the buyer of
presenting the warranty claim to the distributor
in the consumer's behalf.
(5) Record of purchases. - Distributors and
retailers covered by this Article shall keep a
record of all purchases covered by a warranty or
guarantee for such period of time corresponding
to the lifetime of the product's respective
warranties or guarantees.
(6) Contrary stipulations: null and void. - All
covenants, stipulations or agreements contrary
to the provisions of this Article shall be without
legal effect.
(c) Designation of warranties. - A written
warranty shall clearly and conspicuously
designate such warranty as:
(1) "Full warranty" if the written warranty
meets the minimum requirements set forth in
paragraph (d); or
(2) "Limited warranty" if the written
warranty does not meet such minimum
requirements.
(d) Minimum standards for warranties. - For the
warrantor of a consumer product to meet the
minimum standards for warranty, he shall:
(1) remedy such consumer product within a
reasonable time and without charge in case of a
defect, malfunction or failure to conform to such
written warranty;
(2) permit the consumer to elect whether to
ask for a refund or replacement without charge
of such product or part, as the case may be,
where after reasonable number of attempts to
remedy the defect or malfunction, the product
continues to have the defect or to malfunction.
The warrantor will not be required to
perform the above duties if he can show that the
defect, malfunction or failure to conform to a
written warranty was caused by damage due to
unreasonable use thereof.
(e) Duration of warranty. - The seller and the
consumer may stipulate the period within which the
express warranty shall be enforceable. If the implied
warranty on merchantability accompanies an express
warranty, both will be of equal duration.
Any other implied warranty shall endure not less
than sixty (60) days nor more than one (1) year
following the sale of new consumer products.
(f) Breach of warranties. –
(1) In case of breach of express warranty, the
consumer may elect to have the goods repaired or its
purchase price refunded by the warrantor. In case the
repair of the product in whole or in part is elected,
the warranty work must be made to conform to the
express warranty within thirty (30) days by either the
warrantor or his representative. The thirty-day
period, however, may be extended by conditions
which are beyond the control of the warrantor or his
representative. In case the refund of the purchase
price is elected, the amount directly attributable to
the use of the consumer prior to the discovery of the
non-conformity shall be deducted.
(2) In case of breach of implied warranty, the
consumer may retain in the goods and recover
damages, or reject the goods, cancel and contract
and recover from the seller so much of the purchase
price as has been paid, including damages.
C. BUYER’S WAIVER IN CASE OF BREACH
WARRANTY
Art. 1599. xxx Where the goods have been delivered
to the buyer, he cannot rescind the sale if he knew of
the breach of warranty when he accepted the goods
without protest, or if he fails to notify the seller within
a reasonable time of the election to rescind, or if he
fails to return or to offer to return the goods to the
seller in substantially as good condition as they were
in at the time the ownership was transferred to the
buyer. But if deterioration or injury of the goods is
due to the breach or warranty, such deterioration or
injury shall not prevent the buyer from returning or
offering to return the goods to the seller and
rescinding the sale. xxx
XII. BREACH OF CONTRACTS
A. SALE OF GOODS
1. Remedies of the Seller
1. Action for the price
Art 1595. Where, under a contract of sale, the
ownership of the goods has passed to the buyer and
he wrongfully neglects or refuses to pay for the
goods according to the terms of the contract of
sale, the seller may maintain an action against
him for the price of the goods.
Where, under a contract of sale, the price is
payable on a certain day, irrespective of delivery
or of transfer of title and the buyer wrongfully
neglects or refuses to pay such price, the seller
may maintain an action for the price although
the ownership in the goods has not passed. But
it shall be a defense to such an action that the
seller at any time before the judgment in such
action has manifested an inability to perform the
contract of sale on his part or an intention not to
perform it.
Although the ownership in the goods has not
passed, if they cannot readily be resold for a
reasonable price, and if the provisions of article
1596, fourth paragraph, are not applicable, the
seller may offer to deliver the goods to the
buyer, and, if the buyer refuses to receive them,
may notify the buyer that the goods are
thereafter held by the seller as bailee for the
buyer. Thereafter the seller may treat the goods
as the buyer's and may maintain an action for
the price. (n)
2. Action for damages
Art 1596. Where the buyer wrongfully neglects
or refuses to accept and pay for the goods, the
OF seller may maintain an action against him for
damages for nonacceptance.
The measure of damages is the estimated loss
directly and naturally resulting in the ordinary
course of events from the buyer's breach of
contract.
Where there is an available market for the goods
in question, the measure of damages is, in the
absence of special circumstances showing
proximate damage of a different amount, the
difference between the contract price and the
market or current price at the time or times
when the goods ought to have been accepted,
or, if no time was fixed for acceptance, then at
the time of the refusal to accept.
If, while labor or expense of material amount is
necessary on the part of the seller to enable him
to fulfill his obligations under the contract of
sale, the buyer repudiates the contract or
notifies the seller to proceed no further
therewith, the buyer shall be liable to the seller
for labor performed or expenses made before
receiving notice of the buyer's repudiation or
countermand. The profit the seller would have
made if the contract or the sale had been fully
44
performed shall be considered in awarding
damages. (n)
3. Rescission
Art 1597. Where the goods have not been delivered
to the buyer, and the buyer has repudiated the
contract of sale, or has manifested his inability to
perform his obligations thereunder, or has committed
a breach thereof, the seller may totally rescind the
contract of sale by giving notice of his election so to
do to the buyer. (n)
2. Remedies of the Buyer
1. Specific performance
Art 1598. Where the seller has broken a contract to
deliver specific or ascertained goods, a court may, on
the application of the buyer, direct that the contract
shall be performed specifically, without giving the
seller the option of retaining the goods on payment of
damages. The judgment or decree may be
unconditional, or upon such terms and conditions as
to damages, payment of the price and otherwise, as
the court may deem just. (n)
2. Breach of warranty
Art. 1599. Where there is a breach of warranty by
the seller, the buyer may, at his election:
(1) Accept or keep the goods and set up against the
seller, the breach of warranty by way of recoupment
in diminution or extinction of the price;
(2) Accept or keep the goods and maintain an action
against the seller for damages for the breach of
warranty;
(3) Refuse to accept the goods, and maintain an
action against the seller for damages for the breach
of warranty;
(4) Rescind the contract of sale and refuse to receive
the goods or if the goods have already been received,
return them or offer to return them to the seller and
recover the price or any part thereof which has been
paid.
When the buyer has claimed and been granted a
remedy in anyone of these ways, no other remedy
can thereafter be granted, without prejudice to the
provisions of the second paragraph of Article 1191.
Where the goods have been delivered to the buyer,
he cannot rescind the sale if he knew of the breach of
warranty when he accepted the goods without
protest, or if he fails to notify the seller within a
reasonable time of the election to rescind, or if he
the fails to return or to offer to return the goods to
the seller in substantially as good condition as
they were in at the time the ownership was
transferred to the buyer. But if deterioration or
injury of the goods is due to the breach or
warranty, such deterioration or injury shall not
prevent the buyer from returning or offering to
return the goods to the seller and rescinding the
sale.
Where the buyer is entitled to rescind the sale
and elects to do so, he shall cease to be liable for
the price upon returning or offering to return the
goods. If the price or any part thereof has
already been paid, the seller shall be liable to
repay so much thereof as has been paid,
concurrently with the return of the goods, or
immediately after an offer to return the goods in
exchange for repayment of the price.
Where the buyer is entitled to rescind the sale
and elects to do so, if the seller refuses to accept
an offer of the buyer to return the goods, the
buyer shall thereafter be deemed to hold the
goods as bailee for the seller, but subject to a
lien to secure payment of any portion of the
price which has been paid, and with the
remedies for the enforcement of such lien
allowed to an unpaid seller by Article 1526.
(5) In the case of breach of warranty of quality,
such loss, in the absence of special
circumstances showing proximate damage of a
greater amount, is the difference between the
value of the goods at the time of delivery to the
buyer and the value they would have had if they
had answered to the warranty. (n)
Art 1571. Actions arising from the provisions of
the preceding ten articles shall be barred after
six months, from the delivery of the thing sold.
(1490)
3. Rescission
Art. 1599. Where there is a breach of warranty
by the seller, the buyer may, at his election:
(1) Accept or keep the goods and set up against
the seller, the breach of warranty by way of
recoupment in diminution or extinction of the
price;
(2) Accept or keep the goods and maintain an
action against the seller for damages for the
breach of warranty;
(3) Refuse to accept the goods, and maintain an
action against the seller for damages for the
breach of warranty;
45
(4) Rescind the contract of sale and refuse to receive
the goods or if the goods have already been received,
return them or offer to return them to the seller and
recover the price or any part thereof which has been
paid.
When the buyer has claimed and been granted a
remedy in anyone of these ways, no other remedy
can thereafter be granted, without prejudice to the
provisions of the second paragraph of Article 1191.
Where the goods have been delivered to the buyer,
he cannot rescind the sale if he knew of the breach of
warranty when he accepted the goods without
protest, or if he fails to notify the seller within a
reasonable time of the election to rescind, or if he
fails to return or to offer to return the goods to the
seller in substantially as good condition as they were
in at the time the ownership was transferred to the
buyer. But if deterioration or injury of the goods is
due to the breach or warranty, such deterioration or
injury shall not prevent the buyer from returning or
offering to return the goods to the seller and
rescinding the sale.
Where the buyer is entitled to rescind the sale and
elects to do so, he shall cease to be liable for the
price upon returning or offering to return the goods.
If the price or any part thereof has already been paid,
the seller shall be liable to repay so much thereof as
has been paid, concurrently with the return of the
goods, or immediately after an offer to return the
goods in exchange for repayment of the price.
Where the buyer is entitled to rescind the sale and
elects to do so, if the seller refuses to accept an offer
of the buyer to return the goods, the buyer shall
thereafter be deemed to hold the goods as bailee for
the seller, but subject to a lien to secure payment of
any portion of the price which has been paid, and
with the remedies for the enforcement of such lien
allowed to an unpaid seller by Article 1526.
(5) In the case of breach of warranty of quality, such
loss, in the absence of special circumstances showing
proximate damage of a greater amount, is the
difference between the value of the goods at the time
of delivery to the buyer and the value they would
have had if they had answered to the warranty. (n)
B. SALE OF IMMOVABLES AND THINGS OTHER THAN
GOODS
Art 1191. The power to rescind obligations is implied
in reciprocal ones, in case one of the obligors should
not comply with what is incumbent upon him.
The injured party may choose between the fulfillment
and the rescission of the obligation, with the payment
of damages in either case. He may also seek
46
rescission, even after he has chosen fulfillment,
if the latter should become impossible.
The court shall decree the rescission claimed,
unless there be just cause authorizing the fixing
of a period.
This is understood to be without prejudice to the
rights of third persons who have acquired the
thing, in accordance with Articles 1385 and 1388
and the Mortgage Law. (1124)
Art. 1192. In case both parties have committed
a breach of the obligation, the liability of the first
infractor shall be equitably tempered by the
courts. If it cannot be determined which of the
parties first violated the contract, the same shall
be deemed extinguished, and each shall bear his
own damages. (n)
Art 1385. Rescission creates the obligation to
return the things which were the object of the
contract, together with their fruits, and the price
with its interest; consequently, it can be carried
out only when he who demands rescission can
return whatever he may be obliged to restore.
Neither shall rescission take place when the
things which are the object of the contract are
legally in the possession of third persons who did
not act in bad faith.
In this case, indemnity for damages may be
demanded from the person causing the loss.
(1295)
Art 1591. Should the vendor have reasonable
grounds to fear the loss of immovable property
sold and its price, he may immediately sue for
the rescission of the sale.
Should such ground not exist, the provisions of
Article 1191 shall be observed. (1503)
C. SALE OF MOVABLES ON INSTALLMENT58
Art 1484. In a contract of sale of personal
property the price of which is payable in
installments, the vendor may exercise any of the
following remedies:
58
LEVY v GERVACIO: CC Art 1454 is aimed at sales
where the price is payable in several installments. A cash
payment (in sales with two installments) cannot be
considered as a payment in installments, and even if it can
be so considered, still the law does not apply, for it requires
nonpayment of two or more installments in order that its
provisions may be invoked. In this case, only one
installment was unpaid.
(1) Exact fulfillment of the obligation, should the
vendee fail to pay;
(2) Cancel the sale, should the vendee's failure to pay
cover two or more installments;
(3) Foreclose the chattel mortgage on the thing sold,
if one has been constituted, should the vendee's
failure to pay cover two or more installments. In this
case, he shall have no further action against the
purchaser to recover any unpaid balance of the price.
Any agreement to the contrary shall be void. (1454-
A-a)59
Art 1485. The preceding article shall be applied to
contracts purporting to be leases of personal property
with option to buy, when the lessor has deprived the
lessee of the possession or enjoyment of the thing.
(1454-A-a)
59
TAJANLANGIT v SOUTHERN MOTORS: It is true that there
was a chattel mortgage on the goods sold, but Southern Motors
elected to sue the note exclusively – to exact fulfillment of the
obligation to pay. It had the right to select among the three
remedies established in Art 1484. In choosing to sue on the note,
it was not thereby limited to the proceeds of the sale, on
execution, of the mortgaged good.
FILINVEST v CA: The remedies IN 1484 are alternative and not
cumulative. Hence, the exercise of one bars the exercise of the
others.
NONATO v IAC: The corporation is barred from exacting
payment from Nonato of the balance of the price of the vehicle
when it had already repossessed it.
CRUZ v FILIPINAS INVESTMENTS: The vendor of personal
property sold on installment basis is precluded, after foreclosing
the chattel mortgage on the thing sold, from having a recourse
against the additional security put up by a third party to guarantee
the purchaser’s performance of his obligation.
NORTHERN MOTORS v SAPINOSO: What Art 1484 (3)
prohibits is “further action against the purchaser to recover any
unpaid balance of the price;” and although this Court has
construed the word “action” to mean “any judicial or extrajudicial
proceeding by virtue of which the vendor may lawfully be enabled
to exact recovery of the supposed unsatisfied balance of the
purchase price from the purchaser or his privy,” there is no
occasion at this stage to apply the restrictive provision of the said
article because there has not yet been a foreclosure sale
resulting in a deficiency. The payment of the sum of P1,250 of
Sapinoso was a voluntary act on his part and did not result from a
“further action” instituted by Northern Motors.
When the seller
BORBON assigns his credit
v SERVICE-WIDE to another person, the latter is
SPECIALIST:
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.
47
Art 1486. In the case referred to in two
preceding articles, 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. (n)
Art 1533. Where the goods are of perishable
nature, or where the seller expressly reserves
the right of resale in case the buyer should make
default, or where the buyer has been in default
in the payment of the price for an unreasonable
time, an unpaid seller having a right of lien or
having stopped the goods in transitu may resell
the goods. He shall not thereafter be liable to the
original buyer upon the contract of sale or for
any profit made by such resale, but may recover
from the buyer damages for any loss occasioned
by the breach of the contract of sale.
Where a resale is made, as authorized in this
article, the buyer acquires a good title as against
the original buyer.
It is not essential to the validity of resale that
notice of an intention to resell the goods be
given by the seller to the original buyer. But
where the right to resell is not based on the
perishable nature of the goods or upon an
express provision of the contract of sale, the
giving or failure to give such notice shall be
relevant in any issue involving the question
whether the buyer had been in default for an
unreasonable time before the resale was made.
It is not essential to the validity of a resale that
notice of the time and place of such resale
should be given by the seller to the original
buyer.
The seller is bound to exercise reasonable care
and judgment in making a resale, and subject to
this requirement may make a resale either by
public or private sale. He cannot, however,
directly or indirectly buy the goods. (n)
When the seller assigns his credit to another
person, the latter may likewise avail of the
remedies under Art 1484 (assuming case is one
of sale of movables on installment). If the
remedy chosen is rescission, a stipulation in the
contract that the installments paid shall not be
returned to the vendee is valid insofar as the
same may not be unconscionable under the
circumstances (Villanueva citing Delta Motor v.
Niu Kim Duan, 213 SCRA 259)
D. SALE OF IMMOVABLES ON INSTALLMENT
1. Anticipatory breach
Art 1591. Should the vendor have reasonable
grounds to fear the loss of immovable property sold
and its price, he may immediately sue for the
rescission of the sale.
Should such ground not exist, the provisions of Article
1191 shall be observed. (1503)
2. PD 957, Section 23 & 2460
PD 957, Sec 23. Non-Forfeiture of Payments. – No
installment payment made by a buyer in a subdivision
or condominium project for a lot or unit he contracted
to buy shall be forfeited in favor of the owner or
developer when the buyer, after due notice to the
owner or developer, desists from further payment due
to the failure of the owner or developer to develop
the subdivision or condominium project according to
the approved plans and within the time limit for
complying with the same. Such buyer may, at his
option, be reimbursed the total amount paid including
amortization interests but excluding delinquency
interests, with interest thereon at the legal rate.
PD 957, Sec 24. Failure to pay installments. – The
rights of the buyer in the event of his failure to pay
the installments due for reasons other than failure of
the owner or developer to develop the project shall be
governed by Republic Act No. 6552
3. RA 6552 “Maceda Law”: Sale of Residential
Realty on Installment61
60
CASA FILIPINAS REALTY v OP: PD 957 to stem the tide of
“fraudulent manipulations perpetrated by unscrupulous
subdivision and condominium sellers and operators, such as
failure to deliver titles to buyers or titles free from liens and
encumbrances. Should the notice requirement in Sec 23 be
construed as required to be given before a buyer desists from
further paying, the intent of the law to protect subdivision lot
buyers will tend to be defeated.
BRICKTOWN DEV’T v TIERRA: 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.
61
MCLAUGHLIN v CA: Sec 4 of RA 6552 provides: “In case
where less than two years of installments were paid, the seller
shall give the buyer a grace period of not less than sixty days
from the date the installment became due. If the buyer fails to
pay the installments due at the expiration of the grace period, the
seller may cancel the contract after thirty days from receipt by the
buyer of the notice of the cancellation or the demand for
rescission of the contract by a notarial act.” Flores tendered the
manager’s check after 17 days, which is well within the 30-day
period. However, Flores did not follow tender of payment with
consignation. Since McLaughlin refused to accept the tender of
payment, it was incumbent upon Flores to deposit the amount in
court.
48
4. Rescission on Sale on Non-Residential
Realty on Installment
Art 1191. The power to rescind obligations is
implied in reciprocal ones, in case one of the
obligors should not comply with what is
incumbent upon him.
The injured party may choose between the
fulfillment and the rescission of the obligation,
with the payment of damages in either case. He
may also seek rescission, even after he has
chosen fulfillment, if the latter should become
impossible.
The court shall decree the rescission claimed,
unless there be just cause authorizing the fixing
of a period.
This is understood to be without prejudice to the
rights of third persons who have acquired the
thing, in accordance with Articles 1385 and 1388
and the Mortgage Law. (1124)
Art 1592. In the sale of immovable property,
even though it may have been stipulated that
upon failure to pay the price at the time agreed
upon the rescission of the contract shall of right
take place, the vendee may pay, even after the
expiration of the period, as long as no demand
for rescission of the contract has been made
upon him either judicially or by a notarial act.
After the demand, the court may not grant him
a new term. (1504a)
XIV. EXTINGUISHMENT OF THE SALE
Art. 1600. Sales are extinguished by the same
causes as all other obligations, by those stated in
the preceding articles of this Title, and by
conventional or legal redemption. (1506)
Art. 1231. Obligations are extinguished:
(1) By payment or performance:
(2) By the loss of the thing due:
(3) By the condonation or remission of the debt;
(4) By the confusion or merger of the rights of
creditor and debtor;
(5) By compensation;
(6) By novation.
Other causes of extinguishment of obligations,
such as annulment, rescission, fulfillment of a
resolutory condition, and prescription, are
governed elsewhere in this Code. (1156a)
A. CONVENTIONAL REDEMPTION
Conventional redemption – the vendor reserves
the right to repurchase the thing sold, with the
obligation of returning the price of the sale the
expenses of the contract, the necessary and useful
expenses made on the thing, and other payments
made by reason of the sale.62
Distinguished from equitable mortgage
Equitable mortgage – one which, although lacking in
some formality or other requisites demanded by a
statute, nevertheless reveals the intention of the
parties to charge real property as a security for
debt, and contains nothing impossible or contrary
to law
Badges of an equitable mortgage63
Art. 1602. The contract shall be presumed to be an
equitable mortgage, in any of the following cases:
(1) When the price of a sale with right to repurchase
is unusually inadequate;
(2) When the vendor remains in possession as lessee
or otherwise;
Reason for the rule: To curtail the practice of
creditors in making their agreement of mortgage
appear in the form of a sale with pacto de retro,
in order to circumvent the prohibition of pactum
commissorium in pledge and mortgage (Art.
2208. The creditor cannot appropriate the things
given by way of pledge or mortgage, or dispose
of them. Any stipulation to the contrary is null
and void) [because in making it appear a pacto
de retro sale, the creditors can do away with
foreclosure proceedings]
Remedy: reformation of the instrument [must be
brought within 10 years]
1) If the agreement is construed to be an
equitable mortgage, any money or other
benefit received as “rents,” shall be
considered as “interest.”
2) Where the agreement is upheld as a
pacto de retro sale, the vendor may still
exercise the right within 30 days from the
time the judgment becomes final.

(3) When upon or after the expiration of the right to Distinguished from option to buy64
repurchase another instrument extending the period
of redemption or granting a new period is executed; Right of redemption Option to buy
Not a separate Principal contract and
(4) When the purchaser retains for himself a part of contract, but merely may be created
the purchase price; part of a main contract independent of another
of sale; cannot exist contract
(5) When the vendor binds himself to pay the taxes unless reserved at the
on the thing sold; time of the perfection
of the main contract of
(6) In any other case where it may be fairly inferred sale
that the real intention of the parties is that the Need not have Must have a
transaction shall secure the payment of a debt or the separate consideration consideration separate
performance of any other obligation. In any of the in order to be valid and and distinct from
foregoing case, any money, fruits, or other benefit to effective purchase price
be received by the vendees as rent or otherwise shall May not be beyond the May be beyond the 10
be considered as interest which shall be subject to 10 year period year period
the usury laws. Requires tender of May be exercised by
payment of amount notice
A contract shall be construed as an equitable required by law,
mortgage when any of the circumstance in Art. 1602 including consignment
is present. thereof if tender
cannot be made
62
VILLARICA v CA: The right of repurchase is not a right granted effectively
the vendor by the vendee in a subsequent instrument, but is a
right reserved by the vendor in the same instrument of sale as
one of the stipulations of the contract. Period of redemption

TORRES v CA: For a sale to be one a retro, it is necessary that

the right be reserved in the same contract

64
ADIARTE v TUMANENG: An agreement to repurchase
63
CLARAVALL v CA: The urgent necessity for money of the becomes an option to buy when entered into after the time
apparent vendor, the inadequacy of the consideration for the to redeem stipulated had already expired, because then the
supposed sale, and the extension of the period of redemption are vendee a retro became the absolute owner of the thing
circumstances which are indicative that the contract is an sold, and the subsequent grant of the right to repurchase is
equitable mortgage. a new agreement.

49
Art. 1606. The right referred to in Article 1601, in
the absence of an express agreement, shall last four
years from the date of the contract.
Should there be an agreement, the period cannot
exceed ten years.
However, the vendor may still exercise the right to
repurchase within thirty days from the time final
judgment was rendered in a civil action on the basis
that the contract was a true sale with right to
repurchase. (1508a)
GENERAL RULE: Period starts running at the date of
the execution of the contract.
EXCEPTION: when there is a suspensive condition.
4. when no period agreed upon
period: 4 years from the date of the contract
5. when period agreed upon65
The period is binding and it may also be extended, as
long as it does not exceed 10 years. Reason for
limitation: A pacto de retro is a suspension of title
and it is against public interest to permit such
uncertainty to continue for a long time.
Exercise of the right to redeem66
a) A vendor must manifest his right to redeem in
writing. This must be accompanied with an actual or
simultaneous tender of payment of the redemption
price.
Redemption price – includes the amount of the
sale, the expenses of the contract and other
legitimate payments made by the vendee by
reason of such sale, and the necessary and useful
expenses made on the thing by the vendee.
b) It is only when the vendee flatly refused that
tender of payment is not necessary. Consignation of
the redemption price in court is not necessary to
65
TAYAO v DULAY: Although the stipulation as to the period
may be unclear or void, a period of redemption was agreed upon.
Thus, it is the 10-year period that applies, not the 4-year period.
BALUYOT v VENEGAS: The object of the sale cannot be
repurchased during the first 10 years.
The stipulation is void and against public policy.
BANDONG v Austria : The provisions of the contract, whereby
the parties undertook by express agreement to secure to the
vendors a right to repurchase in the month of March of any year
after the date of the contract, were valid and binding upon the
parties for a period of ten years from the date of the contract but
wholly without force and effect thereafter.
66
GARGOLLO v DUERO: The vendor a retro is not given the
option to require the vendee a retro to remove the useful
improvement, but must pay for the useful improvements
introduced by the vendee a retro; otherwise, the latter may retain
possession of the thing until reimbursement is made.
50
preserve the right. In the absence of the vendee
a retro, the right may be exercised by filing a
suit against him and consigning the amount in
court.
The exercise of redemption is not limited only to
the total redemption price enumerated in Art
1616 of the CC, since said legal provision is not
restrictive nor exclusive. It includes other
stipulations which may have been agreed upon
(Villanueva citing Solid Homes v. CA, 275 SCRA
267)
a. by whom exercised
Art. 1610. The creditors of the vendor cannot
make use of the right of redemption against the
vendee, until after they have exhausted the
property of the vendor. (1512)
Art. 1611. In a sale with a right to repurchase,
the vendee of a part of an undivided immovable
who acquires the whole thereof in the case of
article 498, may compel the vendor to redeem
the whole property, if the latter wishes to make
use of the right of redemption. (1513)
Art. 1612. If several persons, jointly and in the
same contract, should sell an undivided
immovable with a right of repurchase, none of
them may exercise this right for more than his
respective share.
The same rule shall apply if the person who sold
an immovable alone has left several heirs, in
which case each of the latter may only redeem
the part which he may have acquired. (1514)
Art. 1613. In the case of the preceding article,
the vendee may demand of all the vendors or
co-heirs that they come to an agreement upon
the purchase of the whole thing sold; and should
they fail to do so, the vendee cannot be
compelled to consent to a partial redemption.
(1515)
a) Who may redeem
1.Vendor
2. His heirs or assigns
3. His agent
b) The creditors of the vendor cannot make use
of the right of redemption against the vendee,
until after they have exhausted the property of
the vendor.
b) 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.
c) When the co-owners of an indivisible immovable, in
order to end the co-ownership, sold their interests
absolutely to the same person who previously bought
the share of a co-owner subject to a right of
redemption, the latter can be compelled to redeem
the whole property.
b. from whom to redeem
Art. 1615. If the vendee should leave several heirs,
the action for redemption cannot be brought against
each of them except for his own share, whether the
thing be undivided, or it has been partitioned among
them.
But if the inheritance has been divided, and the thing
sold has been awarded to one of the heirs, the action
for redemption may be instituted against him for the
whole. (1517)
Art. 1608. The vendor may bring his action against
every possessor whose right is derived from the
vendee, even if in the second contract no mention
should have been made of the right to repurchase,
without prejudice to the provisions of the Mortgage
Law and the Land Registration Law with respect to
third persons. (1510)
From whom to redeem
1. Vendee a retro
2. His heirs or assigns
3. His agent
c. effect of redemption
Art. 1617. If at the time of the execution of the sale
there should be on the land, visible or growing fruits,
there shall be no reimbursement for or prorating of
those existing at the time of redemption, if no
indemnity was paid by the purchaser when the sale
was executed.
Should there have been no fruits at the time of the
sale and some exist at the time of redemption, they
shall be prorated between the redemptioner and the
vendee, giving the latter the part corresponding to
the time he possessed the land in the last year,
counted from the anniversary of the date of the sale.
(1519a)
Art. 1618. The vendor who recovers the thing sold
shall receive it free from all charges or mortgages
constituted by the vendee, but he shall respect the
leases which the latter may have executed in good
faith, and in accordance with the custom of the place
where the land is situated. (1520)
51
a) The vendor can eject a lessee only after the
expiration of the period of lease or of the period
for redemption.
b) The vendor a retro is entitled to the return of
the thing with damages for the use and
occupation if the same.
d. effect of non-redemption
Art. 1607. In case of real property, the
consolidation of ownership in the vendee by
virtue of the failure of the vendor to comply with
the provisions of article 1616 shall not be
recorded in the Registry of Property without a
judicial order, after the vendor has been duly
heard. (n)
Art. 1606. x x x
However, the vendor may still exercise the right
to repurchase within thirty days from the time
final judgment was rendered in a civil action on
the basis that the contract was a true sale with
right to repurchase.67
a) The ownership of the vendee becomes
absolute and irrevocable by operation of law.
b) The vendee is not entitled to recover damages
by virtue of non-redemption, notwithstanding a
stipulation in the contract for payment of
damages.
B. LEGAL REDEMPTION
Legal redemption – right to be subrogated, upon
the same terms and conditions stipulated in the
contract, in the place of one who acquires a thing
by purchase or dation in payment, or by any
other transaction whereby ownership is
transmitted by onerous title.
When period of legal redemption begins
Art. 1623. The right of legal pre-emption or
redemption shall not be exercised except within
thirty days from the notice in writing by the
prospective vendor, or by the vendor, as the
case may be. The deed of sale shall not be
recorded in the Registry of Property, unless
67
ABILLA v GABONSENG: The applicability of Article
1606 rests on the bona fide intent of the vendor a retro, i.e.,
respondent in this case. If he honestly believed that the
transaction was an equitable mortgage, the said article
applies and he can still repurchase the property within thirty
days from finality of the judgment declaring the transaction
as a sale with pacto de retro. Parenthetically, it matters not
what the vendee intended the transaction to be.
accompanied by an affidavit of the vendor that he has
given written notice thereof to all possible
redemptioners.
The right of redemption of co-owners excludes that of
adjoining owners. (1524a)68
Laches seems to be a special exception to notice rule
under Art 1623. (Villanueva citing Alonzo v. IAC)
1. Redemption among co-owners
Art. 1620. A co-owner of a thing may exercise the
right of redemption in case the shares of all the other
co-owners or of any of them, are sold to a third
person. If the price of the alienation is grossly
excessive, the redemptioner shall pay only a
reasonable one.
Should two or more co-owners desire to exercise the
right of redemption, they may only do so in
proportion to the share they may respectively have in
the thing owned in common. (1522a)
a) When the right may be exercised: when a share of
a co-owner is sold to a third person, who is a
stranger.
b) Thrust of the law: to reduce the number of co-
owners until the community is done away with.
c) When the right is not available
1) Where the share of the co-owner is sold to
another co-owner
2) Where the share of a co-owner was merely
mortgaged
d) Should two or more co-owners desire to exercise
the right, they may only do so in proportion to the
share they may respectively have in the thing owned
in common.
2. Redemption among adjoining owners
The law distinguishes between rural and urban lands.
The distinction is based on the character of the
community or vicinity in which it is found.
681
HERMOSO v CA : It was error for the respondent court to rule
that the right of the petitioner to redeem the alienated share had
long proscribed. This finding fails to take into account that the
period of legal redemption is not a prescriptive period. It is a
condition precedent to the exercise of the right of redemption. It
is a period set by law to restrict the right of the person exercising
the right of legal redemption. It is not one of prescription. While
the law requires that the notice must be in writing, it does not
state any particular form thereof, so long as the reasons for a
written notice are present. The records of the case show that the
sale of the brothers’ share was deliberately hidden from the
petitioners. For sometime after the sale, the petitioners were
ignorant about its execution. When they somehow heard rumors
about it, they had to take one step after another to find out if the
information was true.
52
This is to encourage the maximum development
and utilization of lands.
a. Rural lands
Art. 1621. The owners of adjoining lands shall
also have the right of redemption when a piece
of rural land, the area of which does not exceed
one hectare, is alienated, unless the grantee
does not own any rural land.
This right is not applicable to adjacent lands
which are separated by brooks, drains, ravines,
roads and other apparent servitudes for the
benefit of other estates.
If two or more adjoining owners desire to
exercise the right of redemption at the same
time, the owner of the adjoining land of smaller
area shall be preferred; and should both lands
have the same area, the one who first requested
the redemption. (1523a)
a) When the right may be exercised: when a
piece of rural land not exceeding 1 ha., is
alienated [unless the grantee does not own any
rural land]
b) Thrust of the law
1. to prevent the rural land not exceeding 1
ha. from passing into the hands of a person
other than the adjacent owners who can
make use of the alienated property for the
development of their own lands
2. to consolidate scattered small agricultural
lands under one ownership
c) When the right is not available
o Adjacent lands which are separated by
brooks, drains, ravines, roads and other
apparent servitudes for the benefit of
other estates [because owners cannot
be said to be adjoining owners
anymore]
d) If two or more adjoining owners desire to
exercise the right of redemption at the same
time, the owner of the adjoining land of smaller
area shall be preferred; and should both lands
have the same area, the one who first requested
the redemption.
b. Urban lands69
Art. 1622. Whenever a piece of urban land
which is so small and so situated that a major
69
ORTEGA v ORCINE The term “urban” in Art. 1622 does
not necessarily refer to the nature of the land itself but to
the character of the community or vicinity in which it is
found.
portion thereof cannot be used for any practical
purpose within a reasonable time, having been
bought merely for speculation, is about to be re-sold,
the owner of any adjoining land has a right of pre-
emption at a reasonable price.
If the re-sale has been perfected, the owner of the
adjoining land shall have a right of redemption, also
at a reasonable price.
When two or more owners of adjoining lands wish to
exercise the right of pre-emption or redemption, the
owner whose intended use of the land in question
appears best justified shall be preferred. (n)
a) When the right may be exercised: when a piece of
urban land which is so small and so situated that a
major portion thereof cannot be used for any practical
purpose within a reasonable time, having been
bought merely for speculation, is about to be resold
b) Thrust of the law: to discourage speculation in real
estate and aggravate the housing problem.
c) When the right is not available: When the urban
land is transferred under an “exchange” of properties
[because there is no resale]70
d) When two or more owners of adjoining lands wish
to exercise the right of pre-emption or redemption,
the owner whose intended use of the land in question
appears best justified shall be preferred.
Assignment of a chose in action
Art. 1634. When a credit or other incorporeal right in
litigation is sold, the debtor shall have a right to
extinguish it by reimbursing the assignee for the price
the latter paid therefor, the judicial costs incurred by
him, and the interest on the price from the day on
which the same was paid.
A credit or other incorporeal right shall be considered
in litigation from the time the complaint concerning
the same is answered.
The debtor may exercise his right within thirty days
from the date the assignee demands payment from
him. (1535)
a) When the right may be exercised: when a credit
or other incorporeal right in litigation is sold.
b) Thrust of the law: to discourage speculation in
lawsuits which would make the courts an instrument
for profit.
70
SEN PO EK MARKETING v. MARTINEZ:
Article 1622 is not applicable to a lessee trying to buy the land he
is leasing.
53
c) When the right is not available [because the
assignee has a valid interest in the right or
property assigned]
1. When the assignment of a credit was
made before any litigation
2) Assignments made to a co-heir or co-
owner of the credit, to a creditor in payment
of his credit, to the possessor of a tenement
or land which is subject to the assigned
credit. (Art. 1635)
Redemption of homestead
CA 141. Sec. 119. Every conveyance of land
acquired under a free patent or homestead,
when proper, shall be subject to repurchase by
the applicant, his widow or legal heirs within 5
years from the date of conveyance.
a) Who may redeem
1. the applicant
2. his widow
3. legal heirs
b) Period of redemption: within 5 years from the
date of conveyance
Redemption in tax sales
NIRC of 1997. Sec. 215. Forfeiture to
Government for Want of Bidder. - In case there
is no bidder for real property exposed for sale as
herein above provided or if the highest bid is for
an amount insufficient to pay the taxes,
penalties and costs, the Internal Revenue Officer
conducting the sale shall declare the property
forfeited to the Government in satisfaction of the
claim in question and within two (2) days
thereafter, shall make a return of his
proceedings and the forfeiture which shall be
spread upon the records of his office. It shall be
the duty of the Register of Deeds concerned,
upon registration with his office of any such
declaration of forfeiture, to transfer the title of
the property forfeited to the Government without
the necessity of an order from a competent
court.
Within one (1) year from the date of such
forfeiture, the taxpayer, or any one for him may
redeem said property by paying to the
Commissioner or the latter's Revenue Collection
Officer the full amount of the taxes and
penalties, together with interest thereon and the
costs of sale, but if the property be not thus
redeemed, the forfeiture shall become absolute.
Who may redeem
1. the delinquent taxpayer
2. anyone for him
Period of redemption: within 1 year from the date of
sale
Redemption by a judgment debtor
Rules of Civil Procedure. Rule 39. Sec. 27. Who
may redeem real property so sold.
Real property sold as provided in the last preceding
section, or any part thereof sold separately, may be
redeemed in the manner hereinafter provided, by the
following persons:
(a) The judgment obligor, or his successor in
interest in the whole or any part of the property;
(b) A creditor having a lien by virtue of an
attachment, judgment or mortgage on the property
sold, or on some part thereof, subsequent to the lien
under which the property was sold. Such redeeming
creditor is termed a redemptioner.
a) Who may redeem
1. the judgment obligor
2. his successors-in-interest
3. creditor having a lien by virtue of
attachment
Period of redemption: within 1 year from the date of
registration of the certificate of sale
Redemption in extrajudicial foreclosure of mortgages
Act No. 3135. Sec. 6. In extrajudicial foreclosure of
mortgage, the debtor, his successors-in-interest, any
judicial or judgment creditor of said debtor, or any
junior encumbrancer may redeem the property within
1 year from the date of the sale. [This provision is
taken from Baviera only– not sure if this is the exact
wording of the law.]
a) Who may redeem
1. the debtor
2. his successors- in-interest
3. judicial creditor/judgment creditor of
debtor
4. any person having a lien on the property
Period of redemption: within 1 year from the date of
the sale
Redemption in judicial foreclosure of mortgages
RA 8791 (The General Banking of Law of 2000).
Sec. 47. Foreclosure of Real Estate Mortgage. - In
the event of foreclosure, whether judicially or extra-
judicially, of any mortgage on real estate which is
security for any loan or other credit accommodation
granted, the mortgagor or debtor whose real property
has been sold for the full or partial payment of
his obligation shall have the right within one year
after the sale of the real estate, to redeem the
property by paying the amount due under the
mortgage deed, with interest thereon at rate
specified in the mortgage, and all the costs and
expenses incurred by the bank or institution
from the sale and custody of said property less
the income derived therefrom. However, the
purchaser at the auction sale concerned whether
in a judicial or extra-judicial foreclosure shall
have the right to enter upon and take possession
of such property immediately after the date of
the confirmation of the auction sale and
administer the same in accordance with law.
Any petition in court to enjoin or restrain the
conduct of foreclosure proceedings instituted
pursuant to this provision shall be given due
course only upon the filing by the petitioner of a
bond in an amount fixed by the court conditioned
that he will pay all the damages which the bank
may suffer by the enjoining or the restraint of
the foreclosure proceeding.
Notwithstanding Act 3135, juridical persons
whose property is being sold pursuant to an
extrajudicial foreclosure, shall have the right to
an redeem the property in accordance with this
provision until, but not after, the registration of
the certificate of foreclosure sale with the
applicable Register of Deeds which in no case
shall be more than three (3) months after
foreclosure, whichever is earlier. Owners of
property that has been sold in a foreclosure sale
prior to the effectivity of this Act shall retain
their redemption rights until their expiration.
GENERAL RULE: No right to redeem is granted to
the debtor-mortgagor when there has been
judicial foreclosure of real estate mortgage.
EXCEPTION: When the mortgagee is a bank or a
banking institution.
Legal right to redeem under the Agrarian Reform
Code
the
RA 3844. Sec. 12. Lessee’s Right of
Redemption.-In case the landholding is sold to a
third person without the knowledge of the
agricultural lessee, the latter shall have the right
to redeem the same at a reasonable price and
consideration; Provided, That the entire
landholding sold must be redeemed: Provided,
further, That where there are two or more
agricultural lessees, each shall be entitled to said
right of redemption only to the extent of the area
actually cultivated by him. The right of
redemption under this Section may be exercised
within two years from the registration of the
sale, and shall have priority over any other right
of legal redemption.
54

a) Who may redeem: the lessee who has no
knowledge of the sale to a third person
b) Period of redemption: within 2 years from the
registration the sale
c) Conditions for redemption: the entire landholding
sold must be redeemed
d) where there are two or more agricultural lessees,
each shall be entitled to said right of redemption only
to the extent of the area actually cultivated by him
XV. BULK SALES LAW71
ACT NO. 3952. An act to regulate the sale,
transfer, mortgage or assignment of goods,
wares, merchandise, provisions or materials, in
bulk, and prescribing penalties for the violation
of the provisions thereof.
Sec 1. This Act shall be known as "The Bulk Sales
Law."
Sec. 2. Sale and transfer in bulk. — Any sale,
transfer, mortgage or assignment of a stock of goods,
wares, merchandise, provisions, or materials
otherwise than in the ordinary course of trade and the
regular prosecution of the business of the vendor,
mortgagor, transferor, or assignor, or sale, transfer,
mortgage or assignment of all, or substantially all, of
the business or trade theretofore conducted by the
vendor, mortgagor, transferor, or assignor, or of all,
or substantially all, of the fixtures and equipment
used in and about the business of the vendor,
mortgagor, transferor, or assignor, shall be deemed
to be a sale and transfer in bulk, in contemplation of
this Act: Provided, however, That if such vendor,
mortgagor, transferor or assignor, produces and
delivers a written waiver of the provisions of this Act
from his creditors as shown by verified statements,
then, and in that case, the provisions of this section
shall not apply.
Sec. 3. Statement of creditors. — It shall be the duty
of every person who shall sell, mortgage, transfer, or
assign any stock of goods, wares, merchandise,
provisions or materials in bulk, for cash or on credit,
before receiving from the vendee, mortgagee, or his,
or its agent or representative any part of the
purchase price thereof, or any promissory note,
memorandum, or other evidence therefor, to deliver
to such vendee, mortgagee, or agent, or if the
vendee, mortgagee, or agent be a corporation, then
to the president, vice-president, treasurer, secretary
or manager of said corporation, or, if such vendee or
71
LIWANAG v MENGHRAJ: The constitutional right to dispose
freely of one’s property is not absolute. The creditor should be
protected in his rights against the debtor. The State, in the
exercise of its police power, seeks to protect such creditor
against insolvent and fraudulent vendors
55
mortgagee be a partnership firm, then to a
member thereof, a written statement, sworn to
substantially as hereinafter provided, of the
names and addresses of all creditors to whom
said vendor or mortgagor may be indebted,
together with the amount of indebtedness due or
owing, or to become due or owing by said
vendor or mortgagor to each of said creditors,
which statement shall be verified by an oath to
the following effect:
PHILIPPINE ISLANDS
PROVINCE OR CITY OF _________________}
Before me, the undersigned authority, personally
appeared __________________ (vendor,
mortgagor, agent or representative, as the case
may be), bearing cedula No. ____________
issued at ___________ on the day of
_____________ who, by me being first duly
sworn, upon his oath, deposes and states that
the foregoing statement contains the names of
all of the creditors of ________________
(vendor, or mortgagor) together with their
addresses, and that the amount set opposite
each of said respective names, is the amount
now due and owing, and which shall become due
and owing by _____________ (vendor or
mortgagor) to such creditors, and that there are
no creditors holding claims due or which shall
become due, for or on account of goods, wares,
merchandise, provisions or materials purchased
upon credit or on account of money borrowed, to
carry on the business of which said goods,
wares, merchandise, provisions or materials are
a part, other than as set forth in said statement.
______________________
Subscribed and sworn to before me this
__________ day of _________, 19____, at
_____________.
Sec. 4. Fraudulent and void sale, transfer or
mortgage. — Whenever any person shall sell,
mortgage, transfer, or assign any stock of goods,
wares, merchandise, provisions or materials, in
bulk, for cash or on credit, and shall receive any
part of the purchase price, or any promissory
note, or other evidence of indebtedness for said
purchase price or advance upon mortgage,
without having first delivered to the vendee or
mortgagee or to his or its agent or
representative, the sworn statement provided for
in section three hereof, and without applying the
purchase or mortgage money of the said
property to the pro rata payment of the bona
fide claim or claims of the creditors of the vendor
or mortgagor, as shown upon such sworn
statement, he shall be deemed to have violated
this Act, and any such sale, transfer or mortgage
shall be fraudulent and void.
Sec. 5. Inventory. — It shall be the duty of
every vendor, transferor, mortgagor, or
assignor, at least ten days before the sale, transfer or
execution of a mortgage upon any stock of goods,
wares, merchandise, provisions or materials, in bulk,
to make a full detailed inventory thereof and to
preserve the same showing the quantity and, so far
as is possible with the exercise of reasonable
diligence, the cost price to the vendor, transferor,
mortgagor or assignor of each article to be included in
the sale, transfer or mortgage, and notify every
creditor whose name and address is set forth in the
verified statement of the vendor, transferor,
mortgagor, or assignor, at least ten days before
transferring possession thereof, personally or by
registered mail, of the price, terms conditions of the
sale, transfer, mortgage, or assignment.
Sec. 6. Any vendor, transferor, mortgagor or
assignor of any stock of goods, wares, merchandise,
provisions or materials, in bulk, or any person acting
for, or on behalf of any such vendor, transferor,
mortgagor, or assignor, who shall knowingly or
willfully make, or deliver or cause to be made or
delivered, a statement, as provided for in section
three hereof, which shall not include the names of all
such creditors, with the correct amount due and to
become due to each of them, or shall contain any
false or untrue statement, shall be deemed to have
violated the provisions of this Act.
Sec. 7. It shall be unlawful for any person, firm or
corporation, as owner of any stock of goods, wares,
merchandise, provisions or materials, in bulk, to
transfer title to the same without consideration or for
a nominal consideration only.
Sec. 8. Nothing in this Act contained shall apply to
executors, administrators, receivers, assignees in
insolvency, or public officers, acting under judicial
process.
Sec. 9. The sworn statement containing the names
and addresses of all creditors of the vendor or
mortgagor provided for in section three of this Act,
shall be registered in the Bureau of Commerce. For
the registration of each such sworn statement a fee of
five pesos shall be charged to the vendor or
mortgagor of the stock of goods, wares, merchandise,
provisions or materials, in bulk.
Sec. 10. The provisions of this Act shall be
administered by the Director of the Bureau of
Commerce and Industry, who is hereby empowered,
with the approval of the Department Head, to
prescribe and adopt from time to time such rules and
regulations as may be deemed necessary for the
proper and efficient enforcement of the provisions of
this Act.
Sec. 11. Any person violating any provision of this
Act shall, upon conviction thereof, be punished by
imprisonment not less than six months, nor more
than five years, or fined in sum not exceeding five
56
thousand pesos, or both such imprisonment and
fine, in the discretion of the court.
Sec. 12. This Act shall take effect on its
approval.
A. RA 3952
Sec. 2. Any sale, transfer, mortgage or
assignment of a stock of goods, wares,
merchandise, provisions, or materials otherwise
than in the ordinary course of trade and the
regular prosecution of the business of the
vendor, mortgagor, transferor, or assignor, or
any sale, transfer, mortgage or assignment of
all, or substantially all, of the business or trade
theretofore conducted by the vendor, mortgagor,
transferor, or assignor, or of all, or substantially
all, of the fixtures and equipment used in and
about the business of the vendor, mortgagor,
transferor or assignor, shall be deemed to be a
sale and transfer in bulk, in contemplation of this
Act: Provided, however, that if such vendor,
mortgagor, transferor or assignor produces and
delivers a written waiver of the provisions of this
Act from his creditors as shown by verified
statements, then, and in that case, the
provisions of this section shall not apply.
a) Thrust of the law: to protect persons who
extended credit to merchants, relying on the fact
that their stock of merchandise was not to be
sold in bulk, but kept up and replenished from
time to time (with the extension of credit comes
the presupposition of continuance in the business
of merchandising)
Types of transactions covered72
1. any sale, transfer, mortgage or
assignment of a stock of goods, wares,
merchandise, provisions or materials
otherwise than in the ordinary course of
trade and the regular prosecution of the
business
2. any sale, transfer, mortgage or
assignment of all, or substantially all, of
the business or trade theretofore
conducted by the vendor, etc.
3. any sale, transfer, mortgage or
assignment of all, or substantially all, of
the fixtures and equipment used in and
about the business of the vendor, etc.
72
PEOPLE v WONG: The object of the sale in this case is
not covered by the provision alleged to have been infringed.
Wong’s business was a foundry shop that manufactures
iron works and processes or casts metalsMerchandise –
something that is sold everday and is constantly going out
of the store and being replaced by other goods.

Stock – common use when applied to goods in a
mercantile house refers to those which are kept for
sale
B. COMPLIANCE REQUIREMENT
a) delivery of the list of creditors to the vendee or
mortgagee before receiving the consideration
b) application of the consideration to the pro-rata
payment of the claims of creditors appearing in the
list
c) preparation of a full, detailed inventory of the
goods sold or mortgaged
d) notification to creditors at least 10 days before
delivery
C. EFFECTS OF NON-COMPLIANCE
a) If the purchase or mortgage money is not applied
pro-rata to the payment of the bona fide claims of the
creditors of the vendor/mortgagor, the sale, transfer,
or mortgage shall be fraudulent and void.
b) The law penalizes any intentional omission of the
names of the creditors in the required list, with the
correct amount due or to become due, or any false or
untrue statement therein. The law also penalizes any
transfer of title in bulk, without consideration or for a
nominal consideration only
PENALTY: 6 months – 5 years imprisonment; fine of
< P5,000; or both; penalty imposable to the debtor
XVI. RETAIL TRADE LIBERALIZATION ACT
RA 8762. An act liberalizing the retail trade
business, repealing for the purpose RA 1180, as
amended, and for other purposes.
Sec. 1. Title. - This Act shall be known as the "Retail
Trade Liberalization Act of 2000."
Sec. 2. Declaration of Policy. - It is the policy of the
State 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.
Pursuant to this policy, the Philippine retail industry is
hereby liberalized to encourage Filipino and foreign
investors to forge an efficient and competitive retail
trade sector in the interest of empowering the Filipino
consumer through lower prices, higher quality if
goods, better services and wider choices.
57
Sec. 3. Definition. - As used in this Act:
(1) "Retail Trade" shall mean any act, occupation
or calling of habitually selling direct to the
general public merchandise, commodities or
goods for consumption, but the restriction of this
law shall not apply to the following:
(a) Sales by a manufacturer, processor, laborer,
or worker, to the general public the products
manufactured, processed or produced by him if
his capital does not exceed One Hundred
Thousand Pesos (P100,000.00);
(b) Sales by a farmer or agriculturist selling the
products of his farm;
(c) 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
(d) Sales which are limited only to products
manufactured, processed or assembled by a
manufacturer through a single outlet,
irrespective of capitalization.
(2) "High-end or luxury goods" shall refer to
goods which are not necessary for life
maintenance and whose demand is generated in
large part by the highest income groups. Luxury
goods shall include, but are not limited to,
products such as: jewelry, branded or designer
clothing and footwear, wearing apparel, leisure
and sporting goods, electronics and other
personal effects.
Sec. 4. Treatment of Natural-Born Citizen Who
Has Lost His Philippine Citizenship. - A natural-
born citizen of the Philippines who has lost his
Philippine citizenship but who resides in the
Philippines shall be granted the same rights as
Filipino citizens for purposes of this Act.
Sec. 5. 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 the Department of Trade and Industry
(DTI) or in case of foreign-owned single
proprietorships, with the DTI, engage or invest in
the retail trade business, subject to the following
categories:
Category A - Enterprises with paid-up capital of
the equivalent in Philippine Pesos of less than
Two Million Five Hundred Thousand US Dollars
(US$2,500,000.00) shall be reserved exclusively
for Filipino citizens and corporations wholly-
owned by Filipino citizens.
Category B - Enterprises with a minimum paid-up
capital of the equivalent in Philippine Pesos of Two
Million Five Hundred Thousand US Dollars
(US$2,500,000.00) may be wholly owned by
foreigners except for the first two (2) years after the
effectivity of this Act wherein foreign participation
shall be limited to not more than (60%) of total
equity.
Category C - Enterprises with a paid-up capital of the
equivalent in Philippine Pesos of Seven Million Five
Hundred Thousand US Dollars (US$7,500,000.00) or
more maybe wholly owned by foreigners: Provided,
however, that in no case shall the investments for
establishing a store in Categories B and C be less
than the equivalent in Philippine Pesos of Eight
Hundred Thirty Thousand US Dollars
(US$830,000.00).
Category D - Enterprises specializing in high-end or
luxury products with a paid up capital of the
equivalent in Philippine Pesos of Two Hundred Fifty
Thousand US Dollars (US$250,000.00) per store may
be wholly-owned by foreigners.
The 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. The actual use in Philippine operations of
the inwardly remitted minimum capital requirements
shall be monitored by the SEC.
Failure retail stores shall secure a certification from
the Bangko Sentral ng Pilipinas (BSP) and the DTI,
which will verify or confirm inward remittance of the
minimum required capital investment.
Sec. 6. Foreign Investors Acquiring Shares of Stock
of Local Retailers. - Foreign Investors acquiring
shares from existing retail stores whether or not
publicly listed whose net worth is in excess of the
peso equivalent of Two Million Five Hundred Thousand
US Dollars (US$2,500,000.00) may purchase only up
to a minimum of sixty percent (60%) of the equity
thereof within the first two (2) years from the
effectivity of this Act and thereafter, they may
acquire the remaining percentage consistent with the
allowable foreign participation as herein provided.
Sec. 7. Public Offering of Shares of Stock. - All retail
trade enterprises under Categories B and C in which
foreign ownership exceeds eighty percent (80%) of
equity shall offer a minimum of thirty percent (30%)
of their equity to the public through any stock
exchange in the Philippines within eight (8) years
from their start of operations.
Sec. 8. Qualifications of Foreign Retailers. - No
foreign retailer shall be allowed to engage in retail
58
trade in the Philippines unless all the following
qualifications are met:
(a) A minimum of Two Hundred Million US
Dollars (US$200,000,000.00) net worth in its
parent corporation for Categories B and C, and
Fifty Million US Dollars (US$50,000,000.00) net
worth in its parent corporation for Category D;
(b) Five (5) retailing branches or franchises in
operation anywhere around the world unless
such retailers has at least one (1) store
capitalized at a minimum of Twenty-Five Million
US Dollars (US$25,000,000.00);
(c) Five (5)-year track record in retailing; and
(d) Only nationals from, or judicial entities
formed or incorporated in, countries which allow
the entry of Filipino retailers, shall be allowed to
engage in retail trade in the Philippines.
The DTI is hereby authorized to pre-qualify all
foreign retailers, subject to the provisions of this
Act, before they are allowed to conduct business
in the Philippines.
The DTI shall keep a record of qualified foreign
retailers who may, upon compliance with law,
establish retail stores in the Philippines. It shall
ensure that the parent retail trading company of
the foreign investor complies with the
qualifications on capitalization and track record
prescribed in this section.
The Inter-Agency Committee on Tariff and
Related Matters of the National Economic
Development Authority (NEDA) Board shall
formulate and regularly update a list of foreign
retailers of high-end or luxury goods and render
an annual report on the same to Congress.
Sec. 9. Promotional of Locally Manufactured
Products. - For ten (10) years after the
effectivity of this Act, at least thirty percent
(30%) of the aggregate cost of the stock
inventory of foreign retailers falling under
Categories B and C and ten percent (10%) for
Category D, shall be made in the Philippines.
Sec. 10. Prohibited Activities of Qualified
Foreign Retailers. - 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 activities: Provided, that a
detailed list of prohibited activities shall hereafter
be formulated by the DTI.
Sec. 11. Implementing Agency; Rules and
Regulations. - The monitoring and regulation of
foreign sole proprietorships, partnerships,
associations or corporations allowed to engage in
retail trade shall be the responsibility of the DTI. This
shall include resolution of conflicts.
The DTI, in coordination with the SEC, the NEDA and
the BSP, shall formulate and issue the implementing
rules and regulations necessary to implement this Act
within ninety (90) days after its approval.
Sec. 12. Penalty Clause. - Any person who shall be
found guilty of violation of any provision of this Act
shall be punished by imprisonment of not less than
six (6) years and one (1) day but not more than eight
(8) years, and a fine of not less than One Million
Pesos (P1,000,000.00) but not more than Twenty
Million Pesos (P20,000,000.00).
In the case of associations, partnerships or
corporations, the penalty shall be imposed upon its
partners, president, directors, managers and other
officers responsible for the violation. If the offender
is not a citizen of the Philippines, he shall be deported
immediately after service of sentence. If the Filipino
offender is a public officer or employee, he shall, in
addition to the penalty prescribed herein, suffer
dismissal and permanent disqualification from public
office.
Sec. 13. Repealing Clause. - Republic Act No. 1180,
as amended, is hereby repealed. Republic Act No.
3018, as amended, and all other laws, executive
orders, rules and regulations or parts thereof
inconsistent with this Act are repealed or modified
accordingly.
Sec. 14. Separability Clause. - If any provision of this
Act shall be held unconstitutional, the other
provisions not otherwise affected thereby shall remain
in force and effect.
Sec. 15. Effectivity. - This Act shall take effect fifteen
(15) days after its approval and publication in at least
two (2) newspapers of general circulation in the
Philippines.
A. SCOPE AND DEFINITION OF RETAIL TRADE73
Retail Trade – any act, occupation or calling of
habitually selling direct to the general public
merchandise, commodities or goods for consumption
EXCEPT:
1. sales by a manufacturer, processor, laborer
or worker of products made by him if his
capital is less than or equal to 100,000 pesos
73
KING v HERNAEZ : There is no distinction between control
and non-control positions with respect to employment of aliens.
The Retail Trade Law read in connection with the Anti-Dummy
Act seeks a complete ban on aliens.
59
2. sales by a farmer or agriculturist of the
products of his farm
3. sales limited only to products
manufactured, processed or assembled
by the manufacturer in a single outlet
irrespective of capitalization
a) “General public” : activities of seller must be
such that the target clientele are not only a
particular person or group of persons.
b) SEC Opinion No. 11, series of 2003: Engaging
in the selling of merchandise as an incident to
the primary purpose of a corporation does not
constitute retail trade (e.g., operation of
pharmacy by a hospital) within the purview of
the Act (Villanueva)
B. RIGHTS OF FORMER NATURAL-BORN
FILIPINOS
Natural-born Filipinos who have lost their
citizenship but who reside in the Philippines shall
be given the same rights as Filipino citizens with
respect to this law.
C. CATEGORIES OF RETAIL TRADE
ENTERPRISES (Sec. 5)
D. HOW ALIENS MAY INVEST IN RETAIL
TRADE IN THE PHILIPPINES (Sec. 8)
E. RULES ON FOREIGN RETAILERS IN THE
PHILIPPINES
F. PENALTY CLAUSE (Sec. 12)
CA 108 (Anti-Dummy Act). An act to punish
acts of evasion of the laws on the
nationalization of certain rights, franchises
or privileges.
Sec. 1. Penalty — In all cases in which any
constitutional or legal provisions requires
Philippine or any other specific citizenship as a
requisite for the exercise or enjoyment of a right,
franchise or privilege, any citizen of the
Philippines or of any other specific country who
allows his name or citizenship to be used for the
purpose of evading such provision, and any alien
or foreigner profiting thereby, shall be punished
by imprisonment for not less than five nor more
than fifteen years, and by a fine of not less than
the value of the right franchise or privilege,
which is enjoyed or acquired in violation of the
provisions hereof but in no case less than P5000.
The fact that the citizen of the Philippines or of
any specific country charged with a violation of
this Act had, at the time of the acquisition of his
holdings in the corporations or associations
referred to in section two of this Act, no real or
personal property, credit or other assets the value of
which shall at least be equivalent to said holdings,
shall be evidence of a violation of this Act.1
Sec. 2. Simulation of minimum capital stock — In all
cases in which a constitutional or legal provision
requires that, in order that a corporation or
association may exercise or enjoy a right, franchise or
privilege, not less than a certain per centum of its
capital must be owned by citizens of the Philippines or
of any other specific country, it shall be unlawful to
falsely simulate the existence of such minimum stock
or capital as owned by such citizens, for the purpose
of evading said provision. The president or managers
and directors or trustees of corporations or
associations convicted of a violation of this section
shall be punished by imprisonment of not less than
five nor more than fifteen years, and by a fine not
less than the value of the right, franchise or privilege,
enjoyed or acquired in violation of the provisions
hereof but in no case less than P5000.2
Sec. 2-A. Unlawful use, Exploitation or enjoyment —
Any person, corporation, or association which, having
in its name or under its control, a right, franchise,
privilege, property or business, the exercise or
enjoyment of which is expressly reserved by the
Constitution or the laws to citizens of the Philippines
or of any other specific country, or to corporations or
associations at least sixty per centum of the capital of
which is owned by such citizens, permits or allows the
use, exploitation or enjoyment thereof by a person,
corporation or association not possessing the
requisites prescribed by a the Constitution or the laws
of the Philippines; or leases, or in any other way,
transfers or conveys said right, franchise, privilege,
property or business to a person, corporation or
association not otherwise qualified under the
Constitution, or the provisions of the existing laws; or
in any manner permits or allows any person, not
possessing the qualifications required by the
Constitution, or existing laws to acquire, use, exploit
or enjoy a right, franchise, privilege, property or
business, the exercise and enjoyment of which are
expressly reserved by the Constitution or existing
laws to citizens of the Philippines or of any other
specific country, to intervene in the management,
operation, administration or control thereof, whether
as an officer, employee or laborer therein with or
without remuneration except technical personnel
whose employment may be specifically authorized by
the Secretary of Justice, and any person who
knowingly aids, assists or abets in the planning
consummation or perpetration of any of the acts
herein above enumerated shall be punished by
imprisonment for not less than five nor more than
fifteen years and by a fine of not less than the value
of the right, franchise or privilege enjoyed or acquired
in violation of the provisions hereof but in no case
less than five thousand pesos: Provided, however,
60
That the president, managers or persons in
charge of corporations, associations or
partnerships violating the provisions of this
section shall be criminally liable in lieu thereof:
Provided, further, That any person, corporation
or association shall, in addition to the penalty
imposed herein, forfeit such right, franchise,
privilege, and the property or business enjoyed
or acquired in violation of the provisions of this
Act: And provided, finally, That the election of
aliens as members of the board of directors or
governing body of corporations or associations
engaging in partially nationalized activities shall
be allowed in proportion to their allowable
participation or share in the capital of such
entities.3
Sec. 2-B. Any violation of the provisions of this
Act by the spouse of any public official, if both
live together, shall be cause for the dismissal of
such public official. 4
Sec. 2-C. The exercise, possession or control by
a Filipino citizen having a common-law
relationship with an alien of a right, privilege,
property or business, the exercise or enjoyment
of which is expressly reserved by the
Constitution or the laws to citizens of the
Philippines, shall constitute a prima facie
evidence of violation of the provisions of Section
2-A hereof.5
Sec. 3. Any corporation or association violating
any of the provisions of this Act shall, upon
proper court proceedings, be dissolved.
Sec. 3-A. Reward to informer. — In case of
conviction under the provisions of this Act,
twenty-five per centum of any fine imposed shall
accrue to the benefit of the informer who
furnishes to the Government original information
leading to said conviction and who shall be
ascertained and named in the judgment of the
court. If the informer is a dummy, who shall
voluntarily take the initiative of reporting to the
proper authorities any violation of the provisions
of this Act and assist in the prosecution,
resulting in the conviction of any person or
corporation profiting thereby or involved therein,
he shall be entitled to the reward hereof in the
sum equivalent to twenty-five per centum of the
fine actually paid to or received by the
Government, and shall be exempted from the
penal liabilities provided for in this Act. 6
Sec. 4. This Act shall take effect upon its
approval.
Approved, October 30, 1936.
61