SALE period, the transaction is an absolute contract of sale

 A nominate contract whereby one of the and not a contract to sell. (Dignos vs. CA [1988])
contracting parties obligates himself to transfer the * The contract of sale by itself is not a mode of
ownership of and to deliver a determinate thing acquiring ownership. The contact transfers no real
and the other to pay therefor a price certain in rights; it merely causes certain obligations to arise.
money or its equivalent.
Contract of Contract to
NOTES: Delivery and payment in a contract of sale are Sale Sell
so interrelated and intertwined with each other that 1. Title passes to the 1. Ownership is
without delivery of the goods there is no corresponding buyer upon delivery reserved in the
obligation to pay. The two complement each other. It of the thing sold seller and is not to
pass until full
is clear that the two elements cannot be dissociated,
payment of the
for the contract of purchase and sale is essentially a purchase price
bilateral contract, as it gives rise to reciprocal 2. Non-payment of 2. Full payment is a
obligations. (Pio Barretto Sons, Inc. vs. Compania the price is a positive suspensive
Maritima, 62 SCRA 167). negative resolutory condition, the
 Neither is the delivery of the thing bought nor the condition and the failure of which is
payment of the price necessary for the perfection remedy of the seller not a breach –
is to exact fulfilment casual or serious
of the contract of sale. Being consensual, it is
or to rescind the but simply
perfected by mere consent. prevents the
contract
obligation of the
 Elements: vendor to convey
a. Essential elements – those without which, there can title from having
be no valid sale: binding force
1. Consent or meeting of minds 3. Vendor loses and 3. Title remains in
2. A Determinable subject matter cannot recover the vendor if the
ownership of the vendee does not
3. Price certain in money or its equivalent
thing sold and comply with the
b. Natural elements – inherent in the contract, and delivered until the condition
which in the absence of any contrary provision, are contract of sale is precedent of
deemed to exist in the contract: resolved and set making payment at
1. Warranty against eviction aside the time specified
2. Warranty against hidden defects in the contract
c. Accidental elements – may be present or absent
depending on the stipulation of the parties (e.g.: Conditional Sale Contract to
conditions, interest, penalty, time or place of Sell
payment, etc.) As to reservation of title to the subject
property
 Characteristics: In both cases the seller may reserve the
1. Principal title to the subject property until
2. Consensual; fulfillment of the suspensive condition i.e.
3. Bilateral; full payment of the price
4. Nominate; As to effect of fulfillment of suspensive
5. Commutative; In some cases, aleatory (emptio condition
spei); 1. Upon fulfillment of 1. Upon
the suspensive fulfillment of the
6. Onerous.
condition, the suspensive
contract of sale is condition, which
* Aleatory contract: one of the parties or both thereby perfected, is the full
reciprocally bind themselves to give or to do something such that if there had payment of the
in consideration of what the other shall give or do upon been previous delivery purchase price,
the happening of an event which is uncertain, or which of the subject ownership will
is to occur at an indeterminate time. (Ex: Sale of property to the buyer, not
sweepstakes ticket) ownership thereto automatically
automatically transfer to the
transfers to the buyer although
Contract to sell
buyer by operation the property may
 exclusive right and privilege to purchase an object. of law without any have been
 a bilateral contract whereby the prospective seller, further act by the previously
while expressly reserving the ownership of the seller. delivered to him.
subject property despite delivery thereof to the The prospective
prospective buyer binds himself to sell the said seller still has
to convey title
property exclusively to the prospective buyer upon
to the
fulfilment of the condition agreed upon, that is, prospective
full payment of the purchase price. buyer by
entering into a
NOTE: Absent a proviso in the contract that the title to contract of
the property is reserved in the vendor until full absolute sale.
payment of the purchase price or a stipulation giving
As to effect of sale of the subject
the vendor the right to unilaterally rescind the contract
property to 3rd persons
the moment the vendee fails to pay within the fixed
 1. Constructive 1. Third person  While there can be sale of future property, there
/actual knowledge on buying the can generally be no donation of future property
the part of the 2nd property despite (Article 751 Civil Code)
buyer of the defect in fulfilment of the
the seller’s title suspensive  Future inheritance cannot be sold.
renders him not a condition cannot  A contract of sale or purchase of goods to be
registrant in good be deemed a delivered at a future time, if entered into without
faith. Such second buyer in bad the intention of having any goods pass from one
buyer cannot defeat faith and party to another, but with an understanding that at
the first buyer’s title. prospective the appointed time, the purchaser is merely to
Ratio: Fulfilment of buyer cannot
receive or pay the difference between the contract
the suspensive seek the relief of
conditions affects the reconveyance of and the market prices, is illegal. Such contract falls
seller’s title to the property. under the definition of “futures” in which the
property and previous Exception: If parties merely gamble on the rise or fall in prices
delivery of the There was no and is declared null and void by law. (Art. 2018,
property previous sale of NCC) (Onapal Phil. Commodities, Inc. vs. CA
automatically the property. [1993])
transfers
ownership/title to the  Instances when the Civil Code recognizes sale of
buyer.
things not actually or already owned by the seller
at the time of the sale:
OBJECTS OF SALE 1. Sale of a thing having potential existence (Article
Requisites: 1461)
1. THINGS: 2. Sale of future goods (Article 1462)
a) determinate or determinable (Arts. 1458, 1460) 3. Contract for the delivery at a certain price of an
b) lawful (Arts 1347, 1409 [1,4] article which the vendor in the ordinary course of
c) should not be impossible (Art. 1348) e.g. must be the business manufactures or procures for the
within the commerce of man general market, whether the same is on hand at
2. RIGHTS – must be transmissible the time or not (Article 1467)
Exceptions:
-future inheritance Sale Agency to sell
- service 1. Buyer receives 1. Agent receives
the goods as owner the goods as goods
Emptio rei Emptio spei of the principal who
speratae retains his
1. Sale of an expected 1. Sale of a mere ownership over
thing hope or expectancy them
that the thing will 2. Buyer pays the 2. Agent delivers
come to existence; price the price which in
Sale of the hope turn he got from his
itself buyer
2. Sale is subject to 2. Sale produces 3. Buyer, as a 3. Agent can return
the condition that the effect even if the general rule, cannot the goods in case he
thing will exist; if it thing does not return the object is unable to sell the
does not, there is no come into sold same to a third
contract existence, unless it
person
is a vain hope
4. Seller warrants 4. Agent makes no
3. The uncertainty is 3. The uncertainty
the thing sold warranty for which
with regard to the is with regard to
he assumes personal
quantity and quality of the existence of
the thing and not the the thing liability as long as
existence of the thing he acts within his
4. Object is a future 4. Object is a authority and in the
thing present thing which name of the seller
is the hope or 5. Buyer can deal 5. Agent in dealing
expectancy with the thing sold with the thing
NOTE: In case of doubt the presumption is in favor of as he pleases being received, must act
emptio rei speratae which is more in keeping with the the owner and is bound
according to the
commutative character of the contract
instructions of the
principal
Goods which may be Object of Sale
a. Existing goods – goods owned or possessed by the
seller. Contract for
Sale
b. Future goods – goods to be manufactured, raised or Piece of Work
1. The thing 1. The thing
acquired by the seller after the perfection of the
transferred is one transferred is one
contract. not in existence and which would have
NOTES: which never would existed and would
 A sale of future goods is valid only as an executory have existed but for have been the
contract to be fulfilled by the acquisition and the order of the subject of sale to
delivery of goods specified. party desiring to some other person,
acquire it even if the order
had not been given
 2. The services 2. The primary 4. Greater freedom 4. Less Freedom in
dominate the objective of the in determining determining the
contract even contract is a sale of the price price
though there is a the manufactured
sale of goods item; it is a sale of 5. Buyer still has to 5. The payment is
involved goods even though pay the price received by the
the item is debtor before
manufactured by the contract is
labor furnished by perfected.
the seller and upon
previous order of
the customer PRICE
3. Not within the 3. Within the  The sum stipulated as the equivalent of the thing
Statute of Frauds Statute of Frauds sold and also every incident taken into
consideration for the fixing of the price, put to the
debit of the vendee and agreed to by him.

 Requisites:
Rules to determine if the contract is one of Sale or 1. Certainty or ascertainable at the time of
Piece of work: perfection
a. If ordered in the ordinary course of business – sale 2. Real, not fictitious
b. If manufactured specially for the customer and 3. In some cases, must not be grossly inferior to
upon his special order, and not for the market – the value of the thing sold.
piece of work 4. Paid in money or its equivalent

SCHOOLS OF THOUGHT: Certainty

a) Massachusetts rule: If specifically done at the  It is not necessary that the certainty of the price
order of another, this is a contract for a piece be actual or determined at the time of the
of work. (Philippine application) execution of the contract. The price is certain in
b) New York rule: If thing already exists-SALE; if the following cases:
not-WORK 1. If the parties have fixed or agreed upon a
c) English rule: If material is more valuable-SALE; definite amount;
if skill is more valuable-WORK NOTE: The fixing of the price can never be left to
the discretion of one of the contracting parties.
BARTER However if the price fixed by one of the parties is
 contract whereby one of the parties binds himself accepted by the other, the sale is perfected.
to give one thing in consideration of the other's 2. If it be certain with reference to another thing
promise to give another thing. certain
NOTE: The only point difference between contract of 3. If the determination of the price is left to the
sale and barter is in the element which is present in judgment of a specified person or persons even
sale but not in barter, namely: price certain in money before such determination
or its equivalent 4. In the cases provided under Art. 1472 NCC

NOTE: If the consideration is partly in money and

partly in another thing, determine:
a. The manifest intention of the parties Effect when the price is fixed by the third person
b. If the intent is not clear, apply the following designated:
rules: GENERAL RULE: Price fixed by a third person
1. If the thing is more valuable than money – designated by the parties is binding upon them.
barter EXCEPTIONS:
2. If the money and the thing are of equal 1. When the third person acts in bad faith or by
value – sale mistake
3. If the thing is less valuable than money – 2. When the third person disregards the specific
sale instructions or the procedure marked out by
the parties
Sale Dation in Payment
1. No pre-existing 1. Pre-existing credit Effect when the price is not fixed by the third person
credit designated:
2. Obligations are 2. Obligations are 1. If the third person refuses or cannot fix the
created extinguished price, the contract shall become ineffective,
3. Consideration on 3. Consideration of unless the parties subsequently agree upon the
the part of the seller the debtor is the price
is the price; on the extinguishment of 2. If the third person is prevented from fixing the
part of the buyer is the debt; on the part price by the fault of the seller or buyer, the
the acquisition of of the creditor, it is
party not in fault may obtain redress against
the object the acquisition of
the object offered in the party in fault
lieu of the original
credit Effect of Gross Inadequacy of Price:
1. Voluntary sales
GENERAL RULE: Mere inadequacy of the price does
not affect validity of the sale. Requirements for perfection
 A valuable consideration, however small or a. When parties are face to face
nominal, if given or stipulated in good faith is, in  When an offer is accepted without conditions or
the absence of fraud, sufficient.(Rodriguez vs. CA, qualifications
207 SCRA 553) NOTES:
 Future inheritance cannot be sold.  A conditional acceptance is a counter-offer
 when negotiated thru phone it is as if it is
EXCEPTIONS: negotiated face to face
a. Where low price indicates vice of consent, sale b. When contract is thru correspondence or thru
may be annulled; or contract is presumed to be telegram
an equitable mortgage  When the offeror receives or has knowledge of the
b. Where the price is so low as to be “shocking to acceptance by the offeree
conscience”, sale may be set aside. NOTE: If the buyer has already accepted but the
seller does not know yet of the acceptance, the
2. Involuntary or Forced sales seller may still withdraw
GENERAL RULE: Mere inadequacy of the price is not a c. When a sale is subject to a suspensive condition
sufficient ground for the cancellation of the sale if  From the moment the condition is fulfilled
property is real.
TRANSFER OF OWNERSHIP
GENERAL RULE: While a contract of sale is
EXCEPTIONS: consensual, ownership of the thing sold is acquired only
a. Where the price is so low as to be shocking to upon its delivery, actual or constructive, to the buyer.
the moral conscience, judicial sale of personal (Daus vs. Sps. De Leon, 16 June 2003)
property will be set aside  This is true even if the purchase has been made
b. In the event of a resale, a better price can be on credit. Payment of the purchase price is not
obtained essential to the transfer of ownership, as long
as the property sold has been delivered.
NOTE: The validity of the sale is not necessarily (Sampaguita Pictures, Inc vs. Jalwindor
affected where the law gives to the owner the right to Manufacturers, Inc. 93 SCRA 420)
redeem, upon the theory that the lesser the price, the  Nonpayment only creates a right to demand
easier it is for the owner to effect redemption. payment or to rescind the contract, or to
criminal prosecution in the case of bouncing
Effect where price is simulated checks. (EDCA Publishing and Distributing
1. If it is shown to have been in reality a donation or Corp. vs. Santos, 184 SCRA 614)
some other act or contract
 The sale is void but the act or contract EXCEPTIONS:
may be valid as a donation 1. Contrary stipulation or Pactum reservati dominii
2. If not (contractual reservation of title) – a stipulation,
 The contract is void and inexistent usually in sales by installment, whereby, despite
delivery of the property sold, ownership remains
Effect of Failure to determine price: with the seller until full payment of the price is
1. Where contract executory made.
 The contract is inefficacious 2. Contract to sell
2. Where the thing has been delivered to and 3. Contract of insurance – a perfected contract of
appropriated by the buyer sale, even without delivery, vests in the vendee an
 The buyer must pay a reasonable price equitable title, an existing interest over the goods
therefore sufficient to be the subject of insurance
Reasonable price – generally the market price at the RULES GOVERNING AUCTION SALES
time and place fixed by the contract or by law for the 1. Sales of separate lots by auction are separate
delivery of the goods contracts of sale.
2. Sale is perfected by the fall of the hammer
PERFECTION OF SALE 3. Seller has the right to bid in the auction, provided:
GENERAL RULE: It is perfected at the moment there a) such right was reserved
is meeting of the minds upon a determinate thing b) notice was given that the sale was subject to a
(object), and a certain price (consideration), even if right to bid on behalf of the seller
neither is delivered. A choice between rescission and c) right is not prohibited by law or by stipulation
fulfilment, with damages in either case) 4. Advertisements for bidders are simply invitations to
make proposals, and the advertiser is not bound to
NOTE: Sale is a consensual contract; Hence, delivery accept the highest or lowest bidder, unless the
and payment are not essential for its perfection contrary appears.
EXCEPTION: When the sale is subject to a suspensive
condition by virtue of law or stipulation. EFFECT OF PROMISE TREATED UNDER ART. 1479 Civil
* The terms and conditions of payment are merely Code:
accidental, not essential elements of the contract of Accepted unilateral promise to sell or buy
sale except where the partied themselves stipulate  Only one makes the promise, this promise is
that in addition to the subject-matter and the price,
accepted by the other. Example: A promises to sell
they are essential or material to the contract.
 to B, B accepts the promise, but does not in turn Filipina, Inc vs. CA et.al. GR No. 117355, April 5,
promise to buy. 2002).
 does not bind the promissor even if accepted and  The basis of the right of first refusal must be the
may be withdrawn anytime. current offer to sell of the seller or offer to
NOTE: Pending notice of its withdrawal, the accepted purchase of any prospective buyer. Only after the
promise partakes the nature of an offer to sell which if optionee fails to exercise its right of first priority
accepted, results in a perfected contract of sale under the same terms and within the period
(Sanchez vs. Rigos 45 SCRA3 68). In other words, if the contemplated could the owner validly offer to sell
acceptance is made before withdrawal, it constitutes a the property to a third person, again, under the
binding contract of sale although the option is given same terms as offered to the optionee (Paranaque
without consideration. Kings Enterprises, Inc. vs. CA GR No. 111538,
 if the promise is supported by a consideration February 26, 1997)
distinct and separate from the price (option  The lessee’s right of first option to buy the leased
money), its acceptance will give rise to a perfected property in case of its sale is but a part of the
contract. bigger right to lease the said property from the
lessor. The option was given to the lessee because
Bilateral promise to buy and sell she was the lessee of the subject property. It was
 One party accepts the other’s promise to buy and a component of the consideration of the lease.
the latter, the former’s promise to sell a The option was by no means an independent right
determinate thing for a price certain which can be exercised by the lessee. If the lessee
 it is reciprocally demandable is barred by the contract from assigning her right to
 It requires no consideration distinct from the lease the subject property to any other party, the
lessee is similarly barred to assign her first option
selling price
to buy the leased property to another. (Bangayan
NOTE: this is as good as a perfected sale. No title
et.al vs. CA and Lim GR No.123581, August 29,
of dominion is transferred as yet, the parties being
1997)
given only the right to demand fulfillment or
damages.
Earnest money – or “ARRAS” is something of value to
show that the buyer was really in earnest, and given to
Policitation
the seller to bind the bargain. It is considered as:
 An unaccepted unilateral promise to buy or sell. a) part of the purchase price
Even if accepted by the other party, it does not b) proof of perfection of the contract
bind the promissor and maybe withdrawn anytime. *It shall be deducted from the total price.
This is a mere offer, and has not yet been
converted into a contract.
Earnest money Option money
1. Title passes to 1. Ownership is
Option contract the buyer upon reserved to the
 A contract granting a privilege in one person, for delivery of the seller and is not to
which he has paid a consideration, which gives him thing sold pass until full
the right to buy certain merchandise, at anytime payment
within the agreed period, at a fixed price. 2. In case of 2. In case of
 An option without consideration is void and the non-payment, an non-payment, there
action for specific can be action for
effect is the same as if there was no option
performance or specific performance
* However, in Sanchez vs. Rigos (1972), even though for rescission can
the option was not supported by a consideration, the be filed by the
moment it was accepted, a perfected contract of sale injured party
resulted, applying Art. 1324 of the NCC. In view of the 3. Part of the 3. Money given as a
ruling of the Supreme Court, the only importance of purchase price distinct
the consideration for an option is that the option consideration for an
cannot be withdrawn by the grantor after acceptance. option contract
* In an option to buy, the party who has an option may 4. When given, 4. The would-be
validly and effectively exercise his right by merely the buyer is bound buyer is not required
notifying the owner of the former’s decision to buy and to pay the balance to buy
expressing his readiness to pay the stipulated price. 5. Given when 5. Applies to a sale
there is already a not yet perfected
sale
Right of First Refusal
 It is a right of first priority all things and conditions
being equal; there should be identity of the terms RULES ON RISK OF LOSS AND DETERIORATION:
and conditions to be offered to the optionee and a. The thing sold is lost before perfection: Seller
all other prospective buyers, with optionee to bears the loss.
enjoy the right of first priority. A deed of sale b. The thing sold is lost at the time of perfection:
executed in favor of a third party who cannot be Contract is void or inexistent.
deemed a purchaser in good faith, and which is in c. The thing sold is lost after perfection, but before
violation of the of the right of first refusal granted delivery:
to the optionee is NOT voidable under the Statute
of Frauds, such contract is valid BUT rescissible GENERAL RULE: Who bears the risk of loss is
under Article 1380 to 1381(3) of the New Civil Code governed by the stipulations in the contract
(Guzman Bocaling & Co. vs. Bonnavie; Riviera  In the absence of any stipulation:
First view:
 Buyer bears the loss as an exception to the rule of PURCHASE BY MINORS: Contract is generally voidable
res perit domino. but in case of necessaries, “where necessaries are sold
EXCEPTIONS: and delivered to a minor or other person without
1. when object sold consists of fungible goods for capacity to act, he must pay a reasonable price
a price fixed according to weight, number or therefore. Necessaries are those in Art. 290.”
measure
2. seller is guilty of fraud, negligence, default or FORMALITIES OF CONTRACT OF SALE
violation of contractual terms GENERAL RULE: Sale is a consensual contract and is
3. object sold is generic perfected by mere consent.
(Civil Code of the Philippines, Paras) EXCEPTIONS: In order to be enforceable by action,
NOTE: This view conforms with Manresa’s view. the following must be in writing:
Buyer would have been the one to profit from the 1. Sale of personal property at a price not less
thing had it not been lost or destroyed. than P500
2. Sale of real property or an interest therein
Contrary view: 3. Sale of property not to be performed within a
Where the ownership is transferred by delivery, as year from the date thereof
in our code, the application of the axiom res perit 4. “Applicable statute” requires that the contract
domino, imposes the risk of loss upon the vendor; of sale be in a certain form
hence, if the thing is lost by fortuitous event NOTE: Statute of Frauds is applicable only to
before delivery, the vendor suffers the loss and executory contracts and not to contracts which are
cannot recover the price from the vendee totally or partially performed.
(Commentaries and Jurisprudence on the Civil
Code of the Philippines, Tolentino)

d. The thing is lost after delivery: Buyer bears the CAPACITY TO BUY OR SELL
loss. GENERAL RULE: All persons who can bind themselves
also have legal capacity to buy and sell.
Question: If one does not comply, the other need not EXCEPTIONS:
pay? 1. Absolute incapacity (minors, demented
persons, imbeciles, deaf and dumb, prodigals,
Answer: True. But this only applies when the seller is
civil interdictees) - party cannot bind
able to deliver but does not.
themselves in any case.
2. Relative incapacity – incapacity exists only with
EFFECT OF LOSS AT THE TIME OF SALE:
reference to certain persons or a certain class
a. Thing entirely lost at the time of perfection:
of property
Contract is void and inexistent
b. Thing only partially lost: Vendee may elect
Relative Incapacity
between withdrawing from the contract or
A. Husband and wife (Art. 1490): Generally, a sale by
demanding the remaining part, paying its
one spouse to another is void.
proportionate price
 The husband and wife cannot sell property to each
Sale by description other except:
1. When a separation of property was agreed upon
 A sale where a seller sells things as being of a by the spouses
certain kind, buyer merely relying on the seller’s
2. When there has been a judicial separation of
representations or descriptions.
property under Article 134 and 135 of the
 There is warranty that the thing sold corresponds Family Code
to the representations or descriptions.
B. Incapacity by reason of relation to property (Art.
Sale by sample 1491)
 A sale where a small quantity of a commodity is  The following persons cannot acquire property by
exhibited by the seller as a fair specimen of the purchase, even at a public auction, either in person
bulk, which is not present and as to which there is or through the mediation of another: (GAEP-JO)
no opportunity to inspect or examine. 1. the guardian, with respect to the property of
NOTE: The mere exhibition of the sample does not his ward;
necessarily make it a sale by sample. This 2. agents, with respect to the property whose
exhibition must have been the sole basis or administration or sale may have been entrusted
inducement of the sale. to them, unless the consent of the principal has
 There is warranty that the bulk of the commodity been given;
will correspond in kind, quality, and character with 3. executor or administrator, with respect to the
the sample exhibited. property of the estate under administration;
4. public officers and employees, with respect to
NOTE: In a sale by sample and by description, there is the properties of the government, its political
a two-fold warranty. subdivisions, or GOCCs, that are entrusted to
them;
RIGHTS OF BUYER: 5. judges, justices, prosecuting attorneys, clerks
1) Return the thing and recover the money paid, or of courts, etc., with respect to the property in
2) Retain the thing and sue for the breach of warranty. custogia legis; and

6. any other person specially disqualified by law.

 Examples of persons especially disqualified  Kinds:
by law: 1. Actual or real – placing the thing under the control
a. Aliens who are disqualified to purchase and possession of the buyer.
agricultural lands 2. Legal or constructive – delivery is represented by
b. An unpaid seller having a right of lien or other signs or acts indicative thereof
having stopped the goods in transitu, who is a. delivery by the execution of a public
prohibited from buying the goods either instrument.
directly or indirectly in the resale of the same, NOTE: Gives rise only to a prima facie presumption
at public or private sale which he may make of delivery which is destroyed when actual delivery
c. The officer holding the execution, or his is not effected because of a legal impediment (Ten
deputy. Forty Realty vs. Cruz, 10 Sept. 2003)
NOTE: While those disqualified under Arts. b. traditio symbolica - to effect delivery, the
1490 and 1491 may not become lessees (Art. parties make use of a token or symbol to
1646), still aliens may become lessees even if represent the thing delivered
they cannot buy lands. c. traditio longa manu – seller pointing out to the
buyer the things which are transferred, which
 Effect of violation: at the time must be in sight.
a) With respect to nos. 1 to 3: the sale is d. traditio brevi manu – buyer simply continues in
VOIDABLE. possession of the thing but under title of
Reason: only private rights, which are subject ownership.
to ratification are violated e. traditio constitutum possessorium – seller
NOTE: In the case of Lao vs. Genato, 137 continues in possession but under a different
SCRA 77, the Supreme Court found that the title other than ownership.
sale by the administrator of certain properties 3. Quasi-tradition – delivery of rights, credits or
of the estate in order to settle the existing incorporeal property, made by:
obligations of the estate was made to the a. placing titles of ownership in the hands of
administrator’s son for a grossly low price. buyer
Furthermore, the said sale was not submitted b. allowing buyer to make use of rights
to the probate court for approval as mandated 4. Tradition by operation of law
by the order authorizing the administrator to
sell. The sale was indubitably illegal, irregular Constructive delivery requires three things before
and fictitious, and the court’s approval of the ownership may be transferred:
assailed compromise agreement violated 1. The seller must have control over the thing
Article 1491 and cannot work to ratify a 2. The buyer must be put under control
fictitious contract which is non-existent and 3. There must be the intention to deliver the thing for
void from the very beginning purposes of ownership
b) With respect to nos. 4 to 6: the sale is NULL
AND VOID. When is the vendor not bound to deliver the thing
Reason: violation of public policy cannot be sold:
subject to ratification 1. If the vendee has not paid him the price
2. If no period for payment has been fixed in the
OBLIGATIONS OF THE VENDOR: (WPD-TT) contract
1. Transfer ownership (cannot be waived) 3. Even if a period for payment has been fixed in the
2. Deliver the thing sold (cannot be waived) contract, if the vendee has lost the right to make
3. Warrant against eviction and against hidden defects use of the same.
(can be waived or modified since warranty is not
an essential element of the contract of sale) Sale or return
4. Take care of the thing, pending delivery, with  Property is sold, but the buyer, who becomes the
proper diligence (Article 1163) owner of the property on delivery, has the option
5. Pay for the expenses of the deed of sale, unless to return the same to the seller instead of paying
there is stipulation to the contrary the price.
DELIVERY
 Is a mode of acquiring ownership, as a consequence NOTES:
of certain contracts such as sale, by virtue of  It is a kind of sale with a condition subsequent.
which, actually or constructively, the object is  The buyer must comply with the express or implied
placed in the control and possession of the vendee.
conditions attached to the return privilege;
otherwise, the sale becomes absolute.
 Delivery of the thing together with the  Buyer, being the owner, bears the risk of loss
payment of the price, marks the consummation
of the contract of sale(PNB vs. Ling, 69 Phil.
Sale on trial, approval, or satisfaction
611)
 A contract in the nature of an option to purchase if
 In all forms of delivery, it is necessary that the
the goods prove to be satisfactory, the approval of
act of delivery be coupled with the intention of
the buyer being a condition precedent.
delivering the thing. The act without the
intention is insufficient. (Norkis Distributor,
Inc. vs. CA, 195 SCRA 694)
 Rules:
1. title remains in the seller
2. risk of loss remains with seller except when the 5. When a person who is not the owner sells and
buyer is at fault or has agreed to bear the loss delivers a thing, subsequently acquires title
3. buyer must give goods a trial, except where it is thereto (Art. 1434)
evident that it cannot perform the work 6. When the seller has a voidable title which has
4. period within which buyer must signify his not been avoided at the time of the sale (Art.
acceptance runs only when all the parts essential 1506)
for the operation of the object have been * “Unlawful deprivation” is no longer limited to a
delivered. criminal act. There is Unlawful Deprivation where there
5. if it is stipulated that a third person must satisfy is no valid transmission of ownership.
approval or satisfaction, the provision is valid, but
the third person must be in good faith. If refusal to Place of delivery of goods
accept is not justified, seller may still sue. 1. Where there is an agreement, place of delivery is
6. Generally, the sale and delivery to a buyer who is that agreed upon
an expert on the object purchased is not a sale on 2. Where there is no agreement, place of delivery
approval, trial, or satisfaction. determined by usage of trade
3. Where there is no agreement and no prevalent
Sale or return Sale on Trial usage, place of delivery is the seller’s place
1. Subject to a 1. Subject to a 4. In any other case, place of delivery is the seller’s
resolutory condition suspensive condition residence
2. Depends entirely 2. Depends on the 5. In case of specific goods, which to the knowledge
on the will of the character or quality of
of the parties at the time the contract was made
buyer the goods
were in some other place, that place is the place of
3. Ownership 3. Ownership remains
passes to the buyer in the seller until delivery, in the absence of agreement or usage of
on delivery and buyer signifies his trade to the contrary
subsequent return approval or acceptance
reverts ownership to the seller Time of delivery of goods
in the seller
1. Stipulated time
4. Risk of loss or 4. Risk of loss remains 2. In the absence thereof, within a reasonable time
injury rests upon with the seller
the buyer NEGOTIABLE DOCUMENT OF TITLE (NDT)
Instances where Seller is still the Owner despite  A document of title in which it is stated that the
Delivery: goods referred to therein will be delivered to the
1. Sale on trial, approval or satisfaction bearer, or to the order of any person named in such
2. Contrary intention appears by the term of the document.
contract;  May be negotiated by delivery or indorsement.
3. Implied reservation of ownership (Article 1503)
a. If under the bill of lading, the goods are The document is negotiable if:
deliverable to seller or agent or their order; 1. The goods are deliverable to the bearer; or
b. If the bill of lading, although stating that the 2. If the goods are deliverable to the order of a
goods are to be delivered to the buyer or his certain person
agent, is kept by the seller or his agent;
a. When the buyer, although the goods are Persons who may negotiate NDT:
deliverable to order of buyer, and although the 1. The owner; or
bill of lading is given to him, does not honor 2. Any person to whom the possession or custody
the bill of exchange sent along with it. thereof has been entrusted by the owner, if by the
terms of the document the bailee issuing the
Transfer of ownership where goods sold delivered to document undertakes to deliver the goods to the
carrier order of the person to whom the possession or
General Rule: Delivery to the carrier is deemed to be custody of the document has been entrusted or if
delivery to the buyer at the time of such entrusting the document in
Exception: Where the right of possession or ownership such form that it may be negotiated by delivery.
of specific goods sold is reserved
* If the holder of a negotiable document of title
SALE OF GOODS BY A NON-OWNER (deliverable to bearer) entrusts the document to a
GENERAL RULE: Buyer acquires no title even if in friend for deposit, but the friend betrays the trust and
good faith and for value under the maxim Nemo dat negotiates the document by delivering it to another
quid non habet (“You cannot give what you do not who is in good faith, the said owner cannot impugn the
have”). validity of the negotiation. As between two innocent
EXCEPTIONS: (SMERVS) persons, he who made the loss possible shall bear the
1. Owner is estopped or precluded by his conduct loss, without prejudice to his right to recover from the
2. When sale is made by the registered owner or wrongdoer.
apparent owner in accordance with recording
or registration laws RIGHTS OF PERSON TO WHOM DOCUMENT HAS BEEN
3. Sales sanctioned by judicial or statutory NEGOTIATED:
authority 1) The title of the person negotiating the document,
4. Purchases in a merchant's store, fairs or over the goods covered by the document;
markets 2) The title of the person (depositor or owner) to
whose order by the terms of the document the goods
were to be delivered, over such goods;
3) The direct obligation of the bailee to hold possession
of the goods for him, as if the bailee had contracted to PAYMENT OF THE PURCHASE PRICE
him directly GENERAL RULE: The seller is not bound to deliver the
NOTE; Mere transferee does not acquire directly the thing sold unless the purchase price has been paid.
obligation of the bailee (in Art. 1513). To acquire it, he EXCEPTION: The seller is bound to deliver even if the
must notify the bailee. price has not been paid, if a period of payment has
been fixed.
WHO CAN DEFEAT RIGHTS OF TRANSFEREE:
1. Creditor of transferor Sale of Real Property by Unit
2. Transferor  Entire area stated in the contract must be
3. Subsequent purchaser delivered
 When entire area could not be delivered, vendee
RULES WHEN QUANTITY IS LESS THAN AGREED UPON: may:
1. Buyer may reject; or 1. Enforce the contract with the corresponding
2. Buyer may accept what has been delivered, at decrease in price
the contract rate 2. Rescind the sale:
a. If the lack in area is at least 1/10 than that
RULES WHEN QUANTITY IS MORE THAN AGREED stated or stipulated
UPON: b. If the deficiency in quality specified in the
1. Buyer may reject all; or contract exceeds 1/10 of the price agreed
2. Buyer may accept the goods agreed upon and upon
reject the rest; or c. If the vendee would not have bought the
3. Buyer may accept all and must pay for them at immovable had he known of its smaller
the contract rate area of inferior quality irrespective of the
NOTE: Acceptance, even if not express may be implied extent of lack of area or quality
when the buyer exercises acts of ownership over the
excess goods. Sale for a Lump Sum (A Cuerpo Cierto)
 Vendor is obligated to deliver all the land included
RULES WHEN GOODS MIXED WITH GOODS OF
within the boundaries, regardless of whether the
DIFFERENT DESCRIPTION:
real area should be greater or smaller
 Buyer may accept the goods which are in  Ordinarily, there can be no rescission or reduction
accordance with the contract and reject the rest
or increase whether the area be greater or lesser,
unless there is gross mistake.
NOTE: If the subject matter is indivisible, in case of
NOTE: The Civil Code presumes that the purchaser had
delivery of larger quantity of goods or of mixed goods,
in mind a particular piece of land and that he
the buyer may reject the whole of the goods
ascertained its area and quality before the contract of
sale was perfected. If he did not do so, or if having
DELIVERY TO THE CARRIER
done so he made no objection and consented to the
GENERAL RULE: Where the seller is authorized or transaction, he can blame no one but himself (Teran
required to send the goods to the buyer, delivery to the
vs. Villanueva Viuda de Riosa 56 Phil 677).
carrier is delivery to the buyer.
What is important is the delivery of all the land
EXCEPTIONS: included in the boundaries.
1. When a contrary intention appears
2. Implied reservation of ownership under pars.
DOUBLE SALE (Art. 1544)
1,2,3 of Art. 1503
 Requisites: VOCS
 Kinds of Delivery to the Carrier two or more transactions must constitute valid sales;
a. C.I.F. (cost, insurance, freight) – signify that they must pertain exactly to the same object or
the price fixed covers not only the costs of the subject matter;
goods, but the expense of the freight and the they must be bought from the same or immediate
insurance to be paid by the seller seller; AND
b. F.O.B. (free on board) – goods are to be two or more buyers who are at odds over the rightful
delivered free of expense to the buyer to the ownership of the subject matter must represent
point where they are F.O.B. The point of conflicting interests.
F.O.B., either at the point of shipment or the
point of destination, determines when the  Rules of preference:
ownership passes. 1. Personal Property
NOTE: the terms C.I.F. and F.O.B. merely make a. first possessor in good faith
rules of presumption 2. Real Property
c. C.O.D. (collect on delivery) – the carrier acts a. first registrant in good faith
for the seller in collecting the purchase price, b. first possessor in good faith
which the buyer must pay to obtain possession c. person with oldest title in good faith
of the goods.
NOTES:
SELLER’S DUTY AFTER DELIVERY TO CARRIER  Purchaser in Good Faith – one who buys the
1. To enter on behalf of buyer into such contract property of another without notice that some other
reasonable under the circumstances person has a right to or interest in such property
2. To give notice to buyer regarding necessity of and pays a full and fair price for the same at the
insuring the goods time of such purchase or before he has notice of
 the claim or interest of some other person in the WARRANTY
property (Veloso vs. CA).  a statement or representation made by the seller
 Registration requires actual recording; if the of goods, contemporaneously and as a part of the
property was never really registered as when the contract of sale, having reference to the character,
registrar forgot to do so although he has been quality, or title of the goods, and by which he
handed the document, there is no registration. promises or undertakes to insure that certain facts
 Possession is either actual or constructive since the are or shall be as he then represents.
law made no distinction (Sanchez vs. Ramos 40
Phil614)  Kinds:
 Possession in Art.1544 includes not only material 1. EXPRESS – any affirmation of fact or any promise
but also symbolic possession (Ten Forty Realty vs. by the seller relating to the thing if the natural
Cruz, 10 Sept. 2003.) tendency of such affirmation or promise is to
 Title means title because of sale, and not any other induce the buyer to purchase the same and if the
title or mode of acquiring property (Lichauco vs. buyer purchases the thing relying thereon
Berenguer 39 Phil 642)
 Hernandez vs. Katigbak Rule: When the property NOTE: A mere expression of opinion, no matter how
positively asserted, does not import a warranty unless
sold on execution is registered under Torrens,
the seller is an expert and his opinion was relied upon
registration is the operative act that gives validity
by the buyer.
to the transfer or creates a lien on the land, and a
purchaser on execution sale is not required to go
2. IMPLIED - that which the law derives by
behind the registry to determine the conditions of
implication or inference from the nature of the
the property. Exception: Where the purchaser had
transaction or the relative situation or
knowledge, prior to or at the time of the levy, of
circumstances of the parties, irrespective of any
such previous lien or encumbrance, his knowledge
intention of the seller to create it.
is equivalent to registration.
a. Warranty against eviction
b. Warranty against hidden defects
CONDITION
c. Warranty as to Fitness and Merchantability
 Effect of Non-fulfillment of Condition
NOTE: An implied warranty is a natural, not an
1. If the obligation of either party is subject to
essential element of a contract, and is deemed
any condition and such condition is not
incorporated in the contract of sale. It may however,
fulfilled, such party may either:
be waived or modified by express stipulation. (De
a. refuse to proceed with the contract
Leon)
b. proceed with the contract , waiving the
There is no implied warranty as to the condition,
performance of the condition.
adaptation, fitness or suitability or the quality of an
2. If the condition is in the nature of a promise
article sold as a second-hand article. But such articles
that it should happen, the non-performance of
might be sold under such circumstances as to raise an
such condition may be treated by the other
implied warranty.
party as breach of warranty.
* A certification issued by a vendor that a second-hand
machine was in A-1 condition is an express warranty
NOTE: A distinction must be made between a condition
binding on the vendor. (Moles vs. IAC [1989])
imposed on the perfection of a contract and a
condition imposed merely on the performance of an
A. Warranty against eviction
obligation. The failure to comply with the first
condition would prevent the juridical relation itself  Warranty in which the seller guarantees that he has
from coming into existence, while failure to comply the right to sell the thing sold and to transfer
with the second merely gives the option either to ownership to the buyer who shall not be disturbed
refuse or proceed with the sale or to waive the in his legal and peaceful possession thereof.
condition.
 Elements:
 The mere fact that the second contract of sale was 1. vendee is deprived, in whole or in part, of the
perfected in good faith is not sufficient if, before thing purchased;
title passes, the second vendee acquires knowledge 2. the deprivation is by virtue of a final judgment;
of the first transaction. The good faith or 3. the judgment is based on a prior right to the
innocence of the posterior vendee needs to sale or an act imputable to the vendor;
continue until his contract ripens into ownership by 4. the vendor was summoned in the suit for
tradition or registration. (Palanca vs. Dir. Of Lands, eviction at the instance of the vendee; AND
46 PHIL 149) 5. no waiver of warranty by the vendee.

 Vendor's liability shall consist of:

EFFECT IF BUYER HAS ALREADY SOLD THE GOODS: 1. Total eviction: (VICED)
General Rule: The unpaid seller’s right to lien or a. Value of the thing at the time of eviction;
stoppage in transitu remains even if buyer has sold the b. Income or fruits if he has been ordered to
goods. deliver them to the party who won the suit;
Except: c. Costs of the suit;
1) When the seller has given consent thereto, or d. Expenses of the contract; AND
2) When the buyer is a purchaser in good faith for value e. Damages and interests if the sale was in bad
of a negotiable document of title. faith.
 2. Partial eviction: 1. defect must be Serious or important;
a. to enforce vendor’s liability for eviction 2. it must be Hidden;
(VICED); OR 3. it must Exist at the time of the sale;
b. to demand rescission of contract. 4. vendee must give Notice of the defect to the
vendor within a reasonable time;
Question: Why is rescission not a remedy in case of 5. action for rescission or reduction of price must
total eviction? be brought within the proper Period (within 6
Answer: Rescission contemplates that the one mos. from delivery of the thing or 40 days from
demanding it is able to return whatever he has date of delivery in case of animals); and
received under the contract. Since the vendee can no 6. no Waiver of the warranty.
longer restore the subject-matter of the sale to the
vendor, rescission cannot be carried out.  Remedies of the Vendee:
a. Accion redhibitoria (rescission)
* The suit for the breach can be directed only against b. Accion quanti minoris (reduction of the price)
the immediate seller, not sellers of the seller unless NOTES:
such sellers had promised to warrant in favor of later  Hidden faults or defects pertain only to those that
buyers or unless the immediate seller has expressly make the object unfit for the use for which it was
assigned to the buyer his own right to sue his own intended at the time of the sale.
seller.  This warranty in Sales is applicable in Lease (Yap
NOTE: The disturbance referred to in the case of
vs. Tiaoqui 13Phil433)
eviction is a disturbance in law which requires that a
Effect of loss of thing on account of hidden defects:
person go to the courts of justice claiming the thing
1. If vendor was aware of hidden defects, he shall
sold, or part thereof and invoking reasons. Mere
bear the loss and vendee shall have the right to
trespass in fact does not give rise to the application of
recover: (PED)
the doctrine of eviction.
a. the price paid
b. expenses of the contract
 Vendor’s liability is waivable but any stipulation c. damages
exempting the vendor from the obligation to 2. If vendor was not aware, he shall be obliged to
answer for eviction shall be void if he acted in bad return: (PIE)
faith. a. price paid
 Kinds of Waiver: b. interest thereon
a. Consciente – voluntarily made by the c. expenses of the contract if paid by the vendee
vendee without the knowledge and
assumption of the risks of eviction Effect if the cause of loss was not the hidden defect
NOTE: vendor shall pay only the value which  If the thing sold had any hidden fault at the
the thing sold had at the time of eviction
time of the sale, and should thereafter be lost by a
b. Intencionada – made by the vendee with
(1) fortuitous event OR (2) through the fault of the
knowledge of the risks of eviction and
vendee:
assumption of its consequences
 the vendee may demand of the vendor the
EFFECT: vendor not liable
price which he paid less the value of the thing
NOTE: Every waiver is presumed to be consciente. To
at the time of its loss.
consider it intencionada, it must be accompanied by
NOTE: the difference between the price paid and
some circumstance which reveals the vendor’s
the value of the thing at the time of its loss
knowledge of the risks of eviction and his intention to
represents the damage suffered by the vendee and
submit to such consequences.
the amount which the vendor enriched himself at
the expense of the vendee
WHERE IMMOVABLE SOLD ENCUMBERED WITH NON-
APPARENT BURDEN
 If the vendor acted in bad faith:
1. Right of vendee  vendor shall pay damages to the vendee
a) recission, or
b) indemnity C. Implied Warranties of Quality
Warranty of Fitness
2. When right cannot be exercised:  Warranty in which the seller guarantees that the
a) if the burden or servitude is apparent thing sold is reasonably fit for the known particular
b) if the non-apparent burden or servitude is purpose for which it was acquired by the buyer
registered
c) if vendee had knowledge of the encumbrance, GENERAL RULE: There is no implied warranty as to
whether it is registered or not the quality or fitness for any particular purpose of
3. When action must be brought goods under a contract of sale
- within ONE YEAR from the execution of the deed EXCEPTIONS:
of sale 1. Where the buyer, expressly or by implication
manifests to the seller the particular purpose
B. Warranty against hidden defects for which the goods are required
 Warranty in which the seller guarantees that the 2. Where the buyer relies upon the seller’s skill or
thing sold is free from any hidden faults or defects judgment
or any charge or encumbrance not declared or
known to the buyer. Warranty of Merchantability
 Warranty in which the seller guarantees, where the
 Elements: (SHENPW) goods were bought by description, that they are
 reasonably fit for the general purpose for which  The buyer in such a case is in the position of a
they are sold bailee who has had goods thrust upon him
 It requires identity between what is described in without his assent. He has the obligation to
the contract AND what is tendered, in the sense take reasonable care of the goods but nothing
that the latter is of such quality to have some value more can be demanded of him.
 The goods in the buyer’s possession under
Instances where implied warranties are inapplicable: these circumstances are at the seller’s risk
1. As is and where is sale - vendor makes no warranty 2. To be liable as a depositary if he voluntarily
as to the quality or workable condition of the constituted himself as such
goods, and that the vendee takes them in the 3. To pay interest for the period between delivery of
condition in which they are found and from the the thing and the payment of the price in the
place where they are located. following cases:
2. Sale of second-hand articles a. Should it have been stipulated
3. Sale by virtue of authority in fact or law b. Should the thing sold and delivered produce
fruits or income
Caveat Venditor (“Let the seller beware”): the c. Should he be in default, from the time of
vendor is liable to the vendee for any hidden faults or judicial or extra-judicial demand for the
defects in the thing sold, even though he was not payment of the price
aware thereof.
 Pertinent Rules:
Caveat Emptor (“Let the buyer beware”): requires 1. The vendor is not required to deliver the thing sold
the purchaser to be aware of the supposed title of the until the price is paid nor the vendee to pay the
vendor and one who buys without checking the price before the thing is delivered in the absence
vendor’s title takes all the risks and losses consequent of an agreement to the contrary (Article 1524).
to such failure. 2. If stipulated, the vendee is bound to accept
delivery and to pay the price at the time and place
RULES IN CASE OF SALE OF ANIMALS designated;
1. When two or more animals have been sold at the 3. If there is no stipulation as to the time and place of
same time and the redhibitory defect is in one, or some payment and delivery, the vendee is bound to pay
of them but not in all, the general rule is that the at the time and place of delivery
redhibition will not affect the others without it. It is 4. In the absence of stipulation as to the place of
immaterial whether the price has been fixed for a lump delivery, it shall be made wherever the thing might
sum for all the animals or for a separate price for each. be at the moment the contract was perfected
2. No warranty against hidden defects of animals sold (Article 1251)
at fairs or at public auctions, or of livestock sold as 5. If only the time for delivery has been fixed in the
condemned. This is based on the assumption that the contract, the vendee is required to pay even before
defects must have been clearly known to the buyer. the thing is delivered to him; if only the time for
3. Sale of animals shall be void when: payment has been fixed, the vendee is entitled to
a) animals sold are suffering from contagious delivery even before the price is paid by him
disease (Article 1524)
b) if the use or service for which they are acquired
has been stated in the contract, and they are found to Ways of accepting goods:
be unfit therefor 1. Express acceptance
4. Limitation of the action: 40 days from the date of 2. Implied acceptance
their delivery to the vendee a. When buyer does an act which only an owner
5. Vendor shall be liable if the animal should die can do,
within 3 days after its purchase if the disease which b. Failure to return goods after reasonable lapse
caused the death existed at the time of the contract of time

OBLIGATIONS OF THE VENDEE: NOTES:

A. Principal Obligations:  The retention of goods is strong evidence that the
1. To accept delivery buyer has accepted ownership of the goods.
2. To pay the price of the thing sold in legal tender  Delivery and acceptance are two separate and
unless another mode has been agreed upon distinct acts of different parties
NOTE: A grace period granted the vendee in case of  Delivery is an act of the vendor and one of the
failure to pay the amount/s due is a right not an vendor’s obligations; vendee has nothing to do
obligation. The grace period must not be likened to an with the act of delivery by the vendor
obligation, the non-payment of which, under Article  Acceptance is an obligation of the vendee;
1169 of the Civil Code, would still generally require acceptance cannot be regarded as a condition
judicial or extra-judicial demand before “default” can to complete delivery;
be said to arise (Bricktown Dev’t Corp vs. Amor Tierra  seller must comply with the obligation to
Dev’t Corp. 57SCRA437) deliver although there is no acceptance yet by
the buyer
B. Other Obligations  Acceptance by the buyer may precede actual
1. To take care of the goods without the obligation to delivery; there may be actual receipt without
return, where the goods are delivered to the buyer acceptance and there may be acceptance without
and he rightfully refuses to accept receipt
NOTES:
 Unless otherwise agreed upon, acceptance of the  action for damages (Art. 1596)
goods by the buyer does not discharge the seller 2. Unpaid Seller
from liability for damages or other legal remedy  Types:
like for breach of any promise or warranty a. The seller of the goods who has not been paid
or to whom the price has not been tendered
When vendee may suspend payment of the price: b. The seller of the goods, in case a bill of
1. If he is disturbed in the possession or ownership of exchange or other negotiable instrument has
the thing bought been received as conditional payment, AND the
2. If he has well-grounded fear that his possession or condition on which it was received has been
ownership would be disturbed by a vindicatory broken by reason of the dishonor of the
action or foreclosure of mortgage instrument, insolvency of the buyer or
otherwise.
NOTES:  Remedies:
 If the thing sold is in the possession of the vendee 1. Possessory lien over the goods
and the price is already in the hands of the vendor, 2. Right of stoppage in transitu after he has
the sale is a consummated contract and Article parted with the possession of the goods and the
1590 is no longer applicable. Article 1590, buyer becomes insolvent
presupposes that the price or any part thereof has 3. Special Right of resale
not yet been paid and the contract is not yet 4. Special Right to rescind the sale
consummated. 5. Action for the price
 Under Article 1590, the vendee has no cause of 6. Action for damages
action for rescission before final judgement,
otherwise the vendor might become a victim of 3. Article 1484 or Recto Law
machinations between the vendee and the third  Remedies of vendor in sale of personal property by
person installments
 Disturbance must be in possession and ownership of  Requisites:
the thing acquired 1. Contract of sale
 If the disturbance is caused by the existence of 2. Personal property
non-apparent servitude, the remedy of the buyer is 3. Payable in installments
rescission, not suspension of payment. 4. In the case of the second and third remedies,
that there has been a failure to pay two or
more installments
When vendee cannot suspend payment of the price NOTE: Apply likewise to contracts purporting to be
even if there is disturbance in the possession or leases of personal property with option to buy
ownership of the thing sold:  Art. 1484 does not apply to a sale:
1. if the vendor gives security for the return of the 1. Payable on straight terms (partly in cash and
price in a proper case partly in one term)
2. if it has been stipulated that notwithstanding any 2. Of Real property
such contingency, the vendee must make payment  Remedies:
(see Article 1548 par.3) 1. Specific performance upon vendee’s failure to
3. if the vendor has caused the disturbance or danger pay
to cease NOTE: Does not bar full recovery for judgment
4. if the disturbance is a mere act of trespass secured may be executed on all personal and real
5. if the vendee has fully paid the price properties of the buyer which are not exempt from
execution (Palma v. CA.)
REMEDIES FOR BREACH OF CONTRACT 2. Rescission of the sale if vendee shall have
A. Remedies of the seller failed to pay two or more installments
1. Action for payment of the price (Art. 1595) NOTES:
2. Action for damages for non-acceptance of the  Nature of the remedy – which requires mutual
goods (Art. 1596) restitution – bars further action on the
3. Action for rescission (Art. 1597) purchase price (Nonato vs. IAC.)
B. Remedies of the buyer  GENERAL RULE: cancellation of sale requires
1. Action for specific performance (Art. 1598)
mutual restitution, that is all partial payments
2. Action for rescission or damages for breach of
of price or rents must be returned
warranty (Art 1599)
EXCEPTIONS: a stipulation that the
installments or rents paid shall not be returned
A. REMEDIES OF THE SELLER FOR BREACH OF
to the vendee or lessee shall be valid insofar as
CONTRACT
the same may not be unconscionable under the
 IN CASE OF MOVABLES
circumstan-ces (Article 1486).
1. Ordinary Remedies
3. Foreclosure of the chattel mortgage on the
a. Movables in General – Failure of the vendee to
thing sold if vendee shall have failed to pay
appear to receive delivery or, having appeared,
two or more installments. In this case, there
failure to tender the price at the same time,
shall be no further action against the purchaser
unless, a longer period for its payment has
to recover unpaid balance of the price.
been stipulated
 action to rescind the sale (Art. 1593) NOTES:
b. Sale of Goods –  Further recovery barred only from the time of
 action for the price (Art. 1595) actual sale at public auction conducted pursuant to
foreclosure (Macondray vs. Tan.) NOTE: This right shall be exercised by the
 Other chattels given as security cannot be buyer ONLY once in every 5 years of the life of
foreclosed if they are not subject of the installment the contract AND its extensions.
sale (Ridad vs. Filipinas investment and Finance Corp. 2. Actual cancellation can only take place after 30
GR 39806, Jan. 28, 1983) days from receipt by the buyer of the notice of
 If the vendor assigns his right to a financing cancellation OR demand for rescission by a
company, the latter may be regarded as a collecting notarial act AND upon full payment of the cash
agency of the vendor and cannot therefore recover any surrender value to the buyer (Olympia Housing
deficiency from the vendee (Zayas vs. Luneta Motors vs. Panasiatic, 16 January 2003.)
Co.) NOTE: The seller shall refund to the buyer the
 When the vendor assigns his credit to another cash surrender value of the payments on the
property equivalent to 50% of the total
person, the latter is likewise bound by the same law.
payments made. After five (5) years of
Accordingly, when the assignee forecloses on the
installments, there shall be an additional 5%
mortgage, there can be no further recovery of the
every year but not to exceed 90% of the total
deficiency and the vendor-mortgagee is deemed to
payments made
have renounced any right thereto (Borbon II vs.
3. The buyer shall have the right to sell his rights
Servicewide Specialist, Inc. 258SCRA658)
or assign the same to another person OR to
NOTE: However, Article 1484(3) does NOT bar one to
reinstate the contract by updating the account
whom the vendor has assigned on with a recourse basis
during the grace period and before actual
his credit against the vendee from recovering from
cancellation of the contract
the vendor the assigned credit in full although the
4. The buyer shall have the right to pay in
vendor may have no right of recovery against the
advance any installment or the full unpaid
vendee for the deficiency (Filipinas Invest. & Finance
balance of the purchase price any time without
Corp. vs. Vitug, Jr. 28SCRA658)
interest and to have such full payment of the
purchase price annotated in the certificate of
NOTE: Remedies are alternative and exclusive
title covering the property.
 IN CASE OF IMMOVABLES B. If Buyer has paid less than 2 years of
1. Ordinary Remedies installments
a. In case of anticipatory breach – 1. The seller shall give the buyer a grace period of
 rescission (Article 1591) NOT less than 60 days from the date the
b. Failure to pay the purchase price – installment became due. If the buyer fails to
 rescission upon judicial or notarial demand pay the installments due at the expiration of
for rescission (Article 1592) the grace period, the seller may cancel the
 the vendee may pay, even after the contract after 30 days from receipt by the
expiration of the period, as long as no buyer of the notice of cancellation or the
demand for rescission has been made upon demand for rescission of contract by a notarial
him act.
NOTE: Article 1592 does not apply to: 2. Same No. 3 and 4 paragraph A above
1) Sale on instalment of real estate
2) Contract to sell NOTE: Down payments, deposits or options on the
3) Conditional sale contract shall be included in the computation of the
4) Cases covered by RA 6552: Realty total number of installment payments made
Installment buyer protection act
Remedies of Unpaid Seller
2. R.A. No. 6552 or Maceda Law I. Possessory Lien
 An Act to Provide Protection to buyers of Real  When may be exercised:
Estate on Installment Payments 1. Where the goods have been sold without any
 Law governing sale or financing of real estate on stipulation as to credit
installment payments 2. When the goods have been sold on credit, but
 Requisites: the term of credit has expired
1. transactions or contracts involving the sale OR 3. Where the buyer becomes insolvent
financing of real estate on installment  When lost:
payments, including residential condominium 1. Delivery of the goods to a carrier or bailee for
apartments; and the purpose of transmission to the buyer
2. buyer defaults in payment of succeeding without reserving ownership or right of
installments. possession
2. When the buyer lawfully obtains possession of
 Rights of the buyer: the goods
A. If Buyer has paid at least two (2) years of 3. By waiver of the lien
installments NOTE: Possessory lien is lost after the seller loses
1. The buyer must pay, without additional possession but his lien as an unpaid seller remains;
interest, the unpaid installments due within hence he is still an unpaid creditor with respect to the
the total grace period earned by him. There price of specific goods sold. His preference can only be
shall be one (1) month grace period for every defeated by the governments claim to the specific tax
one (1) year of installment payments made on the goods themselves (Arts. 2247 and 2241).
NOTE: The bringing of an action to recover the
purchase price is not one of the ways of losing the
possessory lien. An unpaid seller does not lose his lien a. Where the right to rescind on default has
by reason that he has obtained a money judgement or been expressly reserved
decree for the price of goods (Art. 1529, last b. Where the buyer has been in default for an
paragraph). unreasonable time
2. Under Art. 1597 (“technical rescission”)
II. Stoppage of goods in transitu
 Requisites: V. Action for the price
1. Seller must be unpaid  When may be exercised:
2. Buyer must be insolvent 1. Where the ownership has passed to the buyer
3. Goods must be in transit AND he wrongfully neglects OR refuses to pay
4. Seller must either: for the price
a. actually take possession of the goods sold 2. Where the price is payable on a day certain
OR AND he wrongfully neglects OR refuses to pay
b. give notice of his claim to the carrier or for the price, irrespective of the delivery or
other person in possession transfer of title
5. Seller must surrender the negotiable document 3. Where the goods cannot readily be resold for a
of title, if any, issued by the carrier or bailee reasonable price AND the buyer wrongfully
6. Seller must bear the expenses of delivery of refuses to accept them even before the
the goods after the exercise of the right ownership of the goods has passed, if Article
1596 is inapplicable.
GOODS ARE CONSIDERED IN TRANSITU:
1. after delivery to a carrier or other bailee and before VI. Action for damages
the buyer or his agent takes delivery of them; and  When may be exercised:
2. If the goods are rejected by the buyer, and the 1. In case of wrongful neglect or refusal by the
carrier or other bailee continues in possession of them buyer to accept or pay for the thing sold (Art.
1596 par.1)
GOODS ARE NO LONGER CONSIDERED IN TRANSITU: 2. In an executory contract, where the ownership
1. after delivery to the buyer or his agent in that in the goods has not passed, and the seller
behalf; cannot maintain an action to recover the price
2. if the buyer or his agent obtains possession of the (Art 1595)
goods at a point before the destination originally fixed; 3. If the goods are not yet identified at the time
3. if the carrier or the bailee acknowledges to hold the of the contract or subsequently
goods on behalf of the buyer; and B. REMEDIES OF THE BUYER FOR BREACH OF
4. if the carrier or bailee wrongfully refuses to deliver CONTRACT
the goods to the buyer
1. Action for specific performance (Art. 1598)
 Effects of the exercise of the right  Where the seller has broken the contract to deliver
1. The goods are no longer in transit. specific or ascertained goods
2. The contract of carriage ends; instead the carrier  The judgment or decree may be unconditional, or
now becomes a mere bailee, and will be liable as upon such terms and conditions as to damages,
such. payment of the price and otherwise as the court
3. The carrier should not deliver anymore to the buyer may deem just
or the latter’s agent; otherwise he will clearly be
liable for damages. 2. Remedies of buyer for breach of warranty by
4. The carrier must redeliver to, or according to the seller (Art. 1599):
directions of the seller. 1. Recoupment – accept the goods and set up the
seller’s breach to reduce or extinguish the price
WAYS OF EXERCISING THE RIGHT TO STOP: 2. Accept the goods and maintain an action for
1. By taking actual possession of the goods damages for breach of warranty
2. By giving notice of his claim to the carrier or bailee 3. Refuse to accept the goods and maintain an action
for damages for breach of warranty
III. Special Right of Resale 4. Rescind the contract by returning or offering the
 May be exercised only when the unpaid seller has return of the goods, and recover the price of any
either a right of lien OR has stopped the goods in part thereof
transitu AND under ANY of the following conditions: NOTE: These are alternative remedies.
1. Where the goods are perishable in nature
2. Where the right to resell is expressly reserved When rescission by buyer not allowed:
in case the buyer should make a default 1. if the buyer accepted the goods knowing of the
3. Where the buyer delays in the payment of the breach of warranty without protest
price for an unreasonable time 2. if he fails to notify the seller within a reasonable
time of his election to rescind
IV. Rescission 3. if he fails to return or offer to return the goods in
 Types: substantially as good condition as they were in at the
1. Special Right to Rescind Under Art. 1534 – If time of the transfer of ownership to him
the seller has either the right of lien OR a right
to stop the goods in transitu AND under either EXTINGUISHMENT OF SALE
of 2 situations: 1. Same causes as in all other obligations
2. Conventional Redemption
3. Legal Redemption
 sale. Example: Where a buyer a retro honestly
CONVENTIONAL REDEMPTION believed that he entered merely into an
 The right which the vendor reserves to himself, to Equitable Mortgage, not a pacto de retro
reacquire the property sold provided he returns to transaction, and because of such belief he had
the vendee: not redeemed within the proper period.
b. the price of the sale; NOTE: Tender of payment is sufficient to compel
c. expenses of the contract; redemption, but is not in itself a payment that
d. any other legitimate payments made therefore relieves the vendor from his liability to pay the
and; redemption price (Paez vs. Magno.)
e. the necessary and useful expenses made on the
thing sold; and LEGAL REDEMPTION
f. fulfills other stipulations which may have been
agreed upon.
 The right to be subrogated, upon the same terms
and conditions stipulated in the contract, in the
place of one who acquires a thing by (1) purchase
A sale with conventional redemption is deemed to be or (2) dation in payment, or (3) by any other
an equitable mortgage in any of the following cases: transaction whereby ownership is transferred by
(IPERTOD) onerous title.
1. Unusually Inadequate purchase price;  May be effected against movables or immovables.
2. Possession by the vendor remains, as lessee or  It must be exercised within thirty (30) days from
otherwise; the notice in writing by the vendor.\
3. Extension of redemption period after expiration;
4. Retention by the vendee of part of the purchase
price; NOTE: Written notice under Article 1623 is mandatory
5. Vendor binds himself to pay the Taxes of the thing for the right of redemption to commence (PSC vs. Sps.
sold; Valencia 19 August 2003.)
6. Any Other case where the parties really intended
that the transaction should secure the payment of BASIS OF LEGAL REDEMPTION: Not on any proprietary
a debt or the performance of any obligation; or right, which after the sale of the property on
7. When there is Doubt as to whether contract is execution, leaves the judgment debtor and vests in the
contract of sale with right of repurchase or an purchaser, but on a bare statutory privilege to be
equitable mortgage. exercised only by the persons named in the statute.

Equitable Mortgage  Tender of payment is not necessary; offer to

 One which lacks the proper formalities, form of redeem is enough.
words, or other requisites prescribed by law for a
mortgage, but shows the intention of the parties to PRE-EMPTION REDEMPTION
make the property subject of the contract as 1. arises before 1. arises after sale
security for a debt and contains nothing impossible sale
or contrary to law (Cachola vs. CA 208SCRA496) 2. no rescission 2. there can be
because no sale as rescission of the
yet exists original sale
* When can there be presumption as to Equitable
3. the action is 3. action is directed
Mortgage? directed against against the buyer
1) Parties must have entered into a contract the prospective
denominated as a contract of sale seller
2) The intention of the parties was to secure an
existing debt by way of mortgage Instances of legal redemption:
NOTE: In the cases referred to in Arts. 1602 and 1604, A. Under the Civil Code (legal redemption):
the apparent vendor may ask for the reformation of the 1. Sale of a co-owner of his share to a stranger
instrument. (Article 1620)
Remedy of Reformation: To correct the instrument so 2. When a credit or other incorporeal right in
as to make it express the true intent of the parties. litigation is sold (Article 1634)
3. Sale of an heir of his hereditary rights to a
Redemption Period stranger (Article 1088)
a. if there is an agreement: period agreed upon 4. Sale of adjacent rural lands not exceeding one
cannot exceed 10 years hectare (Article 1621)
b. if no agreement as to the period: 4 years from the 5. Sale of adjacent small urban lands bought
date of the contract merely for speculation (Article 1622)
c. the vendor who fails to repurchase the property B. Under special laws:
within the period agreed upon may, however, 1. An equity of redemption in cases of judicial
exercise the right to repurchase within 30 days foreclosures
FROM the time final judgment was rendered in a 2. A right of redemption in cases of extra-judicial
civil action on the basis that the contract was a foreclosures
true sale with right of repurchase 3. Redemption of homesteads
 This refers to cases involving a transaction 4. Redemption in tax sales
where one of the parties contests or denies 5. Redemption by an agricultural tenant of land
that the true agreement is one of sale with sold by the landowner
right to repurchase; not to cases where the
transaction is conclusively a pacto de retro
 4. The right must be exercised by the debtor within
ASSIGNMENT OF CREDIT 30 days from the date the assignee demands
 a contract by which the owner of a credit transfers (judicially or extra-judicially) payment from him
to another his rights and actions against a third
person in consideration of a price certain in money SALE OF CREDIT OR OTHER INCORPOREAL RIGHTS IN
or its equivalent LITIGATION
GENERAL RULE: Debtor has the right of legal
NOTE: Transfer of rights by assignment takes place by redemption in sale of credit or incorporeal rights in
the perfection of the contract of assignment without litigation
the necessity of delivering the document evidencing EXCEPTIONS:
the credit. a. Sale to a co-heir or co-owner
 this rule does not apply to negotiable b. Sale to a co-owner
documents and documents of title which are c. Sale to the possessor of property in question
governed by special laws.

 Effects of Assignment:
BARTER
1. transfers the right to collect the full value of the
BARTER
credit, even if he paid a price less than such value
2. transfers all the accessory rights  contract whereby one of the parties binds himself
3. debtor can set up against the assignee all the to give one thing in consideration of the other's
defenses he could have set up against the assignor promise to give another thing (Article 1638)

Effect of payment by the debtor after assignment of NOTE: Barter is similar to a sale with the only
credit difference that instead of paying a price in money,
1. Before Notice of the assignment another thing is given in lieu of the purchase price
 Payment to the original creditor is valid and
PERFECTION and CONSUMMATION
debtor shall be released from his obligation
2. After Notice  Perfected from the moment there is a meeting of
minds upon the things promised by each party in
 Payment to the original creditor is not valid as
consideration of the other
against the assignee
 He can be made to pay again by the assignee  Consummated from the time of mutual delivery by
the contracting parties of the things promised
Warranties of the assignor of credit:
a. He warrants the existence of the credit
NOTES:
b. He warrants the legality of the credit at the
perfection of the contract  Where the giver of the thing bartered is not the
NOTE: There is no warranty as to the solvency of the lawful owner thereof, the aggrieved party cannot
debtor unless it is expressly stipulated OR unless the be compelled to deliver the thing which he has
insolvency was already existing and of public promised and is also entitled to damages.
knowledge at the time of the assignment  Where a party is evicted of the thing exchanged,
the injured party is given the option, either to
NOTE: The seller of an inheritance warrants only the recover the property he has given in exchange with
fact of his heirship but not the objects which make up damages or only claim an indemnity for damages.
his inheritance.  As to matters not provided for by the provisions on
barter, the provisions on sales will apply
Liabilities of the assignor of credit for violation of his suppletorily
warranties
1. Assignor in good faith BULK SALES LAW (Act No. 3952)
 Liability is limited only to the price received When Sale or Transfer in Bulk:
and to the expenses of the contract, and any  Any sale, transfer, mortgage, or assignment:
other legitimate payments by reason of the 1. Of a stock of goods, wares, merchandise,
assignment provisions, or materials otherwise than in the
2. Assignor in bad faith ordinary course of trade and the regular
 Liable not only for the payment of the price prosecution of business; or
and all the expenses but also for damages 2. Of all or substantially all, of the business or trade;
or
Legal Redemption in Sale or Credit or other 3. Of all or substantially all, of the fixtures and
incorporeal right in litigation equipment used in the business of the vendor,
 Requisites: mortgagor, transferor or assignor (section 2)
1. There must be a sale or assignment of credit
2. There must be a pending litigation at the time of When sale or transfer in bulk not covered by Bulk
the assignment Sales Law:
3. The debtor must pay the assignee: 1. If the sale or transfer is in the ordinary course of
a. price paid by him trade and the regular prosecution of business of the
b. judicial cost incurred by him; AND vendor;
c. interest on the price from the date of payment 2. If it is made by one who produces and delivers a
written waiver of the provisions of the Bulk Sales
Act from his creditors
3. If it is made by an executor, administrator,  The proper remedy is one against the goods to
receiver, assignee in insolvency, or public officer, subject them to the payment of the debt, such as
acting under judicial process (Section 8); and execution, attachment, garnishment, or by a
4. If it refers to properties exempt from attachment proceeding in equity
or execution (Rules of Court, Rule 39, Section 12)  An ordinary action against the purchaser to obtain
money judgement will not lie, unless the purchaser
Protection Accorded to Creditors by Bulk Sales Law: has sold or otherwise disposed of, or dealt with the
1. It requires the vendor, mortgagor, transferor or property, so as to become personally liable to
assignor to deliver to the vendee, mortgagee, or to creditors for value of it.
his or its agent or representative a sworn written Acts Punished by Bulk Sales Law:
statement of names and addresses of all creditors 1. Knowingly or wilfully making or delivering a
to whom said vendor, etc. may have been indebted statement required by the Act which does not
together with the amount due or to be due include the names of all the creditors of the
(Section 3) vendor, etc. with the correct amount due or to
2. It requires the vendor, mortgagor, transferor or become due or which contains any false or untrue
assignor, at least 10 days before the sale, transfer, statement; and
mortgage, assignment to make a full detailed 2. Transferring title to any stock of goods, wares,
inventory showing the quantity and the cost of merchandise, provisions or materials sold in bulk
price of goods, and to notify every creditor of the without consideration or for nominal consideration
price terms and conditions of the sale, etc. (Section 7)
(Section 5)
RETAIL TRADE LIBERALIZATION ACT
Effects of False Statements in the Schedule of (RA 8762)
Creditors:
1. Without knowledge of buyer Retail Trade
 If the statement is fair upon its face and the  Any act occupation or calling of habitually selling
buyer has no knowledge of its incorrectness and direct to the general public merchandise,
nothing to put him on inquiry about it, he will commodities or goods for consumption, but the
be protected in its purchase restrictions of this law shall not apply to the
 The remedy of the creditor is not against the following:
goods but to prosecute the seller criminally 1. Sales by manufacturer, processor, laborer, or
2. With knowledge or imputed knowledge of buyer worker, to the general public the products
 The vendee accepts it at his peril manufactured, processed produced by him if his
 The sale is valid only as between the vendor capital does not exceed P100,000;
and the vendee but void against the creditors 2. Sales by a farmer or agriculturalist selling the
products of his farm
3. With names of certain creditors without notice 3. Sales in restaurant operations by a hotel owner or
are omitted from the list inn-keeper irrespective of the amount of capital;
 The sale is void as to such creditors, whether provided that the restaurant is incidental to the
the omission was fraudulent or not, hotel business; and
4. With respect to an innocent purchaser for a 4. Sales which are limited only to products
value from the original purchaser manufactured, processed or assembled by a
 An innocent purchaser for value from the manufacturer through a single outlet, irrespective
original purchaser is protected of capitalization
 However if the circumstances are such as to
bind the subsequent purchaser with High-End or Luxury Goods
constructive notice that the sale to the vendor  Goods which are not necessary for life maintenance
(original purchaser) was fraudulent, the and whose demand is generated in large part by
property will be liable in his hands to creditors the higher income groups
of the original vendor  Shall include but not limited to: jewelry, branded
Effect of violation of law on Transfer:
or designer clothing and footwear, wearing
1. As between the parties
apparel, leisure and sporting goods, electronics and
 The Bulk Sales Law does not in any way affect
other personal effects
the validity of the transfer as between the
NOTE: A natural-born citizen of the Philippines who
intermediate parties thereto
has lost his citizenship but who resides in the
 A sale not in compliance with the Bulk Sales
Philippines shall be granted the same rights as Filipino
Law is valid against all persons other than the
citizens
creditors.
2. As against creditors
Foreign Equity Participation:
 A purchaser in violation of the law acquires no
right in the property purchased as against the
 Foreign-owned partnerships, associations and
creditors of the seller corporations formed and organized under the laws
 His status is that of a trustee or receiver for of the Philippines may, upon registration with SEC
the benefit of the creditors of the seller; as and DTI, or in case of Foreign-owned single
such, he is responsible for the disposition of proprietorship with the DTI, engage or invest in
the property retail trade business, subject to the following
categories:
Remedies Available to creditors: 1. Category A:
  Paid-up capital of the equivalent in Philippine 4. Only nationals from, or juridical entities formed or
Peso of: < $2,500,000 US Dollars incorporated in Countries which allow to engage in
 Reserved exclusively for Filipino citizens and retail trade in the Philippines
corporations wholly owned by citizens
2. Category B:
 Minimum paid-up capital of the equivalent in
PD 957 (SUBDIVISION AND CONDOMINIUM BUYERS’
Philippine Peso of $2,500,000 US Dollars, but
PROTECTIVE DECREE
<$7,500,000
 May be wholly owned by foreigners except for Registration of Projects
the first two years after the effectivity of this  The registered owner of a parcel of land who
Act wherein foreign participation shall be wishes to convert the same into a subdivision
limited to not > 60% of total equity. project shall submit his subdivision plan to the
3. Category C: HOUSING AND LAND-USE REGULATORY BOARD,
 Paid-up capital of the equivalent in Philippine which shall act upon and approve the same, upon a
Peso of: $7,500,000 US Dollars or more finding that the plan complies with the Subdivision
 May be wholly owned by foreigners Standards' and Regulations enforceable at the time
NOTE: In no case shall the investments for the plan is submitted. The same procedure shall be
establishing a store in Categories B and C be followed in the case of a plan for a condominium
less than the equivalent in Philippine Peso of: project except that, in addition, said Authority
US $830,000 shall act upon and approve the plan with respect to
4. Category D: the building or buildings included in the
 Enterprises specializing in high-end or luxury condominium project in accordance with the
products with paid-up capital of the equivalent National Building Code (R.A. No. 6541).
in Philippine Peso of: $250,000 US Dollars per  The subdivision plan, as so approved, shall then be
store submitted to the Director of Lands for approval in
 May be wholly owned by foreigners accordance with the procedure prescribed in
Section 44 of the Land Registration Act (Act No.
496, as amended by R.A. No. 440): Provided, that it
NOTES: case of complex subdivision plans, court approval
 Foreign investor shall be required to maintain in shall no longer be required. The condominium plan
the Philippines the FULL amount of the prescribed as likewise so approved, shall be submitted to the
minimum capital, UNLESS the foreign investor has Register of Deeds of the province or city in which
notified the SEC and the DTI of its intention to the property lies and the same shall be acted upon
repatriate its capital and cease operations in the subject to the conditions and in accordance with
Philippines the procedure prescribed in Section 4 of the
Condominium Act (R.A. No. 4726).
 Failure to maintain the full amount of the
prescribed minimum capital prior to notification of
 National Housing authority (now Housing and Land
the SEC and the DTI shall subject the foreign
Use Regulatory Board) has the exclusive jurisdiction
investors to penalties or restrictions on any future
to regulate the real estate trade and business.
trading activities/business in the Philippines
License to sell
NOTE: Foreign Investors Acquiring Shares of Stock of
 Such owner or dealer to whom has been issued a
existing retail stores whether or not publicly listed
registration certificate shall not, however, be
whose net worth is in excess of the Peso equivalent of
authorized to sell any subdivision lot or
US $2,500,000 may purchase only up to the maximum
condominium unit in the registered project unless
of 60% of the equity thereof within the first 2 years,
he shall have first obtained a license to sell the
and thereafter, they may acquire the remaining
project within two weeks from the registration of
percentage consistent with the allowable foreign
such project.
participation as herein provided
Exempt transactions
NOTE: All retail Trade enterprises under categories B
 A license to sell and performance bond shall not be
and C in which foreign ownership exceeds 80% of equity
required in any of the following transactions:
shall offer a minimum of 30% of their equity to the
1. Sale of a subdivision lot resulting from the partition
public through any stock exchange in the Philippines
of land among co-owners and co-heirs.
within 8 years from the start of the operations
2. Sale or transfer of a subdivision lot by the original
purchaser thereof and any subsequent sale of the
Qualification of Foreign Retailers
same lot.
1. Minimum of $200,000,000 US Dollars net worth in
3. Sale of a subdivision lot or a condominium unit by
its parent corporation for Categories B and C and
or for the account of a mortgagee in the ordinary
$50,000,000 net worth in its parent corporation for
course of business when necessary to liquidate a
Categories D
bona fide debt.
2. 5 retailing branches or franchises in operation
anywhere around the world unless such retailer has
Grounds for Revocation of registration certificate and
at least 1 store capitalized at a minimum of
license to sell of owners or dealers
$25,000,000 US Dollars
1. Is insolvent; or
3. 5-year track record in retailing; and
2. Has violated any of the provisions of this Decree or designated specifically in the Civil Code. It is an
any applicable rule or regulation of the Authority, innominate contract. It is however, believed that
or any undertaking of his/its performance bond; or the contract can be denominated as the contract of
3. Has been or is engaged or is about to engage in board and lodging.
fraudulent transactions; or  There is a contract of lease when the use and
4. Has made any misrepresentation in any prospectus, enjoyment of a safety deposit box in a bank is
brochure, circular or other literature about the given for a price certain. This is certainly not a
subdivision project or condominium project that contract of deposit.
has been distributed to prospective buyers; or  A lease of personal property with option to buy (at
5. Is of bad business repute; or a nominal amount) at the end of the lease can be
6. Does not conduct his business in accordance with considered a sale.
law or sound business principles.
LEASE SALES
LEASE 1. only use or
enjoyment is
1. ownership
transferred
is

transferred
LEASE 2. transfer is 2. transfer is
 consensual, bilateral, onerous, and commutative temporary permanent
contract by virtue of which one person binds 3. lessor need not 3. seller must be
himself to grant temporarily the use of the thing or be the owner the owner at the
to render some service to another who undertakes time the property
to pay some rent. is delivered
Kinds of Leases (From the view point of the subject 4. the price of the 4. usually, the
object, selling price is
matter
distinguished from mentioned
1. Lease of things the rent, is usually
2. Lease of service not mentioned
3. Lease of work

NOTE: Since lease is consensual and is not imposed by Lease of Lease of Services
law, only the lessor has the right to fix the rents. Things
1. object of 1. object is some
However, the increasing of the rent is not an absolute
contract is a work or service
right on the part of the lessor. thing
2. lessor has to 2. lessor has to
Characteristics or Requisites for Lease of Things deliver the thing perform some work
1. Consensual leased or service
2. Principal 3. in case of 3. in case of
3. Nominate breach, there breach, no action
4. Purpose is to allow enjoyment or use of a thing can be an action for specific
(the person to enjoy is the lessee; the person for specific performance
allowing the enjoyment by another is the lessor performance
5. Subject matter must be within the commerce
of man Lease of Contract for a
6. Purpose to which the thing will be devoted Services Piece of Work
should not be immoral (locatio (locatio operas)
7. Onerous (there must rent or price certain) operatum)
8. Period is Temporary (not perpetual, hence, the 1. the 1. the important
important object object is the work
longest period is 99 years)
is the labor done
9. Period is either definite or indefinite
performed by the
 If no term is fixed, we should apply lessor
Art.1682 (for rural leases) and Art. 1687 (for 2. the result is 2. the result is
urban leases) generally not generally
 If the term is fixed but indefinite, the important, important;
court will fix the term under the law of hence the generally, the price
obligations and contracts laborer is is not payable until
entitled to be the work is
10. Lessor need not be the owner
paid even if completed, and said
there is price cannot be
NOTE: A usufructuary may thus lease the premises destruction of lawfully demanded
in favor of a stranger, such lease to end at the time the work through if the work is
that the usufruct itself ends fortuitous event destroyed before it
is finished and
Rent accepted
 The compensation either in money, provisions,
chattels, or labor, received by the lessor from
the lessee.
Lease of Agency
Services
NOTES:
 When a student boards and lodges in a dormitory,
there is no contract of lease. The contract is not
 It is based on It is based on related to each
employment – representation – other
the lessor of agent represents his 2. the 2. the personality of
services does principal and enters personality of the lessee
not represent his into juridical acts. the lessee does disappears
employer nor not disappear
does he execute 3.the lessee does 3. the lessee
juridical acts. not transmit transmits absolutely
Principal Preparatory absolutely his his rights to the
contract contract rights and assignee
obligations to the
Rule for Lease of Consumable Goods sublessee
4. the sublessee, 4. the assignee has
GENERAL RULE: Consumable goods cannot be the
generally, does a direct action
subject matter of a contract of lease of things. not have any against the lessor
Why? To use or enjoy hem, they will have to be direct action
consumed. This cannot be done by a lease since against the lessor
ownership over them is not transferred to him by the
contract of lease.
RIGHTS OF LESSOR IF SUBLEASE PROHIBITED BUT
EXCEPTIONS: ENTERED INTO BY LESSEE:
a. If they are merely exhibited
1) Rescission and damages, or
b. If they are accessory to an industrial
2) Damages only (Contract will be allowed to remain in
establishment
force)
3) Ejectment
RECORDING OF LEASE OF PERSONAL PROPERTY
GENERAL RULE: Lease of real property is personal Instances when sublessee is liable to the lessor:
right
a. All acts which refer to the use and preservation
EXCEPTIONS: Lease partakes of the nature of real of the thing leased in the manner stipulated
right if:
between the lessor and the lessee
a. Lease of real property is more than 1 year
b. The sublessee is subsidiarily liable to the lessor
b. Lease of real property is registered regardless
for any rent due from the lessee.
of duration
NOTE: The sublessee shall not be responsible beyond
the amount of rent due from him.
NOTE: Lease of personal property cannot be
registered. To be binding against third persons, the
Accion Directa: direct action which the lessor may
parties must execute a public instrument.
bring against a sublessee who misuses the subleased
property.
* Lease may be made orally, but if the lease of Real
Property is for more than 1 year, it must be in OBLIGATIONS OF THE LESSOR (DnM)
writing under the Statue of Frauds. a. Delivery of the object (cannot be waived)
b. Making of necessary repairs
Persons Disqualified to be Lessees Because c. Maintenance in peaceful and adequate
Disqualified to Buy possession
1. A husband and a wife cannot lease to each other
their separate properties except: OBLIGATIONS OF THE LESSEE (R2EN2U)
a. if separation of property was agreed upon a. to pay rent
b. if there has been judicial separation of b. to use thing leased as a diligent father of a
property family, devoting it to the use stipulated
Persons referred to in Art. 1491 are disqualified c. to pay expenses for the deed of lease
because of fiduciary relationships d. to notify the lessor of usurpation or untoward
acts
SUBLEASE e. to notify the lessor of need for repairs
 A separate and distinct contract of lease wherein f. to return the property leased upon termination
the original lessee becomes a sublessor to a of the lease
sublessee.
 Allowed unless expressly prohibited. Effect of Destruction of the Thing Leased:
 The sublessee is subsidiarily liable for any rent due. 1. Total destruction by a fortuitous event
The lessor has an accion directa against the  Lease is extinguished
sublessee for unpaid rentals and improper use of
the object.

SUBLEASE ASSIGNMENT OF
LEASE 2. Partial destruction
1. there are two 1. there is only one a. Proportional reduction of the rent, or
leases and two juridical b. Rescission of the lease
distinct juridical relationship, that of When lessee may suspend payment of rent:
relationships the lessor and the 1. lessor fails to undertake necessary repairs
although assignee, who is 2. lessor fails to maintain the lessee in peaceful and
immediately converted into a
adequate enjoyment of the property leased
connected and lessee
NOTE: “Suspend”- for the intervening period, the
lessee does not have to pay the rent. NOTE: While the Japanese Occupation was a fortuitous
event, the lessor is still not excused from his obligation
EFFECTIVITY OF THE SUSPENSION: to warrant peaceful legal possession. Lease is a
The right begins: contract that calls for prestations both reciprocal and
a) In the case of repairs, from the time he made the repetitive; and the obligations of either party are not
demand for said repairs, and the demand went discharged at any given moment, but must be fulfilled
unheeded. all throughout the term of the contract. (Villaruel vs.
b) In the case of eviction, from the time the final Manila Motor Co.)
judgment for eviction becomes effective.
Duration of Lease
Alternative remedies of Aggrieved party 1. Lease made for a determinate time or fixed
(Lessor/Lessee) in case of Non-fulfillment of duties: Period
1. Rescission and damages  Lease will be for the said period and it ends on
2. Damages only, allowing the contract to remain in the day fixed without need of a demand
force – Specific Performance
NOTE: Damages Recoverable in ejectment cases are 2. If there is no fixed period
the rents or the fair rental value of the premises. The A. For Rural Lands (Article 1680)
following cannot be successfully claimed:  it shall be for all time necessary for the
1. Profits plaintiff could have earned were it not gathering of fruits which the whole estate may
for the possible entry or unlawful detainer yield in 1 year, or which it may yield once
2. Material injury to the premises B. For Urban Lands (Article 1687)
3. Actual, moral, or exemplary damages a. If rent is paid daily: lease is from day to day
b. If rent is paid weekly: lease is from week to
Immediate termination of lease under Art. 1660 week
applies: c. If rent is paid monthly: lease is from month to
1. only to dwelling place or any other building month
intended for human habitation d. If rent is paid yearly: lease is from year to year
2. even if at the time the contract was perfected, the
lessee knew of the dangerous condition or waived RULES ON EXTENSION OF THE LEASE PERIOD:
the right to rescind on account of this condition 1) If a lease contract for a definite term allows lessee
Rules on Alteration of the Form of the Lease to extend the term, there is no necessity for lessee to
 The Lessor can alter provided there is no notify lessor of his desire to so extend the term, unless
impairment of the use to which the thing is the contrary is stipulated.
devoted under the terms of the lease 2) “May be extended” as stipulation: lessee can extend
without lessor’s consent but lessee must notify lessor.
 Alteration can also be made by the Lessee so long 3) “May be extended for 6 years agreed upon by both
as the value of the property is not substantially
parties” as stipulation: This must be interpreted in
impaired
favor of the lessee. Hence, ordinarily the lessee at the
end of the original period may either:
Rules in case of Urgent Repairs
a) leave the premises; or
 The lessee is obliged to tolerate the work although b) remain in possession
it may be very annoying to him and although during 4) In co-ownership, assent of all is needed; otherwise,
the same time he may be deprived of a part of the it is void or ineffective as against non-consenting co-
premises owners.
1. If repairs last for more than 40 days: Lessee cannot 5) Where according to the terms of the contract, the
act for reduction of rent or rescission lease can be extended only by the written consent of
2. If 40 days or more: lessee can ask for the parties thereto, no right of extension can rise
proportionate reduction without such written consent.
NOTE: In either case, rescission may be availed of if
the main purpose is to provide a dwelling place and the Rule if Lessor Objects to the Lessee’s continued
property becomes uninhabitable. Possession:
 Requisites:
Effects if Lessor fails to make Urgent Repairs
1. Contract has expired
1. Lessee may order repairs at the lessor’s cost
2. Lessee continued enjoying the thing
2. Lessee may sue for damages
3. Lessor Objected to this enjoyment
3. Lessee may suspend the payment of the rent
4. Lessee may ask for rescission, in case of substantial  If the three requisites are present, the lessee shall
damage to him be considered a possessor in bad faith

TRESPASS IN LEASE: IMPLIED NEW LEASE (Tacita Reconducion)

1. Trespass in fact (perturbacion de mere hecho):  lease which arises if at the end of the contract the
 physical enjoyment is reduced lessee should continue enjoying the thing leased for
15 days with the acquiescence of the lessor, unless
 Lessor will not be held liable. a notice to the contrary had previously been given
2. Trespass in law (perturbacion de derecho):
by either party.
 A third person claims legal right to enjoy the
premises
 Requisites:
 Lessor will be held liable a. the term of the original contract has expired
 b. the lessor has not given the lessee a notice to RENTAL REFORM ACT OF 2002
vacate (R.A. No. 9161)
c. the lessee continued enjoying the thing leased  Effectivity: January 1, 2002.
for at least 15 days with the acquiescence of  Coverage:
the lessor a. All residential units of NCR and other highly
urbanized cities, the total monthly rental for each
 When there is no implied new lease: of which does not exceed P7,500;
1. When before or after the expiration of the b. All residential units in other areas the total
term, there is a notice to vacate given by either monthly rental for each of which does not exceed
party. P4,000 as of 1/1/02, without prejudice to pre-
2. When there is no definite fixed period in the existing contracts.
original lease contract as in the case of successive
renewals.  Grounds for judicial ejectment: SANORE
1. Assignment of lease or subleasing of residential
 Effects: units including the acceptance of boarders or
a. The period of the new lease is not that stated bedspacers without written consent of the owner
in the original contract but the time in Articles or lessor;
1682 and 1687. 2. Arrears in payment of rent for a total of 3 months;
b. Other terms of the original contract are 3. Legitimate needs of the owner or lessor to
revived. repossess for his own use or for the use of any
immediate member of his family as a residential
NOTE: Terms that are revived are only those which are unit, provided:
germane to the enjoyment of possession, but not those a. owner or immediate member not being owner
with respect to special agreements of any other available residential unit within the
same city or municipality;
which are by nature foreign to the right of occupancy b. lease for a definite period has expired;
or enjoyment inherent in a contract of lease – such as c. lessor has given lessee formal notice 3 months
an option to purchase the leased premises (Dizon vs. in advance; and
Magsaysay GR No. 23399, May 31,1974) d. owner or lessor is prohibited from leasing the
residential unit or allowing its use by a third person
Perpetual Lease for at least 1 year.
 A lease contract providing that the lessee can stay 4. Absolute ownership by the lessee of another
in the premises for as long as he wants and for as dwelling unit in the same city or municipality which
long as he can pay the rentals and its increases. may be lawfully used as his residence provided
 This is not permissible; it is a purely potestative lessee is with formal notice 3 months in advance;
condition because it leaves the effectivity and 5. Need of the lessor to make necessary repairs in the
enjoyment of leasehold rights to the sole and leased premises which is the subject of an existing
exclusive will of the lessee order of condemnation by appropriate authorities
concerned in order to make said premises safe and
NOTE: In Jespajo Realty vs. CA, 27 Sept. 2002, the SC habitable; and
upheld a lease contract, which provides that “the lease 6. Expiration of period of the lease contract.
contract shall continue for an indefinite period
provided that the lessee is up-to-date in the payment NOTE:
of his monthly rentals” for the contract is one with a  Except when the lease is for a definite period, the
period subject to a resolutory condition. provisions of Art. 1673(1) of the Civil Code (CC),
insofar as they refer to residential units, shall be
PURCHASE OF THE LEASED PROPERTY suspended during the effectivity of R.A. 9161, but
GENERAL RULE: Purchaser of thing leased can other provisions of the CC and the Rules of Court
terminate lease. on lease contracts insofar as they are not in
EXCEPTIONS: conflict with the provisions of R.A. No. 9161 shall
a. lease is recorded in Registry of Property apply.
b. there is stipulation in the contract of sale that  No increase in monthly rental by more than 10% is
purchaser shall respect the lease allowed.
c. purchaser knows the existence of the lease
d. sale is fictitious TERMINATION OF THE LEASE
e. sale is made with right of repurchase  If made for a determinate time, it ceases upon the
day fixed without the need of a demand.
GROUNDS FOR EJECTMENT UNDER ART. 1673: (ELVU) 1) By the expiration of the period
1. Expiration of the period agreed upon or the period 2) By the total loss of the thing
under Arts. 1682 and 1687; 3) By the resolution of the right of the lessor
2. Lack of payment of the price stipulated; 4) By the will of the purchaser or transferee of the
3. Violation of any of the conditions agreed upon in thing
the contract; and 5) By rescission due to non-performance of the
4. Unauthorized use or service by the lessee of the obligation of one of the parties
thing leased.
Special Provisions for Rural Lands
 Effect of loss due to fortuitous event:
1. Ordinary fortuitous event – no reduction
2. Extraordinary fortuitous event
a. if more than ½ of the fruits were lost, there
shall be a reduction, unless there is a
stipulation to the contrary
b. if ½ or less, there shall be no reduction
 Lease duration: If not fixed, it shall be for all time
necessary for the gathering of fruits which the
whole estate may yield in 1 year, or which it may
yield once.

Special Provisions for Urban Lands

 Repairs for which urban lessor is liable:
1. special stipulation
2. if none, custom of the place
3. in case of doubt, the repairs are chargeable against
him

 Lease duration:
1. If there is a fixed period, lease will be for said
period.
2. If no fixed period, apply the following rules:
a. If rent is paid daily: day to day
b. If rent is paid weekly: week to week
c. If rent is paid monthly: month to month
d. If rent is paid yearly: year to year