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Prelim Notes: Preliminary Discussion

1. Contract of Sale Defined: Sale is a contract where one party (seller or vendor)
obligates himself to transfer the ownership of and to deliver a determinate thing,
while the other party (buyer or vendee) obligates himself to pay for said thing a
price certain in money or its equivalent. (Art. 1458, Civil Code)
2. Etymology of the word "Sale":
Roman law, a sale is termed as "vendito". French refers to contract of sale as
vente, Italians refer to it as vendita and the Spaniards call it a "venta".
The Pilipino term for sale is bilihan.
Origin of the Philippine Law on Sales
Prior to the adoption of the New Civil Code, Philippine law on Sales were based
on the Spanish Civil Code of Spain of 1887 and the Spanish Code of Commerce of
1885. In 1947, however a Code Commission was created to draft and update the
Civil Code. The Code Commission completed its work sometime in December, 1947
and the New Civil Code actually took effect on August 30, 1950. Provisions on the
sales of the Spanish Code of Commerce were repealed and the distinction between
Civil and Commercial sales was eliminated.
Instead the Code Commission had adopted majority of the provisions of the
American Uniform Sales Act which was prepared by the National Conference of
Commissioners on Uniform State Laws of 1907, the principal objective of which was
to eliminate the diversities in the law on sales which existed as a result of the
divergent interpretations of sales contracts by courts of different states in America.
The Uniform Sales Act was largely declaratory of the common law rules which
had been developed and generally followed by the different states in America at the
time it was drafted. Report of the Code Commission states majority of the
provisions of the Uniform Sales Law which is in force in 31 States and Territories of
the American Union have been adopted in the New Civil Code with modifications to
suit the principles of Philippine Law. The Philippine Law on Sales today, as covered
by the Title VI, Articles 1458 to 1637 of the New Civil Code, is a blend of Civil Law
and Common Law principles.

Sale As a contract :
Article 1305. A contract is a meeting of minds between two persons whereby one
binds himself, with respect to the other, to give something or to render some
service.
Parties involved:

Seller or Vendor
Buyer or Vendee
Principles of Contracts

Autonomy of Will
Article 1306. The contracting parties may establish such stipulations, clauses,
terms and conditions as they may deem convenient, provided they are not contrary
to law, morals, good customs, public order, or public policy.

Obligatory in Force

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Article 1159. Obligations arising from contracts have the force of law between
the contracting parties and should be complied with in good faith.

Mutuality of contracts
The contract must bind both contracting parties; its validity or compliance cannot
be left to the will of one of them.
Exception:
Article 1309. The determination of the performance may be left to a third person,
whose decision shall not be binding until it has been made known to both
contracting parties. (n)
Article 1310. The determination shall not be obligatory if it is evidently inequitable.
In such case, the courts shall decide what is equitable under the circumstances
Principle of consensuality.
Article 1315. Contracts are perfected by mere consent, and from that moment the
parties are bound not only to the fulfillment of what has been expressly stipulated
but also to all the consequences which, according to their nature, may be in keeping
with good faith, usage and law.
Principle of Relativity
Article 1311. Contracts take effect only between the parties, their assigns
and heirs, except in case where the rights and obligations arising from the
contract are not transmissible by their nature, or by stipulation or by
provision of law. The heir is not liable beyond the value of the property he
received from the decedent.
If a contract should contain some stipulation in favor of a third person, he
may demand its fulfillment provided he communicated his acceptance to
the obligor before its revocation. A mere incidental benefit or interest of a
person is not sufficient. The contracting parties must have clearly and
deliberately conferred a favor upon a third person.
Hence death of any of the contracting parties in a contract of sale after its
perfection does not extinguish the obligations and rights arising therefrom. ( Relate
provision with transmissibility of rights in Article 1178)
Article 1178. Subject to the laws, all rights acquired in virtue of an obligation are
transmissible, if there has been no stipulation to the contrary.
Exceptions:

a. when there is stipulation otherwise

b. When the law provides it is intransmissible such as in contracts
of
partnership, agency and commodatum
c. When nature of the obligation requires it to be nontransmissible

Essential Characteristics of the Contract of Sale:

a) Consensual (as distinguished as real), because the contract is perfected by
mere consent;
See Article 1315 on principle of consensuality.

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Article 1315. Contracts are perfected by mere consent, and from that
moment the parties are bound not only to the fulfillment of what has been
expressly stipulated but also to all the consequences which, according to
their nature, may be in keeping with good faith, usage and law.
Article 1159. Obligations arising from contracts have the force of law between
the contracting parties and should be complied with in good faith.
b) Bilateral reciprocal - because both parties are bound by obligations
dependent upon each other. ( reiterated by Article 1191)
c) Onerous, because to acquire the rights, valuable considerations must be
given.
d) Commutative, as a rule, because the values exchanged are almost equivalent
to each other.
(NOTE: By way of exception, some contracts of sale are aleatory, that is, what
one receives may in time greater or smaller than what he has given.
Example: The sale of genuine sweepstakes ticket.)
Test: subjective as long as parties in all honesty that he is receiving equal
value then it complies with test & would not be deemed a donation; but must
not be absurd.
Inadequacy of price or aleatory character not sufficient ground to
cancel contract of sale; inadequacy can show vitiation of consent & sale may
be annulled based on vice but not on inadequacy
e) Principal (as distinguished from an accessory contract), because for the
contract of sale to be validly exist, there is no necessity for it to depend upon
the existence of another valid contract.
f) Nominate because the Code refers to it by a special designation or name,
that is the contract of sale.
g)

Title & not a mode gives rise to an obligation to transfer; it is delivery w/c
actually transfer ownership; mode which actually transfer ownership.

Obligations arising in a contract of sale

a. obligation of seller transfer ownership & deliver
b. obligation of buyer pay for price
Consequence: power to rescind is implied in bilateral contracts

Elements of the Contract of Sale:

a) Essential elements (those without which there can be no valid sale)
- Consent or meeting of the minds, that is consent transfer ownership in
exchange for the price.
Meaning of consent:
Article 1319. Consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the
contract. The offer must be certain and the acceptance absolute. A
qualified acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does not bind the offerer except
from the time it came to his knowledge. The contract, in such a case, is
presumed to have been entered into in the place where the offer was
made.
Characteristics of consent
Intelligent
Free and Voluntary

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Conscious and spontaneous
-

Determinate subject matter (generally, there is no sale of generic thing,

moreover, if the parties differ as to the object, there be no meeting of the
minds).
Notes:
Article 1347. All things which are not outside the commerce of men,
including future things, may be the object of a contract. All rights which
are not intransmissible may also be the object of contracts.
No contract may be entered into upon future inheritance except in cases
expressly authorized by law.
All services which are not contrary to law, morals, good customs, public
order or public policy may likewise be the object of a contract. (1271a)

Be it noted that the object of contract of sale are THINGS AND RIGHTS
only. Services cannot be an object of sale
Article 1348. Impossible things or services cannot be the object of
contracts. (1272)
Meaning of Determinate:
Article 1460. A thing is determinate when it is particularly designated or
physical segregated from all others of the same class.
The requisite that a thing be determinate is satisfied if at the time the contract is
entered into, the thing is capable of being made determinate without the necessity
of a new or further agreement between the parties. Relate this paragraph with
Art. 1349
Article 1349. The object of every contract must be determinate as to its
kind. The fact that the quantity is not determinate shall not be an obstacle
to the existence of the contract, provided it is possible to determine the
same, without the need of a new contract between the parties.
B. Price certain in money or its equivalent (this is the cause or consideration)
(The price need not be in money)
Notes:
Article 1249. The payment of debts in money shall be made in the
currency stipulated, and if it is not possible to deliver such currency, then
in the currency which is legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange or
other mercantile documents shall produce the effect of payment only
when they have been cashed, or when through the fault of the creditor
they have been impaired.

In the meantime, the action derived from the original obligation shall be
held in the abeyance.
Capacity of the contracting parties. In other words, the contracting
parties must have the legal capacity to engage in lawful commerce.

Updates:

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Payment of debts in money shall be made only in the Philippine currency
which the legal tender pursuant to Art. 1249 of the Civil Code in relation to Republic
Act No. 8183. Obligation shall now be payable in the legal tender in the Philippines.
Legal tender means the currency which the debtor may compel his creditor to
accept payment of his debt. However, the parties may stipulate that the payment
may be made in currency under than the legal tender of Philippines at the time of
payment. ( R.A. No. 8183)
But pursuant to Section 52 of Republic Act No.. 7653 (The New Central Bank
Act), "Legal Tender Power - All notes and coins issued by the Bank shall be fully
guaranteed by the Government of the Republic of the Philippines and shall be legal
tender in the Philippines for all debts, both public and private. " This might mean, all
notes and coins being served or issued by the Central Bank of the Philippines When
Offered in payment extinguishes the debt is legal tender.
One Peso coin is no longer valid tender of payment to any amount.
According to BSP Circular No.. 537 issued by the Central Bank of the
Philippines on July 18, 2006, pursuant to Section 52 of RA 7653 (New Central Bank
Act) and the Monetary Board Resolution No.. 862 dated 6 July 2006, "the maximum
amount of coins to be considered as legal tender is adjusted as Follows:
1. One thousand pesos (P1, 000.00) for denominations of 1, Piso, Piso 5, and
10 pesos coins; and
2. One hundred pesos (P100.00) for denominations of 1-cent, 5-cent, 10-cent,
25-cent coins.
Query:
A sold a piano to B, by private instrument, for P 10,000. In that contract of
sale, which is the object, and which is the cause?
Answer: There are at least two viewpoints here, the latter of which appears to be
preferable.
FIRST VIEW - The object (subject matter) of the sale is the piano, while the cause
(consideration) is the P 1,000 ( or, as the same authority puts in, the giving of the P
1,000, at least insofar as the seller A is concerned.
Insofar as the buyer B is concerned, the object is the P 1,000. While the
cause (consideration for which he parted with his money) is the piano (or, as the
same authority puts in, the giving of the piano)
SECOND VIEW - Insofar as both the seller and the buyer are concerned,
there is only one subject matter, namely, the piano. The cause or consideration for
the seller is the price paid; for the buyer, it is the delivery to him of the piano.
RULE:
What is the object in a contract of sale? Determinate thing
What is the cause in the contract of sale? Price certain in money or its equivalent
a) Natural elements (those which are inherent in the contract, and which in the
absence of any contrary provision, are deemed to exist in the contract)
- Warranty against eviction, deprivation of the property bought)
- Warranty against Hidden Defects
Natural elements inherent in the contract, and which in the absence of any
contrary provision, are deemed to exist in the contract:
1. Warranty against eviction

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2. Warranty against hidden defects
Accidental elements (those which may be present or absent in the stipulation, such
as the place or time of payment, or the presence of conditions)
Accidental elements may be present or absent depending on the stipulation of the
parties (e.g.: conditions, interest, penalty, time or place of payment, etc.)
3.

Stages in the Contract of Sale:

a) Generation or Negotiation
b) Perfection - Meeting of the Minds
c) Consummation - when the object is delivered and the price is paid.

4. Kinds of Sales
a) As to the subject matter:
-sale of real property
-sale of personal property
b) As to the value of things exchanged:
-Commutative
-Aleatory
c) As to whether the object is tangible or intangible:
- Sale of property (tangible or corporeal)
- Sale of Rights (Assignment of a right or a credit, or some other intangibles
such as copyright, trademark or goodwill)
(NOTE: If the object is tangible, it is called a chose in possession; if the object
is intangible, as in the case of a right, it is chose in action.
d) As to the validity or defect of the transaction:
-valid sale
-rescissible sale
-voidable sale
-unenforceable sale
-void sale
e) As to the presence or absence of conditions:
-Absolute Sale (no conditions imposed)
-Conditional Sale (As when there is a sale with a pacto de retro, a right to
repurchase or redeem; or when there are suspensive
conditions, or when the things sold merely possess
potential
existence, such as sale of future harvest of a designated
parcel of land.)
f) As to the legality of the object:
-Sale of a licit object
-Sale of an illicit object
g) As to whether wholesale or retail:
- Wholesale, if to be resold for a profit the goods being unaltered when
resold,
the quantity being large.
- Retail, if otherwise
h) As to proximate inducement for the sale:
- Sale by description

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-

Sale by sample
Sale by description and sample (Art.1481)

i) As to when the price is tendered:

- Cash sale
- Sale on the installment plan
Sale Distinguished from Dation in Payment
SALE
DATION IN PAYMENT
1. There is no pre-existing credit.

1. There is a pre-existing credit.

2. Give rise to an obligation.

1. Extinguishes obligations.

3. The cause or consideration here is

the price, from the viewpoint of
the seller; or of the obtaining of
the object from the viewpoint of
the buyer.

3. The cause or consideration here,

from the viewpoint of the person
offering
the
dation,
is
the
extinguishing of his debt; from the
viewpoint of the creditor is the
acquisition of the object offered in
lieu of the original credit.

4. There is greater freedom in the

determination of the price.

4. There is less freedom in

determination of the price

5. The giving of the price may

generally end the obligation of the
buyer.

5. The giving of the object in lieu of

the
credit
may
extinguish
completely or partially the credit
depending on the agreement.

the

Example: I owe Maria P 100. But I ask her if she is willing to accept my watch,
instead of the money. If Maria agrees, my debt will be extinguished. Please
observe that in this example , although what happened is dation in payment, it is as
if I sold my watch for P 100. Hence, we have to distinguish between the two
transactions.
8. Difference between a Contract of Sale and a Contract to Sell
-

In a Contract of Sale, the non-payment of the price is a resolutory

condition, that is the contract of sale may by such occurrence put an end
to a transaction that once upon a time existed. ; In a Contract to Sell, the
payment in full of the price is a positive suspensive condition. Hence if
the price is not paid, it is as if the obligation of the seller to deliver and to
transfer ownership never became effective.

In the Contract of Sale, title over the property generally transfer to the
buyer upon delivery; in the Contract of Sell, ownership is retained by the
seller, regardless of the delivery and it will not pass until full payment of
the price.

In a contract of Sale, after delivery has been made, the seller has lost
ownership and cannot recover it unless the contract is resolved or
rescinded. In a Contract to Sell, since the seller retains ownership, despite
delivery, he is enforcing the contract if he seeks to oust the buyer for
failure to pay.

Problem:
"A" agrees to sell a sewing machine to "B" for P 4,000 in cash, and places the
machine aboard the truck of "B", while "B" goes home to fetch money. Before

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"B" returns, "C" appears and claim ownership of the sewing machine,
exhibiting a document signed by "B" selling the machine to "C". A rejects
"C's" claim alleging that he is still the owner. Decide with reasons.
Answer:
It is submitted that the claim of "A" that he is still the owner of the sewing
machine is correct. While it is true that there is already a perfected contract
of sale between "A" and "B" and that apparently, there is already an actual
delivery when the former placed the sewing machine onboard the truck of the
latter, nevertheless, such delivery did not vest ownership thereof in the
vendee. In other words, we have here a simple case of reservation of the
vendor of his right over the thing sold. That this can be done expressly or
impliedly. In the case at bar, the agreement between "A" and "B" is that the
sale must be in cash. Hence, it can be easily inferred that at the precise
moment while "A" was waiting for "B" return with the P 4,000 purchase price,
which the latter was supposed to fetch in his house, his intention, in spite of
actual delivery, was to reserve ownership in himself and to vest such
ownership in the vendee only upon the actual payment of the purchase price.
Beside we have here a clear case of a Contract to Sell. Well-settled is the rule
that in a Contract to Sell, as distinguished from a Contract of Sale, ownership
is reserved to the vendor and not to pass to the vendee until full payment of
the purchase price.

Principles applicable to the elements of a Contract of Sale

9. The object of Sale must be LICIT and the Vendor must have the right to
transfer ownership at the time the object is delivered. (Art. 1459)
- Things may be illicit or unlawful, per se (of its nature) Example: Sale of
human flesh for human pleasure) or per accidens (made illegal by
provision of the law). Example is sale of land to an alien.
- As to transfer of ownership, it is essential for a seller to transfer ownership
(art. 1458) and therefore the seller must be the owner of the object sold.
This stems from the principle that nobody can dispose of that, which does
not belong to him - Nemo dat quad non habet. But although the seller
must be the owner, he need not be the owner at the time of the perfection
of the contract. It is sufficient that he is the owner at the time the object
is delivered otherwise he may be held liable for breach of warranty against
eviction. Be it noted that the contract of sale by itself, is not a mode of
acquiring ownership. The contract transfers no real right, it merely causes
certain obligation to arise.
10.The object of the sale must be determinate, that is specific, but it is not
essential really that at the time of perfection, the object be already
specific. It is sufficient that it be capable of being determinate without nee of
any new agreement. Thus, there can be a sale of 20 kilos of sugar of a named
quality. However in the viewpoint of risk or loss, not until the object has really
been made determinate can we say that the object has been lost for as is well
known, generic things cannot be lost."
11.Things of potential Existence may be an object of sale. This is a future
thing that may be sold. Example: "All my rice harvest next year." Note however
that future inheritance cannot be sold, however. (Art. 1347, par. 2, Civil Code)
Other examples of things possessed of a potential existence:
a) Young animals not yet in existence or still ungrown fruits;
b) The wine that a particular vineyard is expected to produce;
c) Expected goodwill of a business
Requisites for things potential existence:

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-The object need not be in actual existence at the time of
perfection of the contract;
-The object is capable of potential existence;
-The thing sold must be determinate or capable of being
determinate;
-The thing sold belong to the vendor at the time of the
perfection of the sale
12.Sale of expected thing and sale of mere hope or expectancy). Art. 1461
Sale of expected thing (Emptio Rei Speratae)
Sale of hope itself (Emptio Spei)
NOTE: If the expected thing in (a) does not materialize, the sale is not
effective. In the second, it does not matter whether the expected thing
materialized or not; what IS IMPORTANT IS THAT THE HOPE ITSELF VALIDLY
EXISTED. The first deals with future thing - that which is expected; the second
deals with the present thing - certainty the hope or expectancy already exist.
Example of Emptio Spei: Sale of a valid sweepstakes ticket. Whether the
sweepstake ticket wins or not, the sale is valid.
NOTE: If the hope or expectancy itself is in vain, the sale is itself VOID. Be it
noted that this is not an aleatory contract for while in aleatory contract there is
an element of chance, here there is completely no chance.
Example : Sale of a losing ticket for a sweepstake already drawn.
Graphic Distinction between emptio speratae & emptio spei
Point of Distinction
Emptio Rei Speratae
Emptio Spei
Object of Sale
Things having potential
There is hope or
existence
expectancy
Existence of Condition
Conditional
Absolute
Validity of Contract of
Valid
Valid as long as the sale
Sale
is not vain hope or
expectancy
Effect of failure of object
Contract become
It does not invalidates
to come into existence.
ineffective
sale
13 Goods may be future or existing goods.
The New Civil Code enumerates different kinds of future goods:
a) Existing Goods which may be either be owned or possessed by the seller; and
b) Non-existing of future goods having potential existence, when may come to
existence either by:
(1) those still to be manufactured, (2) raised or (3) those acquired by the
seller after the perfection of the contract. Art. 1462
c) Sale of goods the acquisition of which depends upon a contingency is valid.
14. An undivided Interest may also be sold. Art 1463. Notwithstanding the
fact that an object may be divisible, the owner thereof has the perfect right to
dispose of the same as a whole as a natural consequence of ownership or he may
sell only a portion of that entire object if he be the owner only of a portion thereof.
15. Sale of undivided share of a specific mass.
The subject matter of the sale is incorporeal right. (Act 1501)
Meaning of fungible goods It means goods of which any unit is, from its
nature or by mercantile usage, treated as the equivalent of any other unit, Sec. 76
of the US Uniform Sales Act). It includes movable substances or goods that are
replaceable distinguishable as to undivided parts in quantity.

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Effect of sale The owner of a mass of goods may sell only an undivided share
thereof, provided the mass is specific or capable of being made determinate. (Art.
1460)
(a) By such sale, the buyer becomes a co-owner with the seller of the whole
mass in the proportion in which the definite share bought bears to the mass.
It must follow that the aliquot share of each owner can be determined only
by the measurement of the entire mass.
(b) If later on it be discovered that the mass of fungible goods contain less than
what was sold, the buyer becomes the owner of the whole mass and
furthermore, the seller shall supply whatever is lacking from goods of the
same kind and quality, subject to any stipulation to the contrary.
16. Also things subject to a resolutory condition may be sold. Art. 1465
A resolutory condition is that the happening of which depends on the extinction
of the obligation. In other words, a resolutory condition is that which puts an end to
an obligation.
So long as the object of the sale is licit or lawful and the vendee has the right to
transfer ownership thereof at the time it has to be delivered, it is a valid object of
such sale, even if it be subject to a resolutory condition.
Example is pacto de retro sale.
17. Distinction between a Contract of Sale and An Agency to Sell (Art.
1466)
CONTRACT OF SALE
AGENCY TO SELL
1. In contract of sale, the buyer pays
the price.
2. In sale, the buyer after delivery
becomes the owner;
3. In sale, the seller warrants

1. In an agency to sell, the agent

delivers the price which in turn he
got from his buyer;
2. The agent who is supposed to sell
does not become the owner, even
if the property has been delivered
to him;
3. The agent who sells assumes no
personal liability as long as he
acts within his authority and in the
name of the principal.

Graphic Distinction between sale and agency to sell

Point of Distinction
Contract of Sale
Contract of Agency
Governing Law
Law on Sales
Law on Agency
Objections created
The obligation of vendor in The obligation of the
a contract of sale is to agent in the agency to sell
deliver the thing sold and is to render account and
the buyer to pay the price. deliver the proceeds to the
principal who in turn
should
pay
agent
commission.
Existence of trust and Unnecessary because it Necessary because it is
confidence
between does
no
affect
the the basis of the contract.
parties.
contract.
Illustrative (Decided) Cases:
Case I
X Co. granted to A the exclusive right to sell in the Visayas a certain number
of beds which the company was manufacturing at the invoice price of the beds in

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Manila, with a discount of 20%, the price to be paid at the end of 60 days. What
contract is perfected - a contract of sale or a contract of agency to sell?
ANSWER: The contract perfected here is a contract of sale. The essential
features of sale are present in this case. There is the obligation on the part of X
Company to supply the beds and the obligation on the part of A to pay the purchase
price. These features exclude the legal conception of a contract of agency to sell
where the agent receives the thing in order to sell it without paying the price but
with the obligation to deliver to the principal the price which he may have obtained
from sale of the thing to third person, then if he does not succeed in selling it, he
returns it. In the contract between X Co., and A, the latter, on receiving the beds,
was necessarily obliged to pay the price within the term fixed, without any other
consideration and regardless as to whether he had or had not sold the beds.
Case II
In a case where the consignor or firm delivers goods to a distributor for resale
to customers, retaining the ownership of such goods, and the price and term are
still subject to the control of the firm, but with the understanding that the distributor
is not the agent or legal representative of the firm for any purpose whatsoever,
what kind of contract was perfected - a contract of sale or a contract of agency to
sell? Explain.
ANSWER: The contract is still a contract of agency to sell. Since the company
retained ownership of the goods, even as it delivered possession to the dealer for
resale to customers, the price terms of which were subject to the company's control,
the relationship between the company and dealer is one of agency.
Summary as the Requisites Nature of the Object of Contract of Sale
18.

Requisites in order that a thing may be the object of sale:

(1) The thing must be existing, or at least, have a future or contingent existence
(Arts. 1461, 1462, 1465);
(2) It must be determinate or determinable by description or segregation (Art.
140);
(3) It must be licit or legal (Art. 1459)
(4) The vendor must have real right to transfer ownership of the thing at the
time it is delivered (Art. 1459)
19. Objects of Contract of Sale:
The following may be the objects of sale:
(a) Things having potential existence (Art. 1461, NCC);
(b) Things that are existing or to be manufactured, raised or acquired in the
future or future goods (Art. 1462, NCC)
(c) Those whose acquisition by the seller depends upon contingency which may
or may not happen (Art. 1462, NCC);
(d) Things subject to a resolutory condition (Art. 1465)
20. Contract of Sale as against Contract for a Piece of Work:
By the contract for a piece of work, the contractor binds himself to execute a
piece of work for the employer (e.g., to construct a house) in consideration of a
certain price or compensation. The contractor may either employ his labor or
skill, or also furnish the material. (Art. 1713.)
A contract for the delivery at a certain price of an article which the vendor in
the ordinary course of his business manufactures or procures for the general
market, whether the same is on hand at the time or not, is a contract of sale,

12
but if the goods are to be manufactured especially for the customer and upon
his special order (e.g. dress made on the basis of the body measurement of the
customer) and not for the general market, it is a contract for a piece of work.
(Art. 1467)
Graphic distinction between contract of sale and contract of piece of
work
Point of Distinction
Contract of Sale
Contract of Piece of
Work
Governing Law
Arts. 1458-1637, NCC
Arts. 1713 -1731, NCC
Obligations of vendor
Delivery of the object Delivery
of
object
manufactured on ordinary manufactured specially for
course of business
the customer.
Existence of special order Special order of customers Special order of customer
of customers
not necessary
is necessary.
Applicability of Statute of Applicable
Not applicable
Frauds
21. Rules to determine whether contract is sale or barter. In a contract
where the consideration is partly money and partly goods, the following
rules shall apply:
(a) the intention of the parties must be determined;
(b) If the intent is not clear, then apply the following rules:
1. If the sold thing is more valuable than money, the contract is barter;
2. If the money and the thing are equal value, the contract is sale;
3. If the thing is less valuable than money, the contract is a contract of sale
(Art. 1468, NCC)
Note: Meaning of contract of barter or exchange: One of the parties
binds himself to give one thing in consideration of the other's promise to
give another thing. (Art. 1638) In contrast to the contract of sale, the
vendor gives a thing in consideration for a price.
Graphic distinction between contract of sale
Point of Distinction
Contract of Sale
Governing Law
Arts. 1458-1637, NCC
Consideration
A price certain in money
or its equivalent

and contract of barter

Contract of Barter
Arts. 1638-1641, NCC
Non-fungible things (Art.
1954)

Nature/Requisites for Cause

22. Requisites of price in a contract of sale:
(a) The price must be in money or its equivalent (Art. 1458)
(b) It must be certain or ascertainable (Art. 1469)
(c) It must be real, i.e., not simulated, (Art. 1471)
23. Meaning of a price certain:
(a) The parties have fixed or agreed upon a definite amount; or
(b) It be certain with reference to another thing certain (See Art. 1472), as
where the buyer agrees to pay the price as indicated in the invoices;
(c) The determination of the price is left to the judgment of a specified person or
persons (Art. 1469)
The last two cases are applicable only when no specific amount has been
stipulated by the parties.
24. Rules if price is to be determined by a third person:

13
(a) The price fixed by the third person is binding except when he acts in bad
faith or by mistake;
(b) In such case, the courts may fix the price;
(c) If the third person is unable or unwilling to fix the price, the contract shall
be inefficacious (without effect), unless the parties subsequently come to an
agreement ; and
(d) If the third person is prevented from fixing the price by the fault of the seller
or buyer, the party not in fault may choose between rescission and
fulfillment with damages in either case. (Art. 1469)
22.
The fixing of the price may not be left to the discretion of one of the
contracting parties, as it cannot be said that there is meeting of minds
upon the fixed price. (Art. 1308) But if the other accepts price fixed, the
sale is deemed perfected.
23.
If the price cannot be determined, the contract is inefficacious.
However, if the thing or any part thereof has been delivered to and appropriated
by the buyer, he is under obligation to pay reasonable price thereof. (Art. 1474)
24.

Effect of Gross Inadequacy of Price:

It does not affect the contract of sale except when the inadequacy may indicate
that there is a defect in the consent, or that the parties really intended a
donation or some other act or contract.
Inadequacy of the cause (lesion) may only be an effect of vitiated consent and
so the contract becomes voidable under Article 1390. If damage or lesion is
suffered by ward or absentee more than of the value of the property, contract
is rescissible under Articles 1381 pars. 1 & 2.

25.
Simulation of the Price (Art. 1471)
There is simulation of the price in a contract of sale when for the purpose of
deceiving others, the parties thereto made it appear in document either:
a) There is a price when actually there is none at all. In this case being
absolutely simulated contract is void. (Art. 1346)
b) That the price stated is different from the actual price. This merely relative
simulation of the price and does not render the contract of sale null and void.
The parties are bound by their true agreement as long as the same does not
prejudice a third person and is not contrary to law, morals, good customs,
public order or public policy ( Arts. 1345 & 1346)
26.

When price of securities, grains, liquids and other things considered certain:
a. The price fixed is that which things sold would have on a definite day;
b. The price fixed is that which the thing sold would have in a particular
exchange or market;
and
c. or the price fixed is an amount above or below the price on such day or on
such exchange
or market.

14

27.
Perfection of sale: The contract of sale is perfected at the moment there
is meeting of the minds upon the thing which is the object of contract and upon
the price.
28.

Effects of perfection of sale:

(a) From the moment consent is given, the reciprocal obligations of the parties
arise and they may reciprocally demand the performance, subject to the
Statute of Fraud;
(b) The ownership of the thing sold is not transferred until it is delivered, actually
or constructively, to the buyer (Art. 1477); and
(c) In case one of the contracting parties does not comply with what is
incumbent upon him, the injured party may sue for fulfillment or rescission
with the right to damages in either case. (art. 1191)
29.
Perfection of Sale
It is consensual and for this reason principle of consensuality applies. Contracts
are perfected by mere consent, and from that moment the parties bound not
only to the fulfillment of the what has been expressly stipulated but also to all
the consequences which, according to their nature, may be keeping with good
faith, usage and law (Art. 1315). Obligations arising from contracts have the fore
of law between the contracting parties and should be complied with in good faith
(Art. 1159).
Since sale is reciprocal, the parties may reciprocally demand performance
subject to the provision of law governing forms.
30.

Perfection of Sale by Auction:

Sale by auction is perfected when the auctioneer announces its perfection by the
fall of the hammer, or in any customary manner. Until such announcement is
made, any bidder may retract his bid; and the auctioneer may withdraw the
goods from the sale unless the auction has been announced without reserve
(meaning the seller did not reserve the right to bid)
31.
Gross inadequacy of price in cases of auction sales where there is
right to redeem is not material as in forced sales, judgment debtors
ought not to expect their properties to be sold on its market value. The
nature of such sales precludes any reasonable expectation of obtaining prices
such as are procured in ordinary sales where the elements of free bargaining is
in full play. It has likewise been held by the Supreme Court in DBP vs. Vda de
Moll, 43 SCRA 82 that if there is right to redeem in foreclosure sale, inadequacy
of the price is not material because the lesser the price, the easier it will be for
the owner to effect the redemption.

15

32.
The ownership of the thing sold shall be transferred to the vendee
upon the actual or constructive delivery. ( Art. 1477)
Ownership of a thing is not transferred by mere perfection of the contract of
sale but by ACTUAL or CONSTRUCTIVE delivery.
33.
The parties may stipulate that ownership in the thing shall not pass to the
purchaser until he has fully paid the price. (PACTUM RESERVATI DOMINI)
34.
Effect of an accepted unilateral promise to sell or buy a thing for a
price certain:
(a) Such unilateral promise also known as option contract does not bind the
promissor and may be withdrawn at any time;
(b) If the promise, however, is supported by a consideration distinct from the
price, its acceptance gives rise to the perfection of the contract.
Case:
X unilaterally promised to sell to Y his car for P 50,000.00 within a period of
one month. Y accepted the promise. On the 16 th day, Y received a note from X
telling him that he is withdrawing the promise.
Issues:
(a) Can Y hold X liable for damages if he persists on withdrawing the
promise? Why?
(b) Assume that Y gave an option money when he accepted the promise, and
on the 16th day, he backed out, can X compel him to buy the car? Explain
Answers:
(a) No. An accepted unilateral promise to buy or to sell a determinate thing
or a price certain is binding upon the promissor if the promise is supported
by a consideration distinct from the price. (Art. 1479 (2) & Art. 1324) In
the case at bar, no consideration distinct form the price has been
delivered to X, the offer or promise can be withdrawn anytime.
(b) No, because the option to buy or not to buy depends upon Y.
35.
Effect of a bilateral promise to buy and sell a thing for a price
certain:
When the promise is bilateral, that is, one party accepts the other's promise to
buy and the latter, the former's promise to sell, a determinate thing for a price
certain, it has practically the same effect as a perfected contract of sale since it
is reciprocally demandable. But there is no contract of sale yet until it is
executed.
Graphic Distinction between Promise to Buy and Sell and Unilateral
Promise to Buy and Sell
Point Distinction
Promise to buy and sell
Unilateral Promise to
buy and Sell
Parties Involved
Seller and Buyer
Seller or buyer
Effect
Reciprocally demandable
Binding on promissory if
supported
by
consideration distinct form
price
Application of Article 1354 in relation to Article 1479 of the New Civil Code
Article 1354 of the New Civil Code which presumes the existence of a
consideration in every contract applies to contracts in general, whereas the second

16
paragraph of Article 1479 thereof refers to sales and more specifically to an
accepted unilateral promise to buy and sell.
Policitation simply means an unilateral promise to buy or sell which is not
accepted. That being the case, it is a mere offer and has not yet been converted
into a contract. Therefore, of no judicial effect.
36.
Rules with regards to any injury to or benefit from the thing sold,
after contract is perfected but before delivery( Article 1480).
(1) The vendor is obliged to take care of the thing sold with proper diligence.
(Art. 1163)
(2) The vendor has the right to the fruits of the thing from the time the
obligation to deliver arises but shall acquire no real right or ownership over it
until the same has been delivered to him (Art. 1164; Art. 1537)
(3) If the thing is determinate, the vendee may compel the vendor to make the
delivery, and hold him liable for damages by reason of fraud, delay, etc.,
Arts. 1165 and 1170)
(4) If the thing is generic, he may ask that the obligation be complied with at the
expense of the vendor if the latter fails to make delivery also with a right to
damages in proper case (Arts. 1165, 1170);
(5) If the thing is determinate, and it is lost or destroyed --(a) Through the fault of one party, the party at fault is liable for damages;
(b) Through fortuitous event, the vendor is released from the obligation to
deliver and the vendee is liable to pay the price if he has not yet paid the
same (see Arts. 1480, 1583, 1189 and 1269). Art. 1504, par. 1 however
provides a rule contrary to 1480);
(c) The vendor shall be responsible for any fortuitous event if it is so
stipulated, or if the same took place after he has incurred delayed, or he
has promised to deliver the same thing to two or more persons who do
not have the same interest, Arts. 1164, 1262)
(d) The rule under letter (b) applies to the sale of fungible things, made
independently and for a single price or without consideration or their
weight, number or measurement (Art. 1480). Reason: In such case, the
fungible things have been " particularly designated or physically
segregated"
(e) It does not apply where the fungible things have been sold for a price
fixed in relation to weight, number or measure. In such case, the risk
shall not be imputed to the vendee until they have been weighed,
counted or measured and delivered;
Applicable Provisions:
Art. 1164. The creditor has a right to the fruits of the thing from the time
the obligation to deliver it arises. However, he shall acquire no real right
over it until the same has been delivered to him. (1095)
Art. 1165. When what is to be delivered is a determinate thing, the
creditor, in addition to the right granted him by Article 1170, may compel
the debtor to make the delivery.
If the thing is indeterminate or generic, he may ask that the obligation be
complied with at the expense of the debtor.
If the obligor delays, or has promised to deliver the same thing to two or
more persons who do not have the same interest, he shall be responsible
for any fortuitous event until he has effected the delivery.

17
Art. 1188. The creditor may, before the fulfillment of the condition,
bring the appropriate actions for the preservation of his right.
The debtor may recover what during the same time he has paid by
mistake in case of a suspensive condition.
Art. 1189. When the conditions have been imposed with the intention
of suspending the efficacy of an obligation to give, the following rules
shall be observed in case of the improvement, loss or deterioration of
the thing during the pendency of the condition:
(1) If the thing is lost without the fault of the debtor, the obligation
shall be extinguished;
(2) If the thing is lost through the fault of the debtor, he shall be
obliged to pay damages; it is understood that the thing is lost when it
perishes, or goes out of commerce, or disappears in such a way that its
existence is unknown or it cannot be recovered;
(3) When the thing deteriorates without the fault of the debtor, the
impairment is to be borne by the creditor;
(4) If it deteriorates through the fault of the debtor, the creditor may
choose between the rescission of the obligation and its fulfillment, with
indemnity for damages in either case;
(5) If the thing is improved by its nature, or by time, the improvement
shall inure to the benefit of the creditor;
(6) If it is improved at the expense of the debtor, he shall have no
other right than that granted to the usufructuary.
Art. 1262. An obligation which consists in the delivery of a determinate
thing shall be extinguished if it should be lost or destroyed without the
fault of the debtor, and before he has incurred in delay.
When by law or stipulation, the obligor is liable even for fortuitous
events, the loss of the thing does not extinguish the obligation, and he
shall be responsible for damages. The same rule applies when the
nature of the obligation requires the assumption of risk.
(6) If the thing is generic, the loss with or without the vendor's fault, of anything
of the same kind does not distinguish his obligation to deliver. (Art 1262)
32. Special Rules on sales by description and sale by sample
(1) In the contract of sales of goods by description or by sample, the contract
may be rescinded if the bulk of goods delivered do not correspond with
the description or by the sample;
(2) If the contract be by sample as well as by description, it is not sufficient
that the bulk of goods correspond with sample if they do not correspond
with the description;
(3) The buyer shall have reasonable opportunity of comparing bulk with the
description or sample (Art. 1481)
Graphic Distinction between sales by description and sample
Point of Distinction
Sale by Description
Sale by Sample
Basis of Buyer
Sellers representation or
Sellers sample
descriptions
Previous sight of goods by
NONE
Buyer saw the sample

18
the buyer
Opportunity for
examination by buyer

None

None

Notes:
a) For exhibition of sample to result in sale by sample, it is necessary that
such exhibition of the sample must have been sole basis or inducement of
the sale to the buyer.
b) It is important to know whether a sale was made by description or sample
because it the goods sold does not correspond to the sample or
description or both if agreed upon, the sale may be rescinded.
1. Principle of Earnest Money or Arras:
Earnest Money is that given by the buyer to the seller to bind the bargain. It is
actually a partial payment of the purchase price and is considered as proof of the
perfection of the contract.
Earnest Money vs. Option Money
(1) Earnest money is part of the purchase price, while option money is given as
distinct consideration for an option contract;
(2) Earnest money is given only if there is already a sale while option money
applies to sales not yet perfected;
(3) When the earnest money is given, the buyer is bound to pay the balance,
while the would be buyer who gives option money is not required to buy.
But option money may become earnest money if the parties so agree.
2. Formalities for validity or enforceability of contracts
The general rule, a contract of sale may be made orally or in writing or partly
oral or partly in writing or even inferred from the conduct of the parties
thereto. Some of the exceptions are provided by law.
In contract of sale, some forms are prescribed for reasons of validity,
enforceability or convenience.
Examples:
a) Sale of a piece of land or any interest therein through an agent, authority of
the latter shall be in writing, otherwise sale shall be void (Art. 1874).
b) Agreement for sale of goods, chattels or things in action at a price not less
than P 500 must be in writing to be enforceable (Art. 1403 par 2 (d)
c) Agreement of sale of real property or any interest therein must be in writing
for enforceability ( Art. 1403 par. 2 (e)
d) Agreement of sale not to be performed within a year from the making thereof
must be in writing for enforceability
e) Sale must be in public instrument for convenience to bind third person (Art.
1356)
3. Remedies of vendor in Sale of Personal Property Payable in
Installments.
(RECTO LAW))
The vendor of personal property payable in installments may exercise any of the
following remedies:
(1) Elect fulfillment upon the vendee's failure to pay;
(2) Cancel the sale, if the vendee shall have failed to pay two or more
installments; or
(3) Foreclose the chattel mortgage, if one has been constituted, if the vendee
shall have failed to pay two or more installments.

19

4. Nature of the above remedies in Recto Law:

These remedies are alternative and are not to be exercised cumulatively or
successively and the election of one is a waiver of the right to resort to the others.
5. Right of the vendor to recover the unpaid balance of the purchase
price:
(a) The vendor who has chosen specific performance or to exact fulfillment of
the obligation is not limited to the proceeds of the sale, on execution, of the
mortgaged goods. He may still recover from the purchaser the unpaid
balance of the price, if any on real or personal properties of the purchaser
not exempt by law from attachment or execution;
(b) If the vendor chooses rescission or cancellation of the contract upon the
vendee's failure to pay two or more installments, the latter can demand the
return of payments already made unless there is a stipulation about
forfeiture. (See Art. 1468)
(c) If the vendor has chosen the third remedy of foreclosure of the chattel
mortgage, he shall have no further action against the vendee for the
recovery of any unpaid balance of the price and any agreement to the
contrary is void. The foreclosure is caused by selling the mortgaged
personal property at public auction and applying the proceeds of the sale to
the satisfaction of the claim secured by the mortgage.
6. Requisites before Art. 1484 may be applied:
(a)
(b)
(c)
(d)

There must be a contract.

The contract must be of sale.
What is sold in personal property
The sale must be in installment

7. Instances where Art. 1484 may not be applied:

(a) It does not apply in real property mortgage.
(b) It does not apply to sale of personal property in straight terms, a sale on
straight terms being one, which the balance, after the payment of initial sum
should be paid in totality at the time specified.
Illustrations:
Case I :
ABC Corporation, a dealer in appliances sold to Mr. T, a Video-CD for P 15,000
payable on installment at the rate of P 1,200.00 per month. Mr. T executed a
chattel mortgage over the thing sold. When Mr. T defaulted in the payment of
his obligation, ABC Corporation foreclosed the mortgage. At the sale, only P
10,000 was realized. Can the seller recover the deficiency?
Answer: No, because in case of foreclosure of the chattel mortgage and there is
deficiency, the seller cannot recover the deficiency.
This is an absolute
prohibition in the Recto Law, amending Art. 1484, NCC.
Case II :
X purchased on installment basis a car from ABC Corp. Having failed to pay
his installments, the corporation sued X for replevin (an action for recovery of
personal property) and seized the unit, sold it but it failed to realize the balance
of X in the sheriff's sale. Can ABC Corp. recover the balance? Why?
Answer: Yes, where the mortgagee in installment sales of personal property
chose specific performance in a replevin suit with damages, it is entitled to an

20
alias writ of execution for the portion of the judgment that has not been
satisfied.
The rule is that in installment sales, if the action instituted is for
specific performance and the mortgaged property is subsequently attached and
sold, the sale thereof does not amount to a foreclosure of the mortgage. Hence,
the seller creditor is entitled to a deficiency judgment.
8. Lease of Personal Property with Option to Buy is considered as sale of
property in installments. (Art. 1485) As a rule, payment of installments
should be returned unless parties stipulate that the same shall not be
returned. Article 1486 provides that a stipulation that the installments or
rents paid shall not be returned to the vendee or lessee shall be valid insofar
as the same may not be UNSCONCIONABLE under circumstances.
9. Expenses for the execution and registration shall be borne by the
vendor in the absence of any agreement between the parties to the contrary.
10.

REALTY INSTALLMENT BUYER PROTECTION ACT (MACEDA LAW)

R.A. NO. 6552 also known as AN ACT TO PROVIDE PROTECTION TO
BUYERS OF REAL ESTATE ON INSTALLMENT PAYMENTS

Section 1. This Act shall be known as the "Realty Installment Buyer Act."
Section 2. It is hereby declared a public policy to protect buyers of real estate on
installment payments against onerous and oppressive conditions.
Section 3. In all transactions or contracts involving the sale or financing of real
estate on installment payments, including residential condominium apartments but
excluding industrial lots, commercial buildings and sales to tenants under Republic
Act Numbered Thirty-eight hundred forty-four, as amended by Republic Act
Numbered Sixty-three hundred eighty-nine, where the buyer has paid at least two
years of installments, the buyer is entitled to the following rights in case he defaults
in the payment of succeeding installments:
(a) To pay, without additional interest, the unpaid installments due within the
total grace period earned by him which is hereby fixed at the rate of one
month grace period for every one year of installment payments made:
Provided, That this right shall be exercised by the buyer only once in every
five years of the life of the contract and its extensions, if any.
(b) If the contract is canceled, the seller shall refund to the buyer the cash
surrender value of the payments on the property equivalent to fifty per cent
of the total payments made, and, after five years of installments, an
additional five per cent every year but not to exceed ninety per cent of the
total payments made: Provided, That the actual cancellation of the contract
shall take place after thirty days from receipt by the buyer of the notice of
cancellation or the demand for rescission of the contract by a notarial act and
upon full payment of the cash surrender value to the buyer.
Down payments, deposits or options on the contract shall be included in the
computation of the total number of installment payments made.lawphi1
Section 4. In case where less than two years of installments were paid, the seller
shall give the buyer a grace period of not less than sixty days from the date the
installment became due.
If the buyer fails to pay the installments due at the expiration of the grace period,
the seller may cancel the contract after thirty days from receipt by the buyer of the
notice of cancellation or the demand for rescission of the contract by a notarial act.

21
Section 5. Under Section 3 and 4, the buyer shall have the right to sell his rights or
assign the same to another person or to reinstate the contract by updating the
account during the grace period and before actual cancellation of the contract. The
deed of sale or assignment shall be done by notarial act.
Section 6. The buyer shall have the right to pay in advance any installment or the
full unpaid balance of the purchase price any time without interest and to have such
full payment of the purchase price annotated in the certificate of title covering the
property.
Section 7. Any stipulation in any contract hereafter entered into contrary to the
provisions of Sections 3, 4, 5 and 6, shall be null and void.
Section 8. If any provision of this Act is held invalid or unconstitutional, no other
provision shall be affected thereby.lawphi1
Section 9. This Act shall take effect upon its approval.
Approved: August 26, 1972.
Salient Features of the above law:
11.
In transactions involving the sale or financing of real estate on
installment
payments
including
residential
condominium
apartments, under the Maceda Law, (R.A.NO. 6552), the rights of the
buyer who has paid at least two (2) years installments and
subsequently defaulted in the succeeding installments are the
following
(a) To pay w/out additional interest, the unpaid installment within total grace
period earned by him fixed at the rate of one-month grace period for every
one year of installments made. The right however shall be exercised by him
only once in every 5 years of the life of the contract and its extensions, if
any; and
(b) If the contract is cancelled, the seller shall refund to the buyer the cash
surrender value of the payments on property equivalent to 50% of the total
payments made and after 5 years of installments, and additional 5% every
year but not to exceed 90% of the total payments made. (Section 3, R.A. No.
6552 (Maceda Law), Realty Installment Buyer Protection Act)
The above law excludes from its operation sales on installments of
industrial lots and commercial buildings and sales to tenants under the
CARP. Down payments, deposits or options on the contract shall be included in
the computation of the total number of installments payable.
Further, R.A. No. 6552 applies to the purchase of subdivisions and
condominiums in relation to Section 24 of P.D. No. 957 otherwise known as
Subdivision and Condominium Buyers protective decree
12.
Effect of buyer on realty installments has paid less than 2
years of installments:
The seller shall give him a grace period of not less than 60 days from the date
the installment became due. If he fails to pay the installments due at the
expiration of the grace period, the seller may cancel the contract after 30 days
from receipt of the buyer of the notice of cancellation or the demand for
rescission of the contract by notarial act.
NOTE:
Under SECTION 24 of PD 957 otherwise known as Subdivision and
Condominium Buyers Protective Act:

22

Failure to pay installments. The rights of the buyer in the event of this
failure to pay the installments due for reasons other than the failure of
the owner or developer to develop the project shall be governed by
Republic Act No. 6552.

Where the transaction or contract was entered into prior to the

effectivity of Republic Act No. 6552 on August 26, 1972, the defaulting
buyer shall be entitled to the corresponding refund based on the
installments paid after the effectivity of the law in the absence of any
provision in the contract to the contrary.

Presidential Decree No. 957 - THE SUBDIVISION AND

CONDOMINIUM BUYERS' PROTECTIVE DECREE
Purpose: According to the Supreme Court, (In Sps. Co Chien v.
Sta. Lucia Realty & Dev., Inc., et al., G.R. No. 162090, January
31, 2007 (Puno, J) P.D. 957 is a law that seeks to regulate the
sale of subdivision lots and condominiums in view of the
increasing number of incidents wherein real estate subdivision
owners, developers, operators, and/or sellers have reneged on
their representations and obligations to prove and maintain
properly the basic requirements and amenities, as well as
reports of alarming magnitude of swindling and fraudulent
manipulations perpetrated by unscrupulous subdivision and
condominium sellers and operators. As such, P.D. 957 requires
the registration not just of the developers, seller, brokers
and/or owners of the project but also of the project itself. Upon
the registration of the project, a license to sell must be
obtained prior to the sale of the subdivision lots or
condominium units therein. The law also provides for the
suspension and revocation of the registration and license in
certain instances, as well as the procedure to be observed in
the event thereof. Finally, the law provides for administrative
fines and other penalties in case of violation of, or noncompliance with its provisions.
A review of the relevant provisions of P.D. 957 reveals that
while the law penalizes the selling of subdivision lots and
condominium units without prior issuance of a Certificate of
Registration and License to Sell by the HLURB, it does not provide
that the absence thereof will automatically render a contract,
otherwise validly entered, void. The penalty imposed by the
decree is the general penalty provided for the violation of any of
its provisions. It is well-settled in this jurisdiction that the clear
language of the law shall prevail. This principle particularly
enjoins strict compliance with provisions of law which are penal in
nature, or when a penalty is provided for the violation thereof.
With regard to P.D. 957, nothing therein provides for the
nullification of a contract to sell in the event that the seller, at the
time the contract was entered into, did not possess a certificate of

23

registration and license to sell. Absent any specific sanction

pertaining to the violation of the questioned provisions (Secs. 4
and 5), the general penalties provided in the law shall be applied.
The general penalties for the violation of any provisions in P.D.
957 are provided for in Sections 38 and 39. As can early be seen
in the aforequoted provisions, the same do not include the
nullification of contracts that are otherwise validly entered.
The requirements of Section 4 and 5 of P.D. 957 do not go into
the validity of the contract, such that the absence thereof would
automatically render the contract null and void. It is rather more
of an administrative convenience in order to allow for a more
effective regulation of industry. While it is the intent of the
prohibition in Section 5 of P.D. 957 to prevent cases of swindling
and fraudulent manipulations perpetrated by unscrupulous
subdivision and condominium seller s and operators and to
ensure that penalties be imposed on fraudulent practices and
manipulations committed in connection therewith, such does not
obtain in this case, as it is undisputed that the title to the subject
property has been available for more than a year, and the Eagle
Ridge project was almost 100% completed, before Spouses Co
Chien decided to have the Contract declared void to seek a refund
of their down payment. Contrary to Spouses Co Chiens bare
allegation of bad faith on the part of the private respondents, the
Court of Appeals found that at the time the Contract to Sell was
executed, the applications for the Certification and the License
were already pending with the HLURB but were only issued
several months thereafter. More importantly, when Spouse Co
Chien received notice of the availability of the title to the subject
property, the private respondents had long since been issued the
Certificate and License. It was in fact Spouses Co Chien who,
instead of paying the balance as required in the contract, sought
to renegotiate the same, and failing therein, sought to nullify the
contract a year and a half after notice that the title to the subject
property, free from any liens and encumbrance, was already
available for delivery.
One of the purposes of P.D. 957 is to discourage and
prevent unscrupulous owners, developers, agents and sellers
from reneging on their obligations and representations to the
detriment of innocent purchasers. The law mandates HLURB to
close regulate, supervise and monitor the real estate industry,
particularly residential developments such as subdivisions and
condominium projects. To this end, P.D. 957 provides for the
issuance, suspension, revocation and even the outright denial of
registration and license to developers, agents and the project
itself, as well as penalties for the non-compliance with the
requirements provided therein. It does not, however, provide for
the nullification of a contract, due to the lack of registration and

24

license at the moment of execution, which in this case was

thereafter undisputedly issued by HLURB. As correctly averred by
respondent Alsons, the requirement for registration and license is
primarily directed at preventing fraudulent schemes from being
perpetrated on the public who seek to have their own abode. No
fraud has been alleged, much less proven, by Spouses Co Chien in
the present case. The lack of certificate and registration, without
more, while penalized under the law, is not in and of itself
sufficient to render a contract void. Such a deficiency, however,
together with other relevant factors may be duly considered in
nullifying a contract, should the circumstances so demand.
The Housing and Land Use Regulatory Board (HLURB) is a
national government agency tasked as the planning, regulatory
and quasi-judicial body for land use development and real estate
and housing regulation. These roles are done via a triad of
strategies namely, policy development, planning and regulation.
The Subdivision and Condominium Buyers Protective
Decree (PD 957) is covered by the following features;
a) Regulate sale of subdivision lots and condominiums units
to buyers;
b) Defines sale to be covered by registration;
c) Defines duties and responsibilities of owner/developer or
of condominium and subdivision projects
and
d) Defines rights of condominium/subdivision units/lot
buyers.
Rights of Buyer under PD 957 Before Buying
1. Check if the Project has a Certificate of Registration and
License to Sell.
You should ask the broker/agent of the owner/developer if the
project is registered and has a License to Sell issued by HLURB:
* This can be verified at the On-line Queries/HLURB website
(www.hlurb.gov.ph) for the list of projects covered with Certificate
of Registration and License to Sell as well as any encumbrance
thereon, e.g. Cease and Desist Order, Suspension of License, etc.;
* Or you may visit or call the nearest HLURB Regional Office for
this information.
2. Visit the subdivision/condominium, where the house and lot or
condo unit to be purchased is located to know its natural
topography, viz: susceptibility to landslide, flooding, erosion, etc.;
If the project is covered with a License to Sell, you may already
enter into a Contract with the owner/developer. However, there
are things which must be checked:
1. The date of completion of the project as indicated in the
License to Sell;

25

2. If the property is mortgaged, it should have a Clearance to

Mortgage from the HLURB;
3. The facilities and amenities represented in the advertisement
flyers/ brochures are in accordance with the approved subdivision
and condominium plan on file with HLURB.
When Buying
1. Check if the broker/agent is registered with HLURB/DTI;
2. Verify if the property has not been sold to other buyers with the
Register of Deeds;
3. Check into your source of income whether you can afford to
pay the equity and the monthly installments;
4. Check if the materials of the house or condo unit conform with
the development standards and approved construction
specifications submitted to HLURB;
5. Check whether the developer would payfor the water and
electric meters, the subdivision perimeter fence, etc;.
6. Check who would eventually operate the
subdivision/condominium water system.
Before Signing the Contract to Sell
1. Dont sign any blank form of the Contract;
2. Read thoroughly all the contents of the Contract more
especially the terms and conditions in fine print;
3. Secure a copy of the Contract and all other documents that you
have signed;
4. Make sure that the Contract would be registered by the
owner/developer to the Register of Deeds;
5. Pay directly to the owner/developer or the marketing agent
authorized by said owner/developer only; and
6. Ask an official receipt on all payments for your file.
Right to a Clean Title
The buyer of a subdivision lot or condominium unit shall have a
right to a clean title of said lot or unit upon the full payment of the
purchase price. If the lot or unit is mortgaged, the
owner/developer shall redeem the mortgage within six months
from full payment so that the title could be delivered to the buyer.
The only fee collectible from the buyer is the registration fee for
the deed of sale in the Registry of Deeds.
Realty taxes can be assessed on the buyer if he has actually
taken possession and occupied the lot or unit prior to the transfer
of the title in his name.
These are so provided under Sections 25 and 26 of PD 957,
Subdivision and Condominium Buyers Protective Decree, thus:
SECTION 25. Issuance of Title. The owner or developer shall
deliver the title of the lot or unit to the buyer upon full payment of
the lot or unit. No fees, except those required for the registration
of the deed of sale in the Registry of Deeds, shall be collected for

26

the issuance of such title. In the event a mortgage over the lot or
unit is outstanding at the time of the issuance of the title to the
buyer, the owner or developer shall redeem the mortgage or the
corresponding portion thereof within six months from such
issuance in order that the title over any fully paid lot or unit may
be secured and delivered to the buyer in accordance herewith.
SECTION 26. Realty Tax. Real estate tax and assessment on a
lot or unit shall be paid by the owner or developer without
recourse to the buyer for as long as the title has not passed to the
buyer; Provided, however, that if the buyer has actually taken
possession of and occupied the lot or unit, he shall be liable to the
owner or developer for such tax and assessment effective the
year following such taking of possession and occupancy.
Non-Forfeiture of Payments
A buyers payment for a subdivision lot or condominium unit
cannot be forfeited by the owner or developer when he desists
paying on the ground that the project is not develop per approved
plans and within the time limit for development. He must,
however, notify the owner or developer of his decision to suspend
payments.
The said buyer has the option to demand a refund of the total
amount paid with legal interest. The total amount includes
amortization interest but delinquency interest is excluded. Section
23 of PD 957 Subdivision and Condominium Buyers Protective
Decree provides, thus:
SECTION 23. Non-Forfeiture of Payments. No installment
payment made by a buyer in a subdivision or condominium
project for the lot or unit he contracted to buy shall be forfeited in
favor of the owner or developer when the buyer, after due notice
to the owner or developer, desist from further payment due to the
failure of the owner or developer to develop he subdivision or
condominium project according to the approved plans and within
the time limit for complying with the same. Such buyer, may at
his option, be reimbursed the total amount paid including
amortization interest but excluding delinquency interest, with
interest thereon at the legal rate.
Failure to Pay Installments
In case the buyer fails to pay his installments for other reasons
not attributable to the non-development of the project i.e. he
failed to raise the needed money, he may avail of his rights under
Republic Act 6552, Realty Installment Buyer Protection Act. This is
so provided under Section 24 of PD 957, thus:
SECTION 24. Failure to Pay Installment. The rights of the buyer
in the event of his failure to pay the installment due for reason

27

other than the failure of the owner or developer to develop the

project shall be governed by Republic Act No. 6552.
SECTION 24. Failure to pay installments. The rights of
the buyer in the event of this failure to pay the installments
due for reasons other than the failure of the owner or
developer to develop the project shall be governed by
Republic Act No. 6552.
Where the transaction or contract was entered into prior to
the effectivity of Republic Act No. 6552 on August 26, 1972,
the defaulting buyer shall be entitled to the corresponding
refund based on the installments paid after the effectivity of
the law in the absence of any provision in the contract to the
contrary.
Where the transaction or contract was entered into prior to the
effectivity of Republic Act No. 6552 on August 26, 1972, the
defaulting buyer shall be entitled to the corresponding refund
based on the installments paid after the effectivity of the law in
the absence of any provision in the contract to the contrary.
Sanctions for Violating PD 957
A violation of the provisions of the decree and its
implementing rules and regulations will carry administrative and
penal sanctions. The liability extends to controlling persons in
cases where the violator is a partnership or corporation. The
violation usually carries administrative and criminal penalties. The
HLURB as a quasi-judicial entity has jurisdiction over
administrative aspect of the case while the criminal aspect is
lodge before the fiscals office and accordingly if there is a finding
of probable cause a criminal action is filed in the civil courts.
Section 38, 39 and 40 of PD 957 provides:
SECTION 38. Administrative Fines. The Authority may prescribe
and impose fines not exceeding ten thousand pesos for violations
of the provisions of this Decree or of any rule or regulation
thereunder. Fines shall be payable to the Authority and
enforceable through writs of execution in accordance with the
provisions of the Rules of Court.
SECTION 39. Penalties. Any person who shall violate any of the
provisions of this Decree and/or any rules or regulation that may
be issued pursuant to this Decree shall, upon conviction, be
punished by a fine of not more than twenty thousand (P 20,
000.00) pesos and/or imprisonment of not more than ten (10)
years: Provided, that in the case of corporations, partnership,
cooperatives, or associations, the President, Manager or
Administrator or the person who has charge of the administration

28

of the business shall be criminally responsible for any violation of

this Decree and/or the rules and regulations promulgated
pursuant thereto.
SECTION 40. Liability of controlling persons. Every person who
directly or indirectly controls any person liable under any
provision of this Decree or of any rules or regulation issued
thereunder shall be liable jointly and severally with and to the
same extent as such controlled person unless the controlling
person acted in good faith and did not directly or indirectly induce
the acts constituting the violation or cause of action.

43.

Capacity to sell and buy: (Who can enter in a Contract of Sale?)

General Rule:
All persons, whether natural or juridical, who are
authorized by the Civil Code to oblige themselves may enter in to a contract of sale.
Exceptions are those who suffer absolute incapacity and relative incapacity under
Arts. 1490-1491)
Contracts entered by a minor as a rule are voidable. However, they are
allowed to buy necessaries for support on equitable grounds.
Meaning of Necessaries: those which are needed for sustenance, dwelling,
clothing and medical
attendance in keeping with the financial capacity of the
family of the I
incapacitated person (Art. 194. Family Code.)
Kinds of Incapacity
a) Absolute incapacity if a person is prohibited by law to enter into a
contract of sale in all cases; and
b) Relative incapacity If a person under circumstances is not allowed to buy
or sell properties to another.
Persons disqualified to sell and buy:
(a) The husband and wife cannot sell property to each other, except:
(1) when a separation of property was agreed upon in the marriage
settlement; or
(2) when there has been judicial separation of property
(b) Persons who, because of their position and relation with the person under
their charge or property under their control are prohibited from acquiring said
property either directly or indirectly and whether in private or public sale,
namely:
(1) guardians;
(2) agents;
(3) executors and administrators;
(4) public officers and employees; and
(5) judicial officers and employees and lawyers
(6) others especially disqualified by law
(c) The seller in an auction sale may not bid unless notice is given reserving such
right. (Art. 1476 (4);
(d) An unpaid seller cannot buy, directly or indirectly the goods sold by him, in
case of resale (Art. 1533)

29

The prohibition under Nos. 1 & 2 is applicable to sales in legal redemption,

compromises and renunciations. Art. 1492).
Contracts entered in violation of pars. 1 to 3 are VOIDABLE.
Contracts entered in violation of pars. 4-6 are VOID being contrary to public
policy.

44.
Is the prohibition applicable to a man and a woman who are
living together without the benefit of marriage? Why?
Yes, because to give them that right would amount to giving better rights and
privileges to people who are violating the law. The prohibition can also be
gleaned from Art. 87 of the Family Code as it expanded the prohibition
against between husband and wife to those persons who are living together
as husband and wife without the benefit of marriage.
45.
Reasons behind the prohibition against selling of properties
between husband and wife:
(a) to prevent the commission of fraud or prejudice to third persons;
(b) to prevent one from unduly influencing the other;
(c) to avoid indirect donations
Note : A stranger who questions the validity of sale between spouses must
bear a relation with them like a creditor.
Query:

May a lawyer purchase a property of his client subject litigation

during
the pendency of the litigation? Why?
Answer: No, it is expressly prohibited by law. It is also prohibited by reason
of
public policy.
46.

Rules regarding risk of loss in contracts of sale:

(a) If the thing is lost before perfection, the seller and not the one who
intends to purchase bears the loss in accordance with the principle that the
thing perishes with the owner (res permit domino).
(b) If the thing is lost at the time of perfection, the contract is void or
inexistent (Art. 1409 The legal effect is the same as when the object is
lost before the perfection of the contract of sale (Art. 1493)
(1) If the subject matter (i.e., a specific thing or a mass of specific goods such
as 100 cavans of rice in a particular warehouse) is only partially lost, the
vendee may choose between withdrawing from the contract and
demanding the remaining part, paying its proportionate price. (Art. 1464)
(c) If the thing is lost after perfection but before delivery, that is even
before ownership is transferred to the buyer, the risk of loss by a fortuitous
event without the sellers fault is
borne by the buyer as an exception to the rule of res perit domino. (Art.
1480).
Note: This is in conflict with Article 1504 which provides that unless
otherwise agreed, the
goods remain at the sellers risk until ownership therein is
transferred to the buyer.
(d) If the thing is lost after delivery, the buyer bears the risk of loss
following the rule of res permit domino.

30
(1)
(2)

Where the seller reserves ownership of goods merely to secure the

performance by the buyer of his obligations under the contract, the
goods are at the buyer's risk from the time of delivery.
Where the actual delivery has been delayed through the fault of either
the buyer or the seller, the goods are risk of the party at fault. (Art.
1504)

(e) If the object refers to a thing or specific thing and it should have been lost in
part only, the vendee may choose between withdrawing from the contract
and demanding the remaining part, paying its price in proportion to the total
sum agreed upon. (Art 1493)
(f) Where specific goods are lost or changed in character in part or wholly
without knowledge of the seller, the buyer may at his option treat the sale as
(1) avoided; or (2) consider valid as to existing goods or so much thereof
which has not deteriorated. ( Art. 1494)
47.

Obligations of the Vendor:

(a) to transfer ownership (cannot be waived)

(b) to deliver (cannot be waived)
(c) to warrant the object sold (this can be waived or modified since warranty is
not an essential element of a contract of sale;
(d) to preserve the thing from perfection to delivery otherwise he can be held
liable for damages.
48.

Effect of Failure to deliver in time:

If the seller promised to deliver at a stipulated time and such period is of the
essence of the contract, but did not comply with his obligation on time, he has
no right to demand payment of the price. As a matter of fact, the vendee-buyer
may ask for rescission of the sale.
49.

Ownership is transferred generally only by delivery.

50. Kinds of Delivery (Tradition)

(1) Actual or real (Art. 1497)

(2)Legal or constructive
(a) legal formalities (Art. 1498)
(b) symbolica tradition or traditio symbolica (such as the delivery of the
key of the place where the movable sold is being kept) (Art. 1498 par. 2);
(c) traditio longa manu (by mere consent or agreement) if the movable
sold cannot yet be transferred to the possession of the buyer at the time
of the sale (Art. 1499)
(d) traditio breva manu ( if the buyer had already the possession of the
object even before the purchase, as when the tenant of the car buys the
car, that his possession as an owner). ( Art. 1499)
(e) traditio constitutum possessorium (opposite of tradito breva manu)
possession as owner changed, for example possession as a lease. I.e, I
sold my car but continued to possess it as a lessee of the purchaser (Art.
1500)

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

(1) By the execution of a public instrument, or
(2) by placing titles of ownership in the hands of the buyer;
(3) or allowing the buyer to make use of the rights. (Art. 1501)
51.
Sale or Return - it is a contract by which property is sold but the buyer who
becomes the owner of the property on delivery has the option to return the same
to the seller instead of paying the price.

31
52.
Sale on Trial or Approval - It is a contract in the nature of option to
purchase if goods prove satisfactory, the approval of the buyer being a condition
precedent. In this kind of contract, the title shall continue in the seller until the
sale has become absolute:
(a) Upon the buyer's approval or acceptance made known to the seller;
(b) Upon the buyer's doing any other act adopting the transaction; or
(c) Upon the retention by the buyer of the goods beyond the time fixed (or a
reasonable time) without giving notice of rejection. (Art. 1502)
Note : In sale or return, the risk of loss or injury rests upon the buyer while in
sale on approval, the risk still remains in the seller.
Point of Distinction

Sale or Return

Transfer of ownership of Transferred to

the object of sale
upon delivery
Option to return
Risk of deterioration

Sale on Trial or
Approval
vendee No
transfer
of
ownership to vendee
upon delivery
Existing

Existing
Vendee:
(1) At fault-right to
return is lost.
(2) Not at fault- no
effect on right to
return

53.
Cases when delivery does not transfer ownership over thing sold.
1. Where a contrary intention appears by the terms of the contract:
(a) In case of express reservation by the seller of his title, until certain
conditions have been fulfilled (Art. 1503, par. 1) particularly the full
payment of the purchase price. (Art. 1478);
(b) In case of implied reservation of title as when goods are deliverable to the
order of the seller or his agent; and
(c) In sale on approval, or trial or on satisfaction (Art. 1502);
2. Where the seller failed to make such contract with the carrier on behalf of the
buyer as may be reasonable under the circumstances (See Art. 1523, par. 2);
and
3. Where the seller failed to give notice to the buyer as may enable him to
insure the goods during their transit if under the circumstances it is usual to
insure them.
(Note: Nos. 2 & 3 are also exceptions to the general rule that delivery to the
carrier is deemed delivery to the buyer)
Notes:
a) Article 1503 refers to sale of Specific Goods. Meaning, these are goods
identified and agreed upon at the time a contract of sale is made.
b) This provision provides that as a general rule, the ownership in the goods
passes to the buyer upon their delivery to the carrier. Exception are provided
above no. 53.
c) General principle: Delivery of specific goods sold to the buyer generally
passes ownership to the buyer. Res perit domino rule. Delivery transfers
ownership. Hence, if the thing is lost before delivery, the loss shall not be
imputable to the buyer. See (Arts. 1503 and 1504). This is in conflict with
Article 1480. If the contract is already perfected and even before the delivery
of the thing, the loss of the thing without fault on the part of the seller is
borne by the buyer.
d) In Art. 1480the law speaks of non-fungibles and fungibles sold
independently and for a single price or for a price fixed without consideration
of their weight, number or measure. The rules on Arts. 1189, 1174, 1269,

32
1538 supports Article 1480, which also refer to a prestations specific or
determinate in character.
e) In Art. 1504, the previous article refers to specific goods. Specific goods as
defined under Article 1636 means goods identified and agreed upon at the
time of the contract of sale.
IMPLIED RESERVATION OF OWNERSHIP
1. When there is implied reservation ownership such as in the following:
a. Where the goods are shipped and by the bill of lading the goods are
deliverable to seller or his agent, the seller thereby reserves ownership
in the goods. (Art. 1503 paragraph 2)
b. Where goods are shipped and by the bill of lading the goods are
deliverable to the order of the buyer or his agent, but the possession of
the bill of lading is retained by the seller or agent, the seller thereby
retains a right to the possession of the goods as against the seller. (Art.
1503 par. 3)
c. Where the seller draws on the buyer for the price and transmits the bill
of exchange and the bill of lading together to the buyer to secure
acceptance or payment of the bill of exchange, the title is regarded as
retained in the seller until the bill of exchange is paid. The fact that
the bill of lading and bill of exchange are attached together indicates
that the seller intends to make the delivery of the goods conditional
upon the payment or acceptance of the draft.

54.
What title is acquired by the vendee or buyer if the object which he
bought was sold by somebody who is not the owner thereof and who
was not authorized to sell it?
The vendee, in such a case acquires no better title to the object than the
vendor had. This rule, however is subject to the following exceptions:
a) Where the true owner is estopped or precluded by his conduct from
denying the vendor's authority to sell;
b) Where the sale is made by the registered or apparent owner in
accordance with recording or registration laws;
c) Where the sale or under the order of a court of competent jurisdiction; and
d) Where the purchase is made in a merchant's store or in fairs, or markets,
in accordance with the Code of Commerce and special laws (Art. 1505)
Illustrative Case:
X is the owner of a ring, which was stolen by her maid. While at a social
gathering in the neighborhood, she saw the ring in the possession of her comadre, Y.
She demanded the return of the ring, but Y refused. Can she compel Y to return the
ring? Why?
Answer:
Yes, because she was unlawfully deprived of the same. Under the law, one
who has lost any movables or has been unlawfully deprived thereof, may recover it
from the person in possession of the same, (Art. 559). This is true if possessor
bought it from a thief.
Suppose in the above problem, Y bought the ring from a merchant store, can
X compel Y to return the ring? Why?
Answer:
Yes, provided that she would reimburse Y the amount she may have paid to
the merchant store. Under the law, if the possessor of the movable lost or of which

33
the owner has been unlawfully deprived, has acquired it in good faith at a public
sale, the owner cannot obtain its return without reimbursing the price paid thereof.
55.
Where the seller of goods has a voidable title thereto, but his title has not
been avoided at the time of the sale, a) the buyer acquires good title to the
goods, provided (2) he buys them in good faith, for value and (3) without notice
of the seller defect of title. (Art. 1506)
56.

A. Define Negotiable Document of Title:

that the negotiation was a breach of duty on the part of the person
making the negotiation, or by the fact that the owner of the
document was deprived of the possession of the same by loss, theft,
fraud, accident, mistake, duress, or conversion, if the person to
whom the document was negotiated or a person to whom the
document was subsequently negotiated paid value therefor in good
faith without notice of the breach of duty, or loss, theft, fraud,
accident, mistake, duress or conversion. (n)

A document of title in which it is stated that the goods referred to therein will be
delivered to the bearer, or to the order of the any person named in such
document is a negotiable document of tile. (Art. 1507)
B. Meaning of Trust Receipt : It is a receipt signed by an importer in favor of a
bank which advanced on his credit the price on the goods received, generally
providing that the title to the goods shall remain in the bank and authorizing the
importer to sell the same for its account, and to pay the proceeds to the said bank.
If the importer violates the trust by converting the proceeds to his own use, he is
guilty of estafa.
C. Nature of Document of Title: It refers to goods and not to money. They
all have this in common: that they are receipts of a bailee, or orders upon a
bailee.
D. Function: Evidence of transfer of title and possession of goods and contract
between the parties.
E. Common forms of Document of title:
a) Bill of Lading- A contract or receipt for the transport of goods and their
delivery to the persons named therein, to order or to bearer. It usually
involves three persons - the carrier, the shipper and the consignee. The
shipper and the consignee may be one and the same person.
b) Dock warrant- An instrument given by dock owners to an importer of
goods warehoused on the dock recognizing the importer's title to the said
goods;
c) Warehouse receipt - A contract or receipt for goods deposited with the
warehouseman containing the latter's undertaking to hold and deliver the
said goods to a specified person, to order or to bearer. Quedan is
warehouse receipt usually for sugar received by warehouseman.
SALIENT PROVISIONS

WAREHOUSE RECEIPT

a. It is a written acknowledgement by a warehouse that he has received and

holds certain goods therein described in store for the person to whom it is
issued.
b. It is a simple written contract between the owner of the goods and the
warehouseman to pay the compensation for that service.
c. It is a bilateral contract. It imports that goods are in the hands of a
warehouseman and is a symbolical representation of the property itself.
If goods are stolen and deposited by the thief with a warehouseman, the
warehouseman shall not be liable to the holder of the receipt even if he

34
delivers the goods to the real owners without the receipt being surrendered
to him. (Secs. 11 and 141, WRL)

MEANING OF NEGOTIABLE UNDER THE ACT

It indicates that in the passage of warehouse receipts through the
channels of commerce, the law regards the property which they describe as
following them and gives to their regular transfer by indorsement the effect
of manual delivery of the things specified in them.
DISTINCTION between the right of a person to whom a receipt has been
negotiated and rights of a person to whom a receipt has been transferred.
a. Rights of a person to whom a receipt has been negotiated (Sec. 41):
1. the title of the person negotiating the receipt over the goods covered
by the receipt;
2. the title of the person (depositor or owner) to whose order by the
terms of the receipt the goods were to be delivered over such goods;
and
3. the direct obligation of the warehouseman to hold possession of the
goods for him, as if the warehouseman directly contracted with him.
b. Rights of a person to whom receipt has been transferred (Sec. 42): may
be defeated by levy and execution
1. The title of the goods as against the transferor with respect to a
negotiable warehouse receipt not duly negotiated (merely steps into
the shoes);
2. If the receipt is non-negotiable, such person also acquires the right to
notify the warehouseman of the transfer thereof; and
3. The rights, thereafter, to acquire the obligation of the warehouseman
to hold the goods for him.
An unpaid sellers lien or right of stoppage in transitu cannot defeat the
right of the holder in good faith of NWR.
Sec. 25 of Warehouse Receipt Law
If goods are delivered to a warehouse man by the owner or by a
person whose act in conveying the title to them to a purchaser in good faith
for value would bind the owner, and the negotiable receipts is issued for
them.
While in possession of such warehouseman, the goods cannot be
attached or levied upon under execution UNLESS:
1. The document be first surrendered; or
2. Its negotiation is enjoined; or
1. The document is impounded by the court.
Reason:
the law protects an innocent purchaser for value in the
negotiation of NWR.
Goods covered by NWR cannot be attached or levied upon unless receipt is
surrendered.

35
WAREHOUSEMAN

A person lawfully engaged in the business of storing goods for

compensation for such service.
TO WHOM DELIVERED
upon demand made by the holder of receipt or depositor provided such
demand is accompanied by :
a. an offer to satisfy the WMs lien;
b. an offer to surrender the receipt, if negotiable, with such endorsement
as would be necessary for the negotiation of the receipt; and
c. a readiness and a willingness to sign, when the goods are delivered, if
such signature is requested by the warehouseman.
WARRANTIES ON SALE OF RECEIPT: (Sec. 44)
a. that the receipt is genuine;
b. that he has legal right to negotiate or transfer it;
c. that he has knowledge of no fact which would impair the validity or worth
of the receipt; and
d. that he has a right to transfer the title to the goods and that the goods
are merchantable or fit for a particular purpose whenever such warranties
would have been implied, if the contract of the parties had been to
transfer without a receipt the goods represented thereby.
Conttinuation of Discussion on Negotiable Doument of Title:
57.

How may a negotiable document of title negotiated by delivery?

A negotiable document of title may be negotiated by delivery:

(1) Where by the terms of the document the carrier, warehouseman or other
bailee issuing the same undertakes to deliver the goods to the bearer;
(2) Where by the terms of the document the carrier, warehouseman or other
bailee negotiating the same undertakes to deliver to deliver the goods to the
order of a specified person, and such person or a subsequent indorsee of the
document has indorsed it in blank or to the bearer;
Where by the terms of a negotiable document of title, the goods are
deliverable to bearer or where the negotiable document of title has been
indorsed in blank or bearer, any holder may indorse the same to himself or to
any specified person, and in such are the document shall thereafter be
negotiated only by the indorsement of such indorsee. (Art. 1508)
58. How may a
indorsement?

negotiable

document

of

title

be

negotiated

by

A negotiable document of title may be negotiated by the indorsement of the

person to whose order the goods are by the terms of the document deliverable.
Such indorsement may be in blank, to bearer or to a specified person. If
indorsed to a specified person, it may be again negotiated by the indorsement of
such person in blank, to bearer or to another specified person. Subsequent
negotiations may be made in like manner. (Art. 1509)
59.
Under Article 1520, the words non-negotiable placed in the document of
title which is negotiable in character have no effect and the document continues
to be negotiable.
60.
61.

A non-negotiable document of title cannot be negotiated (Art. 1511)

Who may negotiate a negotiable document of title?

36

(1) By the owner thereof;

(2) By any person to whom the possession or custody of the document has been
entrusted by the owner, if by the terms of the document the bailee issuing
the document undertakes to deliver the goods to the order of the person to
whom the possession or custody of the document has been entrusted, or if at
the time of such entrusting the document is such form that it may be
negotiated by delivery (Art. 1512)
62.
What are the rights, which are acquired by a person to whom a
negotiable document of title has been duly negotiated?
A person to whom negotiable document of title has been duly negotiated
acquires thereby:
(1) Such title to the goods as the person negotiating the document to him
had or had ability to convey to a purchaser in good faith for value and
also such title to the goods as to the person to whose order the goods
were to be delivered by the terms of the document had and had ability to
convey to a purchaser in good faith for value;
(2) The direct obligation of the bailee issuing the document to hold
possession of the goods for him according to the terms of document as
fully as if such bailee had contracted directly with him (Art. 1513).
With the foregoing, one who purchases goods covered by a negotiable
document title issued to a thief acquires no right over the goods as the
thief has no right to transfer notwithstanding that such purchaser
acquires title where the owner, by his conduct, is stopped from asserting
his title.
A negotiated a warehouse receipt issued by W to B representing goods.
Said goods were stolen and deposited by A to W for safekeeping. W not
aware about the defect issued a negotiable warehouse receipt to A.
Assuming said receipt was negotiated to a holder or purchaser in good
faith, the latter can never acquire title because the goods are stolen.
63.
What are the implied warranties of the person who negotiates a
document of title by indorsement or delivery?
A person, who for value negotiates or transfers a document of title by
indorsement or delivery, including one who assigns for value a claim secured
by a document of title unless a contrary intention appears, warrants:
1. That the document is genuine;
2. That he has legal right to negotiate or transfer it;
3. That he has knowledge of no fact which would impair the validity or worth
of the document; and
4. That he has right to transfer the title of the goods are merchantable or fit
for a particular purpose, whenever such warranties would have been
implied if the contract of the parties had been to transfer without a
document of title of goods represented thereby (Art. 1516)
64.
Indorsers are not guarantors. The indorsement of a document of title
amounts merely to a conveyance by the indorser, not a contract of guaranty.
An indorser of a document of title shall not be liable to the holder of for
example the bailee fails to deliver the goods because they were lost due to
his fault or negligence.
65.
Under Article 1518, a negotiable document may be negotiated by any
person in possession thereof I whatever manner it is obtained or acquired. In
other words, it may be negotiated by the thief or finder and the holder
thereof would acquire good title thereto if he paid for value in good faith

37
without notice of the sellers defect of title.
This exists an alleged
inconsistency considering under Article 1512 as a thief nor finder can neither
negotiate document of title because he is not the owner thereof. The conflict
can be resolved easily by locating the subject matter of the provisions. If
what was stolen is the negotiable document of title representing goods
lawfully or validly acquired or obtained, then Article 1518 applies provided
the acquirer obtained it for value and in good faith.
66.
Art. 1518. The validity of the negotiation of a negotiable
document of title is not impaired by the fact Art. 1519. If goods are
delivered to a bailee by the owner or by a person whose act in conveying the
title to them to a purchaser in good faith for value would bind the owner and
a negotiable document of title is issued for them they cannot thereafter,
while in possession of such bailee, be attached by garnishment or otherwise
or be levied under an execution unless the document be first surrendered to
the bailee or its negotiation enjoined. The bailee shall in no case be
compelled to deliver up the actual possession of the goods until the
document is surrendered to him or impounded by the court.
67.
Art. 1520. A creditor whose debtor is the owner of a negotiable
document of title shall be entitled to such aid from courts of appropriate
jurisdiction by injunction and otherwise in attaching such document or in
satisfying the claim by means thereof as is allowed at law or in equity in
regard to property which cannot readily be attached or levied upon by
ordinary legal process.
As a general rule, attachment or levy of goods covered by negotiable
document of title is prohibited. The only recognized exceptions to the
general rule are as follows: a) If the document is surrendered to him; or (2)
negotiation is enjoined.
Instances when bailee can be compelled to surrender goods. The rule is baille
cannot be compelled to surrender the goods in his possession covered by a
negotiable document of title. He may do so, however: ( a) if document is
surrendered to him or (2) the document is impounded by the court.
68.
Art. 1521. Whether it is for the buyer to take possession of the goods
or of the seller to send them to the buyer is a question depending in each
case on the contract, express or implied, between the parties. Apart from any
such contract, express or implied, or usage of trade to the contrary, the place
of delivery is the seller's place of business if he has one, and if not his
residence; but in case of a contract of sale of specific goods, which to the
knowledge of the parties when the contract or the sale was made were in
some other place, then that place is the place of delivery.
Where by a contract of sale the seller is bound to send the goods to the
buyer, but no time for sending them is fixed, the seller is bound to send them
within a reasonable time.
Where the goods at the time of sale are in the possession of a third person,
the seller has not fulfilled his obligation to deliver to the buyer unless and
until such third person acknowledges to the buyer that he holds the goods on
the buyer's behalf.
Demand or tender of delivery may be treated as ineffectual unless made at a
reasonable hour. What is a reasonable hour is a question of fact.
Unless otherwise agreed, the expenses of and incidental to putting the goods
into a deliverable state must be borne by the seller. (n)
Art. 1522. Where the seller delivers to the buyer a quantity of goods less than
he contracted to sell, the buyer may reject them, but if the buyer accepts or

38
retains the goods so delivered, knowing that the seller is not going to perform
the contract in full, he must pay for them at the contract rate. If, however,
the buyer has used or disposed of the goods delivered before he knows that
the seller is not going to perform his contract in full, the buyer shall not be
liable for more than the fair value to him of the goods so received.
Where the seller delivers to the buyer a quantity of goods larger than he
contracted to sell, the buyer may accept the goods included in the contract
and reject the rest. If the buyer accepts the whole of the goods so delivered
he must pay for them at the contract rate.
Where the seller delivers to the buyer the goods he contracted to sell mixed
with goods of a different description not included in the contract, the buyer
may accept the goods which are in accordance with the contract and reject
the rest.
In the preceding two paragraphs, if the subject matter is indivisible, the buyer
may reject the whole of the goods.
The provisions of this article are subject to any usage of trade, special
agreement, or course of dealing between the parties. (n)
PLACE OF DELIVERY
1. Where there is an agreement, express or implied, the place of delivery is
that agreed upon;
2. Where there is no agreement, the place of delivery is determined by
usage of trade;
3. Where there is no agreement and there is also no prevalent usage, the
place of delivery is the sellers place of business;
4. In any other case, the place of delivery is the sellers residence; and
5. In case of specific goods, which to the knowledge of the parties at the
time the contract was made were in some other place, that place is the
place of delivery, in the absence of any agreement or usage of trade to
the contrary.
69.
Under Article 1523, the general rule delivery to the carrier is delivery
to the buyer when the seller is authorized or required to send the goods to
the buyer (See. Art. 1521) Exceptions are in case of express and implied
reservations ( Art. 1503)
Seller duties if required to deliver the goods to the buyer
a) To enter on behalf of buyer into such contract with the carrier reasonable
under circumstances. If he omits to do so, (1) the buyer may decline to
treat delivery to carrier as delivery to himself in case goods are lost or
damaged in course of transit, or (2) the buyer may hold the seller
responsible in damages ( par 2 of Art. 1523) If buyer exercised the first
option, the transfer of ownership will be deemed not to have taken place;
and
b) To give notice to buyer regarding necessity to insure goods, if under the
circumstances it is usual to insure them. If seller fails to so, the risk will
be borne by him.
Explain F.O.B, C.I.F., F.A.S., & C & F., EX (Point of Origin) and Ex dock;

1. F.O.B - The initials for the words, "Free on Board". This means that the goods
are to be deliverable free of expense to the buyer to the point where they are
F.O.B.
2. C.I.F. - The initials stand for the words "cost, insurance and freight." They
signify that the price fixed covers not only the cost of the goods, but the

39

3.
4.
5.

6.

expense of freight and insurance to be paid by the seller up to the point

especially named.
F.A.S. - The initials mean "free alongside vessel" (named port of shipment).
Under this term, the seller pays all charges and bears the risk until the goods
are placed alongside overseas vessel and within reach of its loading tackle.
C & F - The initials signify that the price fixed includes cost and freight to the
named point of destination.
Ex Factory, Ex Warehouse, etc. (named point of origin) - Under this term,
the price quoted applies only at the point of origin, and the seller agrees to
place the goods at the disposal of the buyer at the agreed place on the date
within the period fixed.
Ex Dock (named port of importation). - Under this term, the seller quotes a
price including the cost of the goods on the dock at the named port of
importation.

Graphic distinction as to when ownership passes to buyer in sales from one port to
another
Point of
FOB point of
FOB point of
COD or Cash on
Distinction
shipment
destination
Delivery
Shipment
When title passes Upon delivery of Upon delivery to Upon delivery to
to buyer
goods for shipment port of destination
the carrier
70.
The vendor shall not be bound to deliver the thing sold, if the
vendee has not paid him the price, or if no period for payment has been
fixed in the contract.
As a rule, the obligation to deliver the thing subject matter of a contract arises
from the moment of its perfection and from the time the obligation may be
enforced. But a contract of sale is bilateral and so the obligation to deliver the
thing is accompanied the obligation by the payment of the price. These
obligations are reciprocal.
Exception: If the time for such payment has been fixed in the contract,
the thing must be delivered though the price has not been paid yet.
71.

Define an unpaid seller under Art. 1525

An unpaid seller is one a) who has not been paid or tendered the whole price; or
b) who has received a bill of exchange or other negotiable instrument as
conditional payment and the condition on which it was received has been
broken by reason of dishonor of the instrument. (Art. 1525)
72.

Rights of the unpaid seller:

Even if the ownership in the goods has already passed to the buyer, they are:
1) A lien on the goods or right to retain them for the price while in his
possession;
2) A right of stopping the goods in transitu in case of insolvency of the buyer;
3) A right of resale; and
4) A right to rescind the sale.
If the unpaid seller still retains ownership in the goods, he cannot be said to
have lien (on his goods). But he does have, in addition to his other remedies,
right of withholding delivery (Art. 1526)
65. Cases where the unpaid seller exercises his right of possessory lien:
1. When the goods have been sold without any stipulation as to credit;
2. Where the goods have been sold on credit, but the term of the credit has
expired; and
3. Where the buyer becomes insolvent.

40
The seller may exercise his right o lien notwithstanding that he is in
possession of the goods as agent or bailee for the buyer. (Art. 1527)
66. An unpaid seller loses his lien to the goods:
1. When he delivers the goods to a carrier or other bailee for the purpose of
transmission to the buyer without reserving ownership of the goods or the
right of possession thereof;
2. When the buyer or his agent lawfully obtains possession of the goods;
3. When the unpaid seller waives his lien.
Mere judgment by a court obtained by the unpaid seller for the price of
the goods is not a ground for the loss of his lien. (Art. 1529)
67. Meaning of the RIGHT TO STOPPAGE IN TRANSITU
The right of stoppage in transitu is the right of the unpaid seller who has
parted with the possession of the goods, when the buyer is or becomes
insolvent, to stop them and resume possession while they are in transit. The
unpaid seller will become entitled to the same rights to the goods as if he had
never parted with possession (Art. 1530)
68.

Requisites in the exercise of the right of stoppage in transitu:

1.
2.
3.
4.

The seller must be unpaid (Art. 1525)

The buyer must be insolvent;
The goods must be in transit (Art. 1531)
The seller must either actually take possession of the goods sold or give
notice of his claim to the carrier or other person in possession (Art. 1532 p. 1)
5. The seller must surrender the negotiable document of title, if any, issued by
the carrier or bailee (ibid, p. 2)
6. The seller must bear the expenses of delivery of the goods after the exercise
of the right. (Ibid.)
69. Manner of which unpaid seller may exercise the right to stop the
goods in transitu:
1. Either by taking actual possession of the goods;
2. By giving notice of his claim to the carrier of business in whose possession
the goods are.
The seller must surrender the negotiable document of title, if any issued by
the carrier or bailee. (Art. 1532)
70. Instances where goods are considered not already in transitu:
The goods are no longer in transit after delivery to the buyer or his agent in that
behalf and in the following cases:
a) If the buyer or his agent obtains possession of the goods at a point before the
destination originally fixed;
b) If the carrier or bailee acknowledges to hold the goods on behalf of the buyer;
and
c) If the carrier or bailee wrongfully refuses to deliver the goods to the buyer.
(Art. 1531)
71. Right to Resale:
This right can be the unpaid seller only when he has right of lien or right to stop
goods in
transitu and under any of the three following cases:
a. Where the goods are perishable in nature;

41
b. Where the right to resell is expressly reserved in case the buyer should
make a default; and;
c. Where the buyer delays in the payment of the price for an
unreasonable time.
72. Effect of Resale:
The seller is not liable for any profit made by such resale; but if he sells for
less than the
price, he has the right to sue for the balance. As against the original buyer,
the new buyer
acquires a good title to the goods.
Note: It is not essential to the validity of a resale that notice of an intention to
resell the goods be given by the seller to the original seller. Except where the resale
is based on the default of the buyer in the payment of the price, as notice in this
case is relevant in any question whether the buyer had been in default for
unreasonable time before the resale was made.
No notice is required for the time and place of such resale to the buyer.
Seller is not allowed to directly or indirectly buy the goods in a public or
private sale.
73.

Cases when an unpaid seller exercises his right to rescind:

Either of the two situations, namely:
1. When the right to rescind is expressly reserved; or
2. When the buyer defaults or delays in the payment of the price for an
unreasonable time.
In the case of rescission, the seller resumes ownership in the goods. While
the seller shall not be liable to the buyer upon the contract of sale, the latter,
however, may be made liable to the seller for damages for any loss
occasioned by the breach of contract. (Art. 1534)
Note ; An unpaid seller has right to rescind only if he has either a right of lien
or
a right to stop goods in transitu.

74. Effect of Rescission:

The seller resumes ownership of the goods. While the seller shall not be
liable to the buyer
upon the contract of sale, the latter however may be made liable to the
seller for damages for
any loss in occasioned by the breach of contract (par. 1, Art. 1533)
75. How to rescind?
An election by the seller to rescind may be manifested by notice to the buyer
or some other over act showing an intention to rescind. Communication of such
election to the buyer is not necessary.
76. Effects of Sale of Goods subject to unpaid sellers right of lien or
stoppage in transitu:
They are:
1) The seller's right is not affected by any disposition of goods made by the
buyer, unless he has assented thereto.

42
2) If, however, the goods are covered by a negotiable document of title, the
seller's right cannot prevail rights of purchaser for value in good faith to
whom the document has been indorsed. (Art. 1535)
77.
Art. 1536. The vendor is not bound to deliver the thing sold in case the
vendee should lose the right to make use of the terms as provided in Article 1198.

78.

Art. 1537. The vendor is bound to deliver the thing sold and its accessions
and accessories in the condition in which they were upon the perfection of the
contract.
All the fruits shall pertain to the vendee from the day on which the contract was
perfected.

79.

Art. 1538. In case of loss, deterioration or improvement of the thing before its
delivery, the rules in Article 1189 shall be observed, the vendor being considered
the debtor.

Art. 1539. The obligation to deliver the thing sold includes that of placing in the
control of the vendee all that is mentioned in the contract, in conformity with the
following rules:
If the sale of real estate should be made with a statement of its area, at the
rate of a certain price for a unit of measure or number, the vendor shall be obliged
to deliver to the vendee, if the latter should demand it, all that may have been
stated in the contract; but, should this be not possible, the vendee may choose
between a proportional reduction of the price and the rescission of the contract,
provided that, in the latter case, the lack in the area be not less than one-tenth of
that stated.
The same shall be done, even when the area is the same, if any part of the
immovable is not of the quality specified in the contract.
The rescission, in this case, shall only take place at the will of the vendee,
when the inferior value of the thing sold exceeds one-tenth of the price agreed
upon.
Nevertheless, if the vendee would not have bought the immovable had he
known of its smaller area of inferior quality, he may rescind the sale.
Art. 1540. If, in the case of the preceding article, there is a greater area or number
in the immovable than that stated in the contract, the vendee may accept the area
included in the contract and reject the rest. If he accepts the whole area, he must
pay for the same at the contract rate.
Art. 1541. The provisions of the two preceding articles shall apply to judicial sales.
Art. 1542. In the sale of real estate, made for a lump sum and not at the rate of a
certain sum for a unit of measure or number, there shall be no increase or decrease
of the price, although there be a greater or less area or number than that stated in
the contract.
The same rule shall be applied when two or more immovables as sold for a single
price; but if, besides mentioning the boundaries, which is indispensable in every
conveyance of real estate, its area or number should be designated in the contract,
the vendor shall be bound to deliver all that is included within said boundaries, even
when it exceeds the area or number specified in the contract; and, should he not be
able to do so, he shall suffer a reduction in the price, in proportion to what is lacking
in the area or number, unless the contract is rescinded because the vendee does
not accede to the failure to deliver what has been stipulated.

43
Art. 1543. The actions arising from Articles 1539 and 1542 shall prescribe in six
months, counted from the day of delivery.
Rules in case the area or number is greater or less that stated in the
contract of
Sale of Real Estate:
1) The sale is made with a statement of its area at the rate of a certain price for
a unit of measure or number (e.g. a parcel of land containing an area of
1,000 square meters is sold at P 100.00 per square meter) a) If the actual area, for example is 1,100 sq. meters - The vendee may
accept the area included in the contract (1,000 sq. meters) and the rest
(100 sq. meters). If he accepts the whole area, he must pay for the same
at the contract rate of P 110,000. (Art. 1546)
b) If the actual area is 900 sq. meters - The vendee may choose between a
proportionate reduction of the price (P 90,000) and the rescission of the
contract, provided in the latter case the lack in the area be not less than
1/10 or more of that stated. (See Art. 1539)
2) The sale is made for lump sum - There shall be no increase or decrease of
the price. (Art. 1542) Reason: The law presumes that the purchaser had in
mind a determinate price for the real estate and that he ascertained the area
and quality before the contract was perfected. This rule applies when two or
more immovable properties are sold for a single price (See Art. 1541). It
does not apply if the deficiency is so material as to go to the essence of the
contract, for under such circumstances, gross mistake may be inferred.
80. Art. 1544. If the same thing should have been sold to different vendees, the
ownership shall be transferred to the person who may have first taken
possession thereof in good faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the
person acquiring it who in good faith first recorded it in the Registry of
Property.
Should there be no inscription, the ownership shall pertain to the
person who in good faith was first in the possession; and, in the absence
thereof, to the person who presents the oldest title, provided there is good
faith.
Who is deemed to be the owner in sales of the same thing to different
vendee by the same vendor ? : RULES ON DOUBLE SALES
(1) If the property sold is movable, the vendee who first took possession in good
faith shall acquire the ownership.
(2) If the property sold is immovable, the ownership shall belong to:
a) The vendee who first registered the sale in good faith in the Registry of
Property (Registry of Deeds);
b) In the absence of registration, the vendee who in good faith, first took
possession; and
c) In the absence of both registration and possession, the vendee who
presents the oldest title (who first bought the property), provided there is
good faith. (Art. 1544)
Case I:
A, the owner of a parcel of land sold the same to B, but the document was
not registered. One year later, he sold it again to C who registered. One year later,
he sold it again to C who registered the document and obtained a title over the
same. Who has a better right over the parcel of land? Why?
Answer:
C has a better right. Under the law, if an immovable property is sold to
two persons, the ownership shall belong to the person acquiring it who, in good
faith, first recorded it in the Registry of Property. (Art. 1544) The facts do not show

44
that C acquired the land in bad faith. Since he was the one who first registered the
sale in good faith and acquired title thereto, he has a better right.
Case II:
In a simple case of double sale of an immovable property, the owner sold it
for a buyer merely in a private instrument. Later on, it was sold to another, this
time in a public instrument and registered at that. The second buyer, however,
knew of the first sale. Between the first and the second buyer, who has a better
right? Why?
The first buyer has a better right. Mere registration of the sale is not
sufficient. Good faith must concur with the registration. Bad faith renders the
registration nothing but an exercise in futility.
The rule on double sales do not apply in cases:
a) The contract first registered is fictitious or forged;
b) The vendor is not the owner of the property; or
c) The sale is not made by the same vendor
81. Kinds of warranties in the contract of sale:
A) Express or Promissory Warranty - They are any affirmation of fact or any
promise by the seller relating to the thing, the natural tendency of which is to
induce the buyer to purchase the thing and the buyer thus induced purchases
the same.
B) Implied Warranties: They are agreements or stipulations the existence of
which is presumed although not expressed in any words in the contract.
Republic Act 7394 otherwise known as the Consumers Act of the Philippines
provides for additional provisions or rules applicable to express and implied
warranties.
81.

What are Implied Contracts:

a) Warranty against eviction -the seller warrants that he has a right to sell
the thing at the time when the ownership is to pass and that the buyer
shall from that time have and enjoy the legal peaceful possession of the
thing;
b) Warranty against hidden defects or unknown encumbrances - The seller
guarantees the thing sold is free from any hidden faults or defects or any
charge or encumbrance not declared or known to the buyer. (Art. 1547)
c) Warranty of Fitness or Merchantability - The seller warrants that the seller
guarantees that the thing sold is reasonably fit for the known particular
purpose for which it was acquired by the buyer or, where it was bought by
description, that it is of merchantable quality. (Art. 1565)
Note: the rule on warranty does not apply to a sheriff, auctioneer, mortgage,
pledgee or other person who sells by virtue of authority in fact or law. In
other words, the persons enumerated are not liable to a third person with a
legal and equitable interest in the thing sold. (Art. 1547, par. 2)
82. Meaning of eviction:
It is a judicial process whereby the vendee is deprived of the whole or part of
the thing purchased by virtue of a final judgment based on a right prior to the
sale or an act imputable to the vendor. (Art. 1548)
83. Requisites for Warranty of Eviction
a) The vendee is deprived in whole or in part of the thing purchased;
b) He is deprived by virtue of a final judgment (Art. 1557)

45
c) The judgment is based on a right prior to the sale or an act imputable to
the vendor;
d) The vendor was summoned in the suit for eviction at the instance of the
vendee (Art. 1558); and
e) There is no waiver on the part of the vendee. (Art. 1548)
84. Kinds of Waiver of Eviction
a) Consciente. - The waiver is voluntarily made by the vendee without the
knowledge and assumption of risks of eviction. The vendor shall only pay
the value of which the thing sold had at the time of eviction; and
b) Intencionada. - The vendee makes the waiver with knowledge of the
risks of eviction and assumption of its consequences. (Art. 1554) The
vendor is not liable for eviction if he acted in good faith. (Art. 1553)
85. Rights of the vendee in case of eviction occurs:
a) The return of the value which the thing sold had at the time of the eviction,
be it greater or lesser than the price of the sale;
b) The income or fruits if he has been ordered to deliver them to the party who
won the suit against him;
c) The costs of the suit which caused the eviction, and, in a proper case, those
of the suit brought against the vendor for the warranty;
d) The expenses of the contract, if the vendee has paid them; and
e) The damages and interests, and the ornamental expenses, if the sale was
made in bad faith. (Art. 1555)
Note: In case of partial eviction, the vendee has the option either to enforce the
vendor's liability for eviction (Art. 1555) or to demand rescission of the contract.
(Art. 1556)
In case the vendee is totally evicted from the thing sold, he cannot avail
of the remedy contemplates that the one demanding it is able to return
whatever he has received under the contract.
86. Warranty against Redhibition - is the avoidance of a sale on account of
some service or defect in the thing sold, which renders its use impossible, or so
inconvenient and imperfect that it must be supposed that the buyer would not have
purchased it has he known of the vice.
87. Requisites of Warranty Against Redhibitory Defects (Hidden, Physical
defects):
a)
b)
c)
d)

The defect must be serious or important;

It must be hidden;
It must exist at the time of the sale;
The vendee must give notice of the defect to the vendor within a reasonable
time (Art. 1586)
e) The action for rescission or reduction of the price must be brought within the
proper period - 6 months from the delivery of the thing sold (Art. 1571) or
within 40 days from the date of delivery in case of animals (Art. 1577, par. 10
and;
f) There must be no waiver of warranty on the part of the vendee.
88. When is defect considered important:
a) If it renders the thing sold unfit for which it is intended;
b) If it diminishes its fitness for such use to such extent that the vendee would
not have acquired it had he had been aware thereof or would have given a
lower price for it. (Art. 1561)

46
89. Defect is hidden when it was not known and could not have been
known to the vendee. Hence, there is no warranty if the defect is patent
and visible.
90. Requites of Warranty against hidden encumbrances:
a) The encumbrance must be important (the vendee would not have purchased
the property had he been aware of its existence);
b) The encumbrance is not registered, unless expressly warranted free from
burdens. Reason: Registration constitute constructive notice;
c) The vendee had no knowledge of the encumbrance whether it is registered
or not. Reason: Otherwise, there is no warranty; and
d) The action for rescission or damages must be brought within the proper
period (supra); in case of immovable property encumbered with any nonapparent burden or easement-within one year from the execution of the drrd
of sale. (Art. 1560)
If the period of one year has elapsed, the vendee of an immovable may only
bring an action for damages also within one year from the discovery of the
non-apparent burden or servitude.
91. Warranty of Mercantability is a warranty that goods are fit for general
purpose for which they are sold, while warranty of fitness is a warranty that the
goods are suitable for the special purpose of the buyer which will be satisfied by
mere fitness for general purpose .
92. Is there warranty as to quality or fitness for any particular purpose?
None. Except if:
a) The buyer expressly or by implication, manifests to the seller the particular
purpose for which the goods are acquired;
b) The buyer relies upon the seller's skill or judgment.
93. If a person sells a secondhand motor vehicle, is he liable for damages
in case there are defects or it is unfit for the purpose intended? Is there
any exception? Explain.
Generally, in the sale of a designated and specific article sold as second
hand, there is no implied warranty as to its quality or fitness for the purpose
intended, at least where it is subject to inspection at the time of the sale. On
the other hand, there is also authority that in sale of articles, there may be,
under some circumstances, an implied warranty of fitness for the ordinary
purpose of the article sold for the particular purpose of the buyer.
There is no implied warranty as to the condition, adaption, fitness or
suitability for the purpose for which a thing was made, or the quality of an article
sold as and for a second hand article. Unless goods are sold to raise an implied
warranty, there is generally no implied warranty on sale of secondhand articles.
Exception is found in Article 1562, which provides that in a sale of goods,
there is implied warranty or condition as to quality or fitness of goods as follows:
Where the buyer expressly or by implication, makes known to the seller the
particular purpose for which the goods are acquired, and it appears that the
buyer relies on the skill or judgment (whether he be the grower or manufacturer
or not), there is an implied warranty that the goods shall be reasonably fit for
such purpose.
95. Republic Act 7394 otherwise known as the Consumers Act of the
Philippines provides for additional provisions or rules applicable to express and
implied warranties.

47
ARTICLE 68. Additional Provisions on Warranties . In additional to
the Civil Code provisions on sale with warranties, the following
provisions shall govern the sale of consumer products with warranty:
a) Terms of express warranty . Any seller or manufacturer who
gives an express warranty shall:
1) set forth the terms of warranty in clear and readily understandable
language and clearly identify himself as warrantor;
2) identify the party to whom the warranty is extended;
3) state the products or parts covered;
4) state what the warrantor will do in the event of a defect,
malfunction of failure to conform to the written warranty and at
whose expense;
5) state what the consumer must do to avail of the rights which
accrue to the warranty; and
6) stipulate the period within which, after notice of defect,
malfunction or failure to conform to the warranty, the warrantor will
perform any obligation under the warranty.
b) Express warranty operative from moment of sale. All written
warranties or guarantees issued by a manufacturer, producer, or
importer shall be operative from the moment of sale.
1) Sales Report. All sales made by distributors of products covered
by this Article shall be reported to the manufacturer, producer, or
importer of the product sold within thirty (30) days from date of
purchase, unless otherwise agreed upon. The report shall contain,
among others, the date of purchase, model of the product bought, its
serial number, name and address of the buyer. The report made in
accordance with this provision shall be equivalent to a warranty
registration with the manufacturer, producer, or importer. Such
registration is sufficient to hold the manufacturer, producer, or
importer, liable, in appropriate cases, under its warranty.
2) Failure to make or send report. Failure of the distributor to make
the report or send them the form required by the manufacturer,
producer, or importer shall relieve the latter of its liability under the
warranty: Provided however. That the distributor who failed to
comply with its obligation to send the sales report shall be personally
liable under the warranty. For this purpose, the manufacturer shall be
obligated to make food the warranty at the expense of the
distributor.
3) Retail The retailer shall be subsidiarily liable under the warranty
in case of failure of both the manufacturer and distributor to honor
the warranty. In such case, the retailer shall shoulder the expenses
and costs necessary to honor the warranty. Nothing therein shall
prevent the retailer from proceeding against the distributor or
manufacturer.
4) Enforcement of warranty or guarantee. The warranty rights can
be enforced by presentment of a claim. To this end, the purchase
needs only to present to the immediate seller product to be services
or returned to the immediate seller. No other documentary

48
requirement shall be demanded from the purchaser. If the immediate
seller is the manufactures factory or showroom, the warranty shall
immediately be honored. If the product was purchased from a
distributor, the distributor shall likewise immediately honor the
warranty. In the case of a retailer other than the distributor, the
former shall take responsibility without cost to the buyer of
presenting the warranty claim to the distributor in the consumers
behalf.
5) Record of purchases - Distributors and retailers covered by this
Article shall keep a record of all purchases covered by a warranty or
guarantee for such period of time corresponding to the lifetime of the
products respective warranties or guarantees.
6) Contrary stipulations Null and void. All covenants, stipulations
or agreements contrary to the provisions of this Article shall be
without legal effect.
c) Designation of warranties A written warranty shall clearly and
conspicuously designate such warranty as
1) "Full warranty" if the written warranty meets the minimum
requirements set forth in paragraph (d); or
2) "Limited warranty" if the written warranty does not meet such
minimum requirements.
d) Minimum standards for warranties. - For warrantor of a consumer
product to met the minimum standards for warranty, he shall:
1) remedy such consumer product within a reasonable time and
without charge in case of a defect, malfunction or failure to conform
to such written warranty;
2) permit the consumer to elect whether to ask for a refund or
replacement without charge of such product or part, as the case may
be, where after reasonable number of attempts to remedy the defect
or malfunction, the product continues to have the defect or
malfunction.
The warrantor will not be required to perform the above duties if he
can show that the defect, malfunction or failure to conform to a
written warranty was caused by damage due to unreasonable use
thereof.
e) Duration of warranty. The seller and the consumer may stipulate
the period within which the express warranty shall be enforceable. If
the implied warranty on merchantability accompanies an express
warranty, both will be of equal duration. Any other implied warranty
shall endure not less than sixty (60) days nor more than one (1) year
following the sale of new consumer products.
f) Breach of warranties. (1) In case of breach of express warranty,
the consumer may elect to have the goods repaired or its purchase
price refunded by the warrantor. In case the repair of the product in
whole or in part is elected, the warranty work must be made to
conform to the express warranty within thirty (30) days by either the
warrantor or his representative. The thirty-day period, however, may
be extended by conditions which are beyond the control of the
warrantor or his representative. In case the refund of the purchase

49
price is elected, the amount directly attributable to the use of the
consumer prior to the discovery of the non-conformity shall be
deducted.
2) In case of breach of implied warranty, the consumer may retain in
the goods and recover damages, or reject the goods, cancel and
contract and recover from the seller so much of the purchase price
as has been paid, including damages.
96. Principal obligations of the vendee:
a) To accept delivery; and
b) To pay the price of the thing sold
97. Time and place of payment:
1) At the time and place stipulated in the contract; and
2) If there is no stipulation as to the time and place of payment, at the time
when and place where the thing sold is delivered by the Vendor. (Art. 1582;
Art. 1251)
Note: In a C.O.D. sale, in the absence of agreement or usage of trade permitting
such examination. But the buyer is still entitled to examine the goods after their
delivery and payment of the price for the purpose of ascertaining whether they are
in conformity with the contract (Art. 1584)
98. Kinds of Acceptance of the buyer of the goods sold:
a) Express - when he intimates to the seller that he accepts them; or
b) Implied - (a) when the buyer, after delivery of goods, does any act
inconsistent with the sellers ownership, as when he sells or attempts to sell
the goods, or he uses or makes alteration in them in a manner proper only
for an owner; or (b) when the buyer, after the lapse of a reasonable time,
retains the goods without intimating his rejection. (Art. 1585)
99. If the buyer refuses to accept the goods without just cause, the title to
the goods
passes to him from the moment they are placed at his disposal. (Art.
1588)
100. When is the vendee obliged to pay interest for the price for the period
between
delivery of the thing and payment of the price?
a) Should it have been so stipulated;
b) Should the thing sold and delivered produce fruits or income; and
c) Should he be in default, from the time of judicial or extra-judicial demand for
the payment of the price. (Art. 1589)
101. Suspension of payment of the price by the buyer may be effected in
the following
cases:
a) If he is disturbed in the possession or ownership of the thing sold; or
b) If he has a well grounded fear that his possession or ownership would be
disturbed by a vindicatory action for or foreclosure of mortgage. (Art. 1590)
102. Cases wherein vendee cannot suspend payment even if there is
disturbance in his ownership or possession of the thing bought:
a) If the vendor gives security for the return of the price in a proper case;
b) If it has been stipulated that notwithstanding any such contingency the
vendee must make payment;
c) If the vendor has caused the disturbance or danger to cease;
d) If the disturbance is a mere trespass.

50
Of course the vendee can no longer suspend payment in case he has fully paid
the price.
103. Effect of a stipulation that upon failure to pay the price at the time
agreed upon, the
rescission of the contract of sale shall takes place:
a) With respect to immovables: Before a demand of rescission has been made
by the vendor, either judicially or extra-judicially, the vendee may still pay
the price even after the expiration of the stipulated period of payment. After
such demand, the court may not grant the vendee new term. (Art. 1592)
b) With respect to movable property. The vendor can rescind the contract as a
matter of right, if the vendee without valid cause does not (1) accept delivery
or (2) pay the price unless a credit period for its payment has been
stipulated. (Art. 1593) Reason: The price of personal properties are so
changeable that any delay in their disposal might cause the vendor great
prejudice.
104. ACTIONS AVAILABLE FOR BREACH OF CONTRACT OF SALE OF GOODS
a) Action for payment of the price (Art. 1595);
b) Action for damages for non- acceptance of goods (Art. 1596);
c) Action for rescission of the contract (Art. 1597)
d) Action for specific performance (Art. 1598)

105. Action for payment of the price may be maintained by the vendor
when:
a) When the ownership of the goods has passed to the buyer and he wrongfully
neglects or refuses to pay such price;
b) When the price is payable on a certain day and the buyer wrongfully neglects
or refuses to pay such price,, irrespective of delivery or of transfer of title;
and
c) When the goods cannot readily be resold for a reasonable price and the
buyer wrongfully refuses to accept them even before the ownership in the
goods has passed. (Art. 1595)
106. An action against the buyer for damages for non-acceptance may be
maintained by the vendor if in case the buyer wrongfully neglects or
refuses to accept and pay for the goods (Art. 1596).
107. The vendor may rescind the sale of goods which have not yet
delivered when:
a) When the buyer has repudiated the contract of sale;
b) When the buyer has manifested his inability to perform his obligations
thereunder; and
c) When the buyer has committed a breach of the contract of sale (Art.
1597)
108. Vendee can maintain an action against the vendor for specific
performance in case
the vendor fails to comply with his contract to deliver specific or
ascertained goods,
the seller cannot retain the goods on payment of damages. ( Art.
1598) Reason:
Damages are imposed by law to insure fulfillment of the contract and to
substitute for it. (Art.
1911)

51

109. Remedies available to the buyer when the seller has been guilty of a
breach
of promise or warranty:
a) Recoupment. - accept goods and set up the seller's breach to reduce or
extinguish the price;
b) Action for damages. - accept the goods and maintain an action for
damages of the warranty;
c) Counterclaim for damages. - refuse to accept the goods and maintain
an action for damages for the breach of the warranty;
d) Rescission - rescind the contract of sale by returning or offering the
return of the goods and recover the price. (Art. 1599)
Note: The above remedies are alternative. The only exception is when after
The payee has chosen fulfillment, it should become impossible, in which case
he may also sue for rescission.
110. EXTINGUISMENT OF CONTRACT OF SALE
Causes:
a) Common - those causes, which are also means of extinguishing all other
contracts like payment, loss of the thing, condonation, etc. (Art. 1231);
b) Special - those causes which are recognized by law on sales (such those
covered by Arts. 1484, 1532, 1539, 1540, 1542, 1556, 1560, 1567 and
1591);
c) Extra-special - those causes, which are given special discussion by the Civil
Code and these, are conventional redemption and legal redemption.
111. Define Conventional Redemption:
It is the right, which the vendor reserves to himself, to reacquire the property
sold provided he (1) reimburses the vendee of (a) the price, (b) the expenses
of the contract, (c) any other legitimate payments made thereof and (d) the
necessary and useful expenses made on the thing sold (art. 1616); and (2)
fulfills other stipulations which may have been agreed upon. (Art. 1601)

Nature of Conventional Redemption

1. contractual
2. accidental stipulation
3. real right, when it is registered as it binds third persons
4. potestative, it depends on the will of the vendor
5. resolutory condition, when the right is exercised, the right of ownership by
the vendee is extinguished;
6. Reserved at he moment of the perfection of the contract for if it is agreed
afterwards, there is only a promise to sell which produces different rights
and effects.
112. Instances where pacto de retro or sale with right to repurchase are
considered as
equitable mortgage:
(1) When the price of a sale with right to repurchase is unusually inadequate;
(2) When the vendor remains in possession as lessee or otherwise;
(3) When upon or after the expiration of the right to repurchase another
instrument extending the period of redemption or granting a new period is
executed;
(4) When the purchaser retains for himself a part of the purchase price;
(5) When the vendor binds himself to pay taxes on the thing sold; and
(6) In any other case where it may be fairly inferred that the real intention of
the parties is that the transaction shall secure the payment of a debt or
the performance of any other obligation. (Art. 1602)

52
113. Meaning of Equitable Mortgage.
An equitable mortgage is one, which although it lacks the proper formalities
of a mortgage, shows the intention of the parties to make the property as
security for a debt.
114. Period to exercise the right to repurchase in conventional redemption
may be exercised:
a) If there is no agreement granting the vendor the right to redeem, there is
no right of redemption since the sale is considered as an absolute sale.
b) If the parties agreed only on the right to redeem on the part of the vendor
but there is a total absence of express stipulation as to the time within
which the repurchase should be made, then the period of redemption shall
be four (4) years from the date of contract;
c) If the parties agree on a definite period of redemption, then the right to
redeem must be exercised within the period fixed provided it does not
exceed 10 years;
d) If the parties agree that the vendor shall have the right to redeem and
they intend a period which, however is not specified (e.g. at any time the
vendor has the money) then the redemption period is 10 years.
e) From the time final judgment was rendered in a civil action on the basis
that the contract was a true sale with the right to repurchase the vendor a
retro has 30 days within which to exercise the right to repurchase. (Art.
1606)
115. Period of Redemption cannot be extended after its expiration
because what is to be
extended has already extinguished. Before its expiration, it can be
extended provided the
extension including the original term shall not extend beyond 10 years;
otherwise the extension
is void as to the excess.
116. The vendor in the exercise of the right to repurchase has to return
the
following:
a) The price of the sale;
b) The expenses of the contract, any other legitimate payments made by
reason of the sale; and
c) The necessary and useful expenses made on the thing sold, (Art. 1616)
117. Effect of the failure of the vendor to redeem:
In personal property. - The vendee's title becomes irrevocable;
In case of real property - The consolidation of ownership in the vendee by
virtue of the failure of the vendor to comply with the provisions of Article
1616 shall not be recorded in the Registry of Property without a judicial order,
after the vendor has been duly heard. (Art. 1607). Reason: The transaction
may not be a genuine pacto de retro but only an equitable mortgage.
Art. 1607. In case of real property, the consolidation of ownership in the vendee by
virtue of the failure of the vendor to comply with the provisions of article 1616 shall
not be recorded in the Registry of Property without a judicial order, after the vendor
has been duly heard.
Art. 1608. The vendor may bring his action against every possessor whose right is
derived from the vendee, even if in the second contract no mention should have
been made of the right to repurchase, without prejudice to the provisions of the
Mortgage Law and the Land Registration Law with respect to third persons.
Art. 1609. The vendee is subrogated to the vendor's rights and actions.

53
Art. 1610. The creditors of the vendor cannot make use of the right of redemption
against the vendee, until after they have exhausted the property of the vendor.
Art. 1611. In a sale with a right to repurchase, the vendee of a part of an undivided
immovable who acquires the whole thereof in the case of article 498, may compel
the vendor to redeem the whole property, if the latter wishes to make use of the
right of redemption.
Art. 1612. If several persons, jointly and in the same contract, should sell an
undivided immovable with a right of repurchase, none of them may exercise this
right for more than his respective share.
The same rule shall apply if the person who sold an immovable alone has left
several heirs, in which case each of the latter may only redeem the part which he
may have acquired.
Art. 1613. In the case of the preceding article, the vendee may demand of all the
vendors or co-heirs that they come to an agreement upon the purchase of the
whole thing sold; and should they fail to do so, the vendee cannot be compelled to
consent to a partial redemption.
Art. 1614. Each one of the co-owners of an undivided immovable who may have
sold his share separately, may independently exercise the right of repurchase as
regards his own share, and the vendee cannot compel him to redeem the whole
property.
Art. 1615. If the vendee should leave several heirs, the action for redemption
cannot be brought against each of them except for his own share, whether the thing
be undivided, or it has been partitioned among them.
But if the inheritance has been divided, and the thing sold has been awarded
to one of the heirs, the action for redemption may be instituted against him for the
whole.
Art. 1616. The vendor cannot avail himself of the right of repurchase without
returning to the vendee the price of the sale, and in addition:
(1) The expenses of the contract, and any other legitimate payments made
by reason of the sale;
(2) The necessary and useful expenses made on the thing sold. (1518)
Art. 1617. If at the time of the execution of the sale there should be on the land,
visible or growing fruits, there shall be no reimbursement for or prorating of those
existing at the time of redemption, if no indemnity was paid by the purchaser when
the sale was executed.
Should there have been no fruits at the time of the sale and some exist at the time
of redemption, they shall be prorated between the redemptioner and the vendee,
giving the latter the part corresponding to the time he possessed the land in the last
year, counted from the anniversary of the date of the sale.
Art. 1618. The vendor who recovers the thing sold shall receive it free from all
charges or mortgages constituted by the vendee, but he shall respect the leases
which the latter may have executed in good faith, and in accordance with the
custom of the place where the land is situated.
118. Legal Redemption - is the right to be subrogated, upon the same terms and
conditions stipulated in the contract, in the place of one who acquires a thing by

54
purchase or dation in payment or by any other transaction whereby ownership is
transmitted

by onerous title. (Art. 1619)

119. Instances of Legal Redemption:

a) Redemption by a co-heir of the share by the other heir, (Art. 1088).;
b) Redemption by a co-owner, (Art. 1620);
c) Redemption by an adjoining owner of a piece of rural land (Art. 1621) and
or urban land (Art. 1622);
d) Redemption by a debtor in case of sale of right in litigation. (Art. 1634);
and
e) Under special laws (among others)
f) Redemption by owner of real property sold for delinquent taxes. The
period is one year;
g) Repurchase by homesteader of homestead sold under the Public Land
Act. The period is 5 years.
h) Redemption by judgment debtor or redemptioner of property sold on
execution. The period is 12 months;
i) Redemption by mortgagor after mortgaged property has been judicially
foreclosed and sold. The period is 90 days. If foreclosure is extrajudicial, the period is one year from the time of the registration of the
sale.
PROVISIONS GOVERNING LEGAL REDEMPTION
Art. 1619. Legal redemption is the right to be subrogated, upon the same
terms and conditions stipulated in the contract, in the place of one who
acquires a thing by purchase or dation in payment, or by any other
transaction whereby ownership is transmitted by onerous title. (1521a)
Art. 1620. A co-owner of a thing may exercise the right of redemption in
case the shares of all the other co-owners or of any of them, are sold to a
third person. If the price of the alienation is grossly excessive, the
redemptioner shall pay only a reasonable one.
Should two or more co-owners desire to exercise the right of
redemption, they may only do so in proportion to the share they may
respectively have in the thing owned in common.
Art. 1621. The owners of adjoining lands shall also have the right of
redemption when a piece of rural land, the area of which does not exceed
one hectare, is alienated, unless the grantee does not own any rural land.
This right is not applicable to adjacent lands which are separated by
brooks, drains, ravines, roads and other apparent servitudes for the
benefit of other estates.
If two or more adjoining owners desire to exercise the right of
redemption at the same time, the owner of the adjoining land of smaller
area shall be preferred; and should both lands have the same area, the
one who first requested the redemption.
Art. 1622. Whenever a piece of urban land which is so small and so
situated that a major portion thereof cannot be used for any practical
purpose within a reasonable time, having been bought merely for
speculation, is about to be re-sold, the owner of any adjoining land has a
right of pre-emption at a reasonable price.
If the re-sale has been perfected, the owner of the adjoining land
shall have a right of redemption, also at a reasonable price.

55
When two or more owners of adjoining lands wish to exercise the right
of pre-emption or redemption, the owner whose intended use of the land
in question appears best justified shall be preferred.
Art. 1623. The right of legal pre-emption or redemption shall not be
exercised except within thirty days from the notice in writing by the
prospective vendor, or by the vendor, as the case may be. The deed of
sale shall not be recorded in the Registry of Property, unless accompanied
by an affidavit of the vendor that he has given written notice thereof to all
possible redemptioners.
The right of redemption of co-owners excludes that of adjoining
owners.
ASSIGNMENT OF CREDIT
120. Assignment of credit is a contract by which one person transfer to another
his rights and actions against a third person in consideration of a price certain in
money or its equivalent, (Art. 1458).
121. Its nature is a really a contract of sale - a sale of credit and is therefore,
governed by the law on sale. There is however, one important difference and that is,
after the transfer, a definite third person is obliged; whereas, in sale, the subject is
the whole world which must respect the title of the buyer.
122. Effects of valid assignment are as follows:
a) Assignment transfers title to the assigned credit to the assignee;
b) It includes all accessory rights, such as guaranty, mortgage, pledge or
preference (Art. 1627);
c) The assignee takes the credit subject to defenses, which may have been
acquired by the debtor before notice of the assignment.
123 . Formalities required:
As between the parties - The assignment is valid although it appears in a
private document so long as the law does not require a specific form for its
validity.
As against third person - To affect them, the assignment must appear in a public
instrument, and in case it involves real property, that it be recorded in the
Registry of Property. (Art. 1625)
124. Assignment of credits includes all accessory rights such as guaranty,
mortgage, pledge or
Preference (Art. 1627)
125: The assignor in good faith shall warrant the existence and legality of the credit
at the time of
sale but not for the SOLVENCY of the debtor unless it is expressly stipulated
or unless the insolvency was prior to the sale and of common knowledge.
(Art. 1628) If the assignor in good faith is assumes responsible for warranty of
the solvency of the debtor, in the absence of any agreement to the contrary,
this warranty shall last for one year only if at the time of the assignment the
period has already expired. If the period has not expired, however, the one
year shall last for only one year from maturity. (Art. 1629)
126. Art. 1630. One who sells an inheritance without enumerating the things, of
which it is composed, shall only be answerable for his character as an heir.
127. Art. 1631. One who sells for a lump sum the whole of certain rights, rents, or
products, shall
comply by answering for the legitimacy of the whole in general;
but he shall not be obliged to warrant each of the various parts of which it may be

56
composed, except in the case of eviction from the whole or the part of greater
value.
128. Art. 1632. Should the vendor have profited by some of the fruits or received
anything from the inheritance sold, he shall pay the vendee thereof, if the contrary
has not been stipulated.
129. Art. 1633. The vendee shall, on his part, reimburse the vendor for all that the
latter may have paid for the debts of and charges on the estate and satisfy the
credits he may have against the same, unless there is an agreement to the contrary.
130. Art. 1634. When a credit or other incorporeal right in litigation is sold, the
debtor shall have a right to extinguish it by reimbursing the assignee for the price
the latter paid therefor, the judicial costs incurred by him, and the interest on the
price from the day on which the same was paid.
A credit or other incorporeal right shall be considered in litigation from the time the
complaint concerning the same is answered.
The debtor may exercise his right within thirty days from the date the assignee
demands payment from him.
131. Art. 1635. From the provisions of the preceding article shall be excepted the
assignments or sales made:
(1) To a co-heir or co-owner of the right assigned;
(2) To a creditor in payment of his credit;
(3) To the possessor of a tenement or piece of land which is subject to the
right in litigation assigned.

BULK SALES LAW

WHEN IS A SALE CONSIDERED A SALE IN BULK?
a. when a sale, transfer or disposition is other than in the ordinary course;
b. the sale is of all or substantially all of the business;
c. when the sale is of all or substantially all of the fixtures and equipment.

PURPOSE
To prevent the defrauding of creditors by the secret sale or disposal in bulk
of all or substantially all of a merchants stock of goods.

EXCEPTIONS:
a.
b.
c.
d.

sale is made in the ordinary course of business;

there is a waiver from all the creditors and must be written;
sale is by virtue of a judicial order;
those sold by assignee or those beyond the right of creditors.

FORMALITIES REQUIRED BY LAW

a. the sale in bulk to be accompanied by sworn statement of the
vendor/mortgagor listing the names and addresses of, and amounts owing
to, creditors (to be furnished to the buyer);

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b. the seller to prepare an inventory of stock to be sold and notify the
creditors of projected sale at least n10 days before such sale (Sec. 3-4).
EFFECTS OF SALE IN VIOLATION OF BSL

VALID between the parties, VOID as to affected creditors.

a. sale in bulk is void;
b. purchaser holds property in trust for seller (whether in good faith or bad
faith);
c. purchaser is liable to sellers creditors for properties forming part of bulk
and already disposed by him.
DISTINCTION BETWEEN FRAUDULENT CONVEYANCE UNDER THE BULK
SALES LAW FROM THE TRANSFER IN FRAUD OF CREDIORS UNDER
THE CIVIL CODE
A conveyance or transfer fraudulently made in violation of the Bulk Sales
Law is null and void while a conveyance or transfer in fraud of creditors
under Article 1381-1389 of the New Civil Code is rescissible and is valid until
set aside by a competent court.
Filename: Important Tips on the Law on Sales/Business Law/jgbdf 2015