Law on Sales

I. INTRODUCTION

1. Absolute where the sale is not subject to any

condition whatsoever and where title passes to the buyer
upon the delivery of the thing sold.

Art. 1458. By the contract of sale one of the contracting

parties obligates himself to transfer the ownership and to
deliver a determinate thing, and the other to pay therefor a
price certain in money or its equivalent.

2. Conditional where the sale contemplates a

contingency and in general, where the contract is subject
to certain conditions (usually the full payment of the
purchase price). Conditions are attached to the contract;
the title will only pass once the conditions have been
fulfilled.

A contract of sale may be absolute or conditional. (1445a)

D. Sale as distinguished from other contracts

The definition in Art 1458 brings about the creation of two

sets of obligations: for the seller, (1) to transfer ownership
and (2) deliver possession of the subject matter; for the
buyer: to pay the price. Obligations, as referred to in the
Article, are obligations to give; thus it may be the subject of
actions for specific performance. (Villanueva)

1. sale vs. contract for a piece of work2

A. Definition of sale

B. Characteristics of a contract of sale

1. Nominate it has a peculiar name and form as prescribed
in the law
2. Consensual it is founded upon and completed by mere
consent of the contracting parties1 (See Article 1475)
Art. 1475. The contract of sale is perfected at the moment
there is a meeting of minds upon the thing which is the object
of the contract and upon the price.
From that moment, the parties may reciprocally demand
performance, subject to the provisions of the law governing
the form of contracts. (1450a)
3. Commutative it is a contract in which each of the
contracting parties gives a thing of value and receives an
equivalent
4. Bilateral it is a contract in which both the contracting
parties are bound to fulfill the obligations reciprocally towards
each other (i.e. the vendor becomes bound to deliver the
thing sold and the vendee to pay the price for it)
5. Onerous as opposed to gratuitous, because the thing is
sold in consideration of a price and vice versa

6. Principal it can stand on its own; unlike an accessory

contract
C. Kinds of a contract of sale

Art. 1467. A contract for the delivery at a certain price

of an article which the vendor in the ordinary course of
his business manufactures or procures for the general
market, whether the same is on hand at the time or not,
is a contract of sale, but if the goods are to be
manufactured specially for the customer and upon his
special order, and not for the general market, it is a
contract for a piece of work. (n)
Art. 1713. By the contract for a piece of work the
contractor binds himself to execute a piece of work for
the employer, in consideration of a certain price or
compensation. The contractor may either employ only his
labor or skill, or also furnish the material. (1588a)
Art. 1714. If the contractor agrees to produce the work
from material furnished by him, he shall deliver the thing
produced to the employer and transfer dominion over the
thing. This contract shall be governed by the following
articles as well as by the pertinent provisions on warranty
of title and against hidden defects and the payment of
price in a contract of sale. (n)
Art. 1715. The contract shall execute the work in such a
manner that it has the qualities agreed upon and has no
defects which destroy or lessen its value or fitness for its
ordinary or stipulated use. Should the work be not of
such quality, the employer may require that the
contractor remove the defect or execute another work. If
the contract fails or refuses to comply with this
obligation, the employer may have the defect removed or
another work executed, at the contractor's cost. (n)
a) In a contract for work, labor or materials or for a piece
of work, the thing transferred is one not in existence and
which never would have existed but for the order of the
party desiring to acquire it; while in a contract of sale,
the thing transferred is one which would have existed
and been the subject of sale to some other person, even
if the order had not been given. (De Leon)

QUIJADA V. CA: Sale being a consensual contract, is perfected by mere

consent, which is manifested the moment there is a meeting of the minds
as to the offer and acceptance thereof on 3 elements: price, subject matter
and terms of payment. Ownership by the seller on the thing sold at the time
of perfection of the contract of sale is not an element for its perfection. What
the law requires is that the seller has the right to transfer ownership at the
time the thing sold is delivered.

CELESTINO V. COLLECTOR: A factory which habitually makes

sash, windows and doors, and sells the goods to the public is a
manufacturer. The fact that the windows and doors are made by it
only when customers place their orders and according to such form or
combination as suit the fancy of the purchasers does not alter the
nature of the establishment;
COMMISSIONER V. ENGINEERING: The test of a contractor is that
he renders service in the course of an independent occupation,
representing the will of his employer only as to the result of his work,
and not as to the means by which it is accomplished.

b) This follows the Massachusetts Rule: a contract for the

delivery at a certain price of an article which the vendor, in
the ordinary course of his business, manufactures or procures
for the general market, whether the same is on hand at the
time or not, is a contract of sale. But if the goods are to be
manufactured specially for the customer and upon his special
order and not for the general market, it is a contract for a
piece of work. (Baviera)

Dacion En Pago
Presupposes a preexisting
debt & extinguishes the
debt
Price is the value of the
thing given

2. sale vs. agency to buy and sell3

5. sale vs. donation

Art. 1466. In
characteristic of
of agency to
instrument shall

Art. 725. Donation is an act of liberality whereby a

person disposes gratuitously of a thing or right in favor of
another, who accepts it.

construing a contract containing provisions

both the contract of sale and of the contract
sell, the essential clauses of the whole
be considered. (n)

3. sale vs. barter or exchange

Art. 1468. If the consideration of the contract consists partly
in money, and partly in another thing, the transaction shall be
characterized by the manifest intention of the parties. If such
intention does not clearly appear, it shall be considered a
barter if the value of the thing given as a part of the
consideration exceeds the amount of the money or its
equivalent; otherwise, it is a sale. (1446a)
Art. 1638. By the contract of barter or exchange one of the
parties binds himself to give one thing in consideration of the
other's promise to give another thing. (1538a)
Art. 1639. If one of the contracting parties, having received
the thing promised him in barter, should prove that it did not
belong to the person who gave it, he cannot be compelled to
deliver that which he offered in exchange, but he shall be
entitled to damages. (1539a)
Art. 1640. One who loses by eviction the thing received in
barter may recover that which he gave in exchange with a
right to damages, or he may only demand an indemnity for
damages. However, he can only make use of the right to
recover the thing which he has delivered while the same
remains in the possession of the other party, and without
prejudice to the rights acquired in good faith in the meantime
by a third person. (1540a)
Art. 1641. As to all matters not specifically provided for in
this Title, barter shall be governed by the provisions of the
preceding Title relating to sales. (1541a)
4. sale vs. dacion en pago
Art. 1245. Dation in payment, whereby property is alienated
to the creditor in satisfaction of a debt in money, shall be
governed by the law of sales. (n)
3

QUIROGA V. PARSONS: In the contract in the instant case, what was

essential, constituting its cause and subject matter, was that the plaintiff
was to furnish the defendant with the beds which the latter might order, at
the stipulated price, and that the defendant was to pay this price in the
manner agreed upon. These are precisely the essential features of a
contract of purchase and sale. There was the obligation on the part of the
plaintiff to supply the beds, and, on that of the defendant, to pay their price.
These features exclude the legal conception of an agency or older to sell
whereby the mandatory or agent receives the thing to sell it, and does not
pay its price, but delivers to the principal the price he obtains from the sale
of the thing to a third person, and if he does not succeed in selling it, he
returns it,

Sale
Obligations are created
from the perfection of the
contract
Fixing of the price is more
freely agreed upon
(Manresa)

Under Art 1471, when the price of the contract of sale is

simulated, the sale may be void but the act may be
shown to have been in reality a donation x x x On the
other hand, a purported donation may have other
considerations placed on the donee, thus it becomes
critical to determine what rule applies (law on sales or
law on donations) (Villanueva)
6. summation: tests to determine the nature of the
contract
4 Tests

Sale = object:
transfer of
ownership

1. Nature of
business
2. Existence of
thing
3. Market
4. Statute of
frauds

Ordinary
Does not
General
Covered

Piece of Work
= object:
service
(mental,
physical labor)
Extra-ordinary
Depends on
order
Specific Clientele
Not covered

4 Tests (but the

ultimate test is:
intention of the
parties)
1. Risk of Loss

Sale

Agency to Sell

Borne by seller

2. Payment

Buyer

Borne by principal,
not agent
Principal, not
agent
Remittance test

None

Mandatory

3. Exclusive
Dealership
4. Return of
unsold goods

Sale
1. Intention of
parties
2. Value of thing
vs. Value of
money

2 Tests
1. Debt
2. Stage of
contract

Money > thing

Sale
None
Perfection

Barter

Thing > Money

Dacion En Pago
Pre-existing
Extinguishment

indispensable
for
sustenance,
education, and medical treatment.

II. PARTIES TO A CONTRACT OF SALE

clothing,

dwelling,

A. Capacity of parties

2. relative incapacity

Art. 1489. All persons who are authorized in this Code to

obligate themselves, may enter into a contract of sale, saving
the modifications contained in the following articles.

a) married persons (as regards contracts with third

parties)

Where necessaries are those sold and delivered to a minor or

other person without capacity to act, he must pay a
reasonable price therefor. Necessaries are those referred to in
Article 290. (1457a)
Art. 1490. The husband and the wife cannot sell property to
each other, except:

Art. 73. Either spouse may exercise any legitimate

profession, occupation, business or activity without the
consent of the other. The latter may object only on valid,
serious, and moral grounds.
In case of disagreement, the court shall decide whether
or not:

(1) When a separation of property was agreed upon in the

marriage settlements; or
(2) When there has been a judicial separation or property
under Article 191. (1458a)

(1) The objection is proper; and

(2) Benefit has occurred to the family prior to the
objection or thereafter. If the benefit accrued prior to the
objection, the resulting obligation shall be enforced
against the separate property of the spouse who has not
obtained consent.

Art. 1491. The following persons cannot acquire by purchase,

even at a public or judicial auction, either in person or through
the mediation of another:

The foregoing provisions shall not prejudice the rights of

creditors who acted in good faith. (117a)

(1) The guardian, the property of the person or persons who

may be under his guardianship;
(2) Agents, the property whose administration or sale may
have been entrusted to them, unless the consent of the
principal has been given;
(3) Executors and administrators, the property of the estate
under administration;
(4) Public officers and employees, the property of the State or
of any subdivision thereof, or of any government-owned or
controlled corporation, or institution, the administration of
which has been intrusted to them; this provision shall apply to
judges and government experts who, in any manner
whatsoever, take part in the sale;
(5) Justices, judges, prosecuting attorneys, clerks of superior
and inferior courts, and other officers and employees
connected with the administration of justice, the property and
rights in litigation or levied upon an execution before the court
within whose jurisdiction or territory they exercise their
respective functions; this prohibition includes the act of
acquiring by assignment and shall apply to lawyers, with
respect to the property and rights which may be the object of
any litigation in which they may take part by virtue of their
profession.
(6) Any others specially disqualified by law. (1459a)
Art. 1492. The prohibitions in the two preceding articles are
applicable to sales in legal redemption, compromises and
renunciations. (n)
1. absolute incapacity
Those who have the legal capacity to give consent to contracts
may validly enter into a contract of sale, unless specifically
prohibited by law. However, when necessaries are sold and
delivered to a minor or other incapacitated person, the latter
must pay a reasonable price therefore. Necessaries are those

Art. 96. The administration and enjoyment of the

community property shall belong to both spouses jointly.
In case of disagreement, the husband's decision shall
prevail, subject to recourse to the court by the wife for
proper remedy, which must be availed of within five years
from the date of the contract implementing such
decision.
In the event that one spouse is incapacitated or
otherwise unable to participate in the administration of
the common properties, the other spouse may assume
sole powers of administration. These powers do not
include disposition or encumbrance without authority of
the court or the written consent of the other spouse. In
the absence of such authority or consent, the disposition
or encumbrance shall be void. However, the transaction
shall be construed as a continuing offer on the part of the
consenting spouse and the third person, and may be
perfected as a binding contract upon the acceptance by
the other spouse or authorization by the court before the
offer is withdrawn by either or both offerors. (206a)
Art. 124. The administration and enjoyment of the
conjugal partnership shall belong to both spouses jointly.
In case of disagreement, the husband's decision shall
prevail, subject to recourse to the court by the wife for
proper remedy, which must be availed of within five years
from the date of the contract implementing such
decision.
In the event that one spouse is incapacitated or
otherwise unable to participate in the administration of
the conjugal properties, the other spouse may assume
sole powers of administration. These powers do not
include disposition or encumbrance without authority of
the court or the written consent of the other spouse. In
the absence of such authority or consent, the disposition
or encumbrance shall be void. However, the transaction
shall be construed as a continuing offer on the part of the
consenting spouse and the third person, and may be
perfected as a binding contract upon the acceptance by

the other spouse or authorization by the court before the offer

is withdrawn by either or both offerors. (165a)

judgment (compensation of lawyers payable on a

contingent basis, unless unconscionable).5

b) married persons (as regards contracts between spouses)

5) Examples of other persons especially

disqualified by law are: (1) aliens purchasing
private agricultural lands (Art XII, Secs 3 & 7,
Consti); (2) an unpaid seller having a right of
lien(Art 133 par 5) (Baviera)

Art. 87. Every donation or grant of gratuitous advantage,

direct or indirect, between the spouses during the marriage
shall be void, except moderate gifts which the spouses may
give each other on the occasion of any family rejoicing. The
prohibition shall also apply to persons living together as
husband and wife without a valid marriage. (133a)
Art. 1490. The husband and the wife cannot sell property to
each other, except:
(1) When a separation of property was agreed upon in the
marriage settlements; or
(2) When there has been a judicial separation or property
under Article 191. (1458a)
There is a potential circumvention of the policy of the law if
sales between spouses are allowed if there was a judicial
separation of property, since undue influence is not completely
erased by the separation of property. This prohibition also
applies to common-law unions4. (Villanueva)

III. SUBJECT MATTER

A. Requisites of a valid subject matter
1. must be existing, future, or contingent
Art. 1348. Impossible things or services cannot be the
object of contracts. (1272)
Art. 1462. The goods which form the subject of a
contract of sale may be either existing goods, owned or
possessed by the seller, or goods to be manufactured,
raised, or acquired by the seller after the perfection of
the contract of sale, in this Title called "future goods."

c) special disqualifications (see Articles 1491 and 1492 in the

previous page)

There may be a contract of sale of goods, whose

acquisition by the seller depends upon a contingency
which may or may not happen. (n)

1) It is immaterial that no damage is suffered by the

owner. The contract is void as the law seeks to
prevent said persons from being tempted to take
advantage of their position. They occupy a position
of trust and confidence in relation to the property
under their administration or jurisdiction.

Art. 1347. All things which are not outside the

commerce of men, including future things, may be the
object of a contract. All rights which are not
intransmissible may also be the object of contracts.

2) Agents can not buy the property of their principalj

without the consent of the latter. BROKERS, however,
do not come within the prohibition, as their authority
consists merely in looking for a buyer or seller, and to
bring the latter and his principal together to
consummate the transaction. Of course, after the
agency is terminated, the agent can buy the property
of the principal, which was formerly under his
administration.
3) Although executors and administrators can not buy
the property under their administration, an executor
may buy the hereditary rights of an heir to the estate
under his administration, because the buyer, in such
case, can not get the share of the heir in the estate
until after the administration is ended.
4) With regard to the lawyers, the prohibition does
not apply to other properties of the client, nor to
assignments of the property formerly in litigation
when such assignment will take effect only after final

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)
Emption rei speratai If the parties make the contract
depend upon the existence of a thing, so that if the thing
does not come into existence the contract is considered
as not made ad there is no obligation to pay the price,
such contract is valid under [Art. 1461 (2), CC; it is what
the Roman law designates as emptio rei speratae
(purchase of an expected thing).
Emptio spei If the parties intend the contract to exist
at all events, so that the buyer will have to pay the price
even if the thing does not actually came into existence . .
. it is called emtio spei (purchase of hope or expectancy.
This contract is, however, void under Art. 1461.
(Tolentino)
Art. 1461. Things having a potential existence may be
the object of the contract of sale.

CALIMLIM-CANULLAS V. FORTUN: if transfers or conveyances

between spouses were allowed during marriage, that would destroy the
system of conjugal partnership. It was also designed to prevent the exercise
of undue influence by one spouse over the other, as well as to protect the
institution of marriage, which is the cornerstone of family law. The
prohibitions apply to a couple living as husband and wife without benefit of
marriage, otherwise, "the condition of those who incurred guilt would turn
out to be better than those in legal union."

RUBIAS V. BATILLER: the purchase by a lawyer of the property in

litigation from his client is categorically prohibited by Art. 1491,
paragraph (5) of the Civil Code, and that consequently, plaintiff's
purchase of the property in litigation from his client was void and
could produce no legal effect

The efficacy of the sale of a mere hope or expectancy is

deemed subject to the condition that the thing will come into
existence.

dynamited fish or other aquatic animals, gunpowder,

dynamite, explosives or blasting supplies, firearms or
ammunitions are prohibited by law therefore are illicit.

The sale of a vain hope or expectancy is void. (n)

b) Properties belonging to the State or its political

subdivision which are intended for public use or public
service or for the development of natural wealth are
outside the commerce of man.

Art. 1347. All things which are not outside the commerce of
men, including future things, may be the object of a contract.
All rights which are not intransmissible may also be the object
of contracts.
No contract may be entered into upon future inheritance
except in cases expressly authorized by law.
All services which are not contrary to law, morals, good
customs, public order or public policy may likewise be the
object of a contract. (1271a)
a) Law prohibits sale of future inheritance. The rights to
succession are transmitted from the moment of the death of
the decedent so one cannot sell or promise to sell what he
expects to inherit from a living person. But the law allows an
heir to sell his interests in an inheritance
b) The object of the contract of sale must be licit, meaning
within the commerce of man, and determinate. Determinate
has been expanded to cover generic things, future things and
things in potential existence 6.
c) Things subject to a resolutory condition may be the object
of the contract of sale.(Article 1465)
2. must be licit

c) Churches are also outside the commerce of man.

d) But public property when no longer intended for public
use or service form part of the patrimonial property of
the State and therefore can be leased or sold.
3. must be determinate
Art. 1460. A thing is determinate when it is particularly
designated or physical segregated from all other of the
same class.
The requisite that a thing be determinate is satisfied if at
the time the contract is entered into, the thing is capable
of being made determinate without the necessity of a
new or further agreement between the parties. (n)
a) Determinate v. determinable7: a thing is determinate if
it can be physically segregated, particularly designated;
capable of being made determinate without need of
another agreement. It is determinable if it is capable of
being determined via another agreement.
4. particular kinds

Art. 1347. All things which are not outside the commerce of
men, including future things, may be the object of a contract.
All rights which are not intransmissible may also be the object
of contracts.
No contract may be entered into upon future inheritance
except in cases expressly authorized by law.
All services which are not contrary to law, morals, good
customs, public order or public policy may likewise be the
object of a contract. (1271a)
Art. 1459. The thing must be licit and the vendor must have
a right to transfer the ownership thereof at the time it is
delivered. (n)
Art. 1575. The sale of animals suffering from contagious
diseases shall be void.
A contract of sale of animals shall also be void if the use or
service for which they are acquired has been stated in the
contract, and they are found to be unfit therefor. (1494a)

a) generic things
Art. 1246. When the obligation consists in the delivery
of an indeterminate or generic thing, whose quality and
circumstances have not been stated, the creditor cannot
demand a thing of superior quality. Neither can the
debtor deliver a thing of inferior quality. The purpose of
the obligation and other circumstances shall be taken
into consideration. (1167a)
Art. 1409. The following contracts are inexistent and
void from the beginning:
(6) Those where the intention of the parties relative to
the principal object of the contract cannot be
ascertained;
Generic things could also become subject matters of a
contract of sale provided (1) they have been physically

a) The sale of narcotics or dangerous drugs except upon

prescription, or any wild bird or mammal, or rare wild plants
protected by law or of tubli or other poisonous plants or fruits,
6

PICHEL V. ALONZO: The subject matter of the contract of sale in

question are the fruits of the coconut trees on the land during the years
from September 15, 1968 up to January 1, 1976, which subject matter is a
determinate thing. Under Art. 1461 of the New Civil Code, things having a
potential existence may be the object of the contract of sale;
SIBAL VS. VALDEZ: pending crops which have potential existence may
bethe subject matter of sale.

MELLIZA V. CITY OF ILOILO: The requirement of the law that a

sale must have for its object a determinate thing, is fulfilled as long as,
at the time the contract is entered into, the object of the sale is
capable of being made determinate without the necessity of a new or
further agreement between the parties

segregated8 / particularly designated, and (2) they are

capable of substitution

property subject to the outcome of the litigation.

(Baviera and De Leon)

b) future goods

e. things subject to a resolutory condition

Art. 1462. The goods which form the subject of a contract of

sale may be either existing goods, owned or possessed by the
seller, or goods to be manufactured, raised, or acquired by the
seller after the perfection of the contract of sale, in this Title
called "future goods."

Art. 1465. Things subject to a resolutory condition may

be the object of the contract of sale. (n)

There may be a contract of sale of goods, whose acquisition

by the seller depends upon a contingency which may or may
not happen. (n)

Art. 1349. The object of every contract must be

determinate as to its kind. The fact that the quantity is
not determinate shall not be an obstacle to the existence
of the contract, provided it is possible to determine the
same, without the need of a new contract between the
parties. (1273)

c) sale of undivided interest or share

5. quantity of subject matter9

Art. 1463. The sole owner of a thing may sell an undivided

interest therein. (n)
Art. 1464. In the case of fungible goods, there may be a sale
of an undivided share of a specific mass, though the seller
purports to sell and the buyer to buy a definite number,
weight or measure of the goods in the mass, and though the
number, weight or measure of the goods in the mass is
undetermined. By such a sale the buyer becomes owner in
common of such a share of the mass as the number, weight or
measure bought bears to the number, weight or measure of
the mass. If the mass contains less than the number, weight
or measure bought, the buyer becomes the owner of the
whole mass and the seller is bound to make good the
deficiency from goods
d) sale of things in litigation
Art. 1381. The following contracts are rescissible: (4) Those
which refer to things under litigation if they have been
entered into by the defendant without the knowledge and
approval of the litigants or of competent judicial authority;

IV. OBLIGATION OF THE SELLER TO TRANSFER

OWNERSHIP
A. Sale by a person not the owner
Art. 1636. In the preceding articles in this Title
governing the sale of goods, unless the context or
subject matter otherwise requires:
(1) "Document of title to goods" includes any bill of
lading, dock warrant, "quedan," or warehouse receipt or
order for the delivery of goods, or any other document
used in the ordinary course of business in the sale or
transfer of goods, as proof of the possession or control of
the goods, or authorizing or purporting to authorize the
possessor of the document to transfer or receive, either
by endorsement or by delivery, goods represented by
such document.

Art. 1385. (2) Neither shall rescission take place when the
things which are the object of the contract are legally in the
possession of third persons who did not act in bad faith.

"Goods" includes all chattels personal but not things in

action or money of legal tender in the Philippines. The
term includes growing fruits or crops.

1) Sales of things under litigation entered into by defendants

without the knowledge & approval of the litigants or of the
court are rescissible.
2) However, rescission cannot take place when the things are
legally in the possession of 3 rd persons who did not act in
bad faith (& without knowledge of defect)
3) In an action affecting the title or the right of possession of
real property, the plaintiff may record in the office of the
Registrar of Deeds of the Province which the property is
situated, a notice of the pendency of the action.
4) From the moment of the filing of such notice, 3 rd persons
are charged with notice of the litigation & take the

"Order" relating to documents of title means an order by

endorsement on the documents.

YU TEK V. GONZALEZ: This court has consistently held that there is a

perfected sale with regard to the "thing" whenever the article of sale has
been physically segregated from all other articles. In the case at bar the
undertaking of the defendant was to sell to the plaintiff 600 piculs of sugar
of the first and second classes. There was no delivery under the contract.
Now, if called upon to designate the article sold, it is clear that the
defendant could only say that it was "sugar." He could only use this generic
name for the thing sold. We conclude that the contract in the case at bar
was merely an executory agreement; a promise of sale and not a sale.

"Quality of goods" includes their state or condition.

"Specific goods" means goods identified and agreed upon
at the time a contract of sale is made.
An antecedent or pre-existing claim, whether for money
or not, constitutes "value" where goods or documents of
title are taken either in satisfaction thereof or as security
therefor.
(2) A person is insolvent within the meaning of this Title
who either has ceased to pay his debts in the ordinary
course of business or cannot pay his debts as they
9

SCHUBACK V. CA: Although the quantity to be ordered was made

determinate only on December 29, 1981, quantity is immaterial in the
perfection of a sales contract. What is of importance is the meeting of
the minds as to the object and cause, which from the facts disclosed,
show that as of December 24, 1981, these essential elements had
already concurred.

become due, whether insolvency proceedings have been

commenced or not.
(3) Goods are in a "deliverable state" within the meaning of
this Title when they are in such a state that the buyer would,
under the contract, be bound to take delivery of them. (n)
Art. 559. The possession of movable property acquired in
good faith is equivalent to a title. Nevertheless, one who has
lost any movable or has been unlawfully deprived thereof may
recover it from the person in possession of the same.
If the possessor of a movable lost or which the owner has
been unlawfully deprived, has acquired it in good faith at a
public sale, the owner cannot obtain its return without
reimbursing the price paid therefor. (464a)
Art. 1505. Subject to the provisions of this Title, where goods
are sold by a person who is not the owner thereof, and who
does not sell them under authority or with the consent of the
owner, the buyer acquires no better title to the goods than the
seller had, unless the owner of the goods is by his conduct
precluded from denying the seller's authority to sell.
Nothing in this Title, however, shall affect:
(1) The provisions of any factors' act, recording laws, or any
other provision of law enabling the apparent owner of goods
to dispose of them as if he were the true owner thereof;
(2) The validity of any contract of sale under statutory power
of sale or under the order of a court of competent jurisdiction;
(3) Purchases made in a merchant's store, or in fairs, or
markets, in accordance with the Code of Commerce and
special laws. (n)
Art. 1431. Through estoppel an admission or representation
is rendered conclusive upon the person making it, and cannot
be denied or disproved as against the person relying thereon.
General Rule:
No one can transfer a better title than what he has over the
property sold. Only the owner of the goods or one authorized
by the owner to sell can transfer title thereto to the buyer 10.
Exceptions:

If the owner of the goods is precluded by his conduct

from denying the sellers authority to sell, buyer may
acquire a better title, although the seller had neither the
title nor the authority to sell the goods.
2. Recording Laws; Torrens System PD 1529
None in the Phils. But NCC relies on the general principle
of law that one deals with an agent at his own risk.
3. Court orders
The general principle that the vendor must be the owner
or the one authorized by the owner to sell the goods in
order to pass title over them to the buyer does not apply
when the sale takes place by virtue of a power granted
by law or by a court. Thus a sale by the sheriff, or by
other execution or subject of foreclosure, is valid even if
the owner did not authorize or consent to the sale
(Baviera).
Validity of sale under statutory power (legal sale e.g.
law authorizing sale of patrimonial property to a specific
person at auction) or of court to sell (judicial sale e.g.
writ of execution levying upon the debtors property at
auction)
4. Purchase at a merchants store, market or fair12
Purpose of the exception: (1) to protect innocent
purchasers who buy at merchant stores, market or fair
(2) To facilitate commercial sales in movables (3) To give
stability to business transactions
B. Sale by one having a voidable title
Art. 1506. Where the seller of goods has a voidable title
thereto, but his title has not been avoided at the time of
the sale, the buyer acquires a good title to the goods,
provided he buys them in good faith, for value, and
without notice of the seller's defect of title. (n)
Art. 559. The possession of movable property acquired
in good faith is equivalent to a title. Nevertheless, one
who has lost any movable or has been unlawfully
deprived thereof may recover it from the person in
possession of the same.

1. Estoppel (Art 1505)

Even if the person who sold the thing was not the owner, if he
should
subsequently
acquire
ownership
thereof, his
conveyance is deemed valid & his title passes by operation of
law to the buyer 11
10

AZNAR V. YAPDIANGCO: In the case on hand, the car in question was

never delivered to the vendee by the vendor as to complete or consummate
the transfer of ownership by virtue of the contract. It should be recalled that
while there was indeed a contract of sale between Vicente Marella and
Teodoro Santos, the former, as vendee, took possession of the subject
matter thereof by stealing the same while it was in the custody of the latter's
son. Art. 712 above contemplates that the act be coupled with the intent of
delivering the thing.
11
SIY CONG BIEN V. HSBC: Since plaintiff had voluntarily clothed the
person who negotiated the quedans with all the attributes of ownership and
upon which the bank relied, it is estopped to deny that the bank had a valid
title to the quedans;

JALBUENZA V. LIZARRAGA: Bigelow on Estoppel says: ". . . it is

now a well established principle that where the true owner of property,
for however short a time, holds out another, or, with knowledge of his
own right, allows another to appear, as the owner of or as having full
power of disposition over the property, the same being in the latter's
actual possession, and innocent third parties are thus led into dealing
with some [such] apparent owner, they will be protected." (as cited in
Hernaez vs. Hernaez)
12
SUN BROTHERS V. VELASCO: The policy of the law has always
been that, where the rights and interests of a vendor come into clash
with that of an innocent buyer for value, the latter must be protected.
The rule
appears to be a wise and necessary rule not only to facilitate
commercial sales on movables but to give stabilityto business
transactions.
MASICLAT V. CENTENO: The transaction between Ramon Masiclat
and his unknown seller took place on Miranda Street and not in the
public market and this is . . . conclusive. Hence, Art. 1505 CC,
invoked by the petitioners, has no application.

If the possessor of a movable lost or which the owner has

been unlawfully deprived, has acquired it in good faith at a
public sale, the owner cannot obtain its return without
reimbursing the price paid therefor. (464a)
1.
2.
3.
4.

Seller can transfer a valid title to an innocent purchaser for

value, unless title was annulled.
So long as the goods are still in the possession of the 1st
buyer, they may still be recovered by the vendor in an
action for annulment.
But once it has been transferred to an innocent purchaser
for value before the contract is annulled, the latter
acquired a valid title13.
An antecedent or pre-existing claim, WON for money
constitutes value where goods or document of titloe are
taken in satisfaction thereof or as security therefore
V. PRICE14

Art 1469. Should such person or persons be unable or

unwilling to fix it, the contract shall be inefficacious, unless the
parties subsequently agree upon the price.
If the third person or persons acted in bad faith or by mistake,
the courts may fix the price.
Where such third person or persons are prevented from fixing
the price or terms by fault of the seller or the buyer, the party
not in fault may have such remedies against the party in fault
as are allowed the seller or the buyer, as the case may be.
(1447a)
Art. 1470. Gross inadequacy of price does not affect a
contract of sale, except as it may indicate a defect in the
consent, or that the parties really intended a donation or some
other act or contract. (n)
Art. 1471. If the price is simulated, the sale is void, but the
act may be shown to have been in reality a donation, or some
other act or contract. (n)
Art. 1472. The price of securities, grain, liquids, and other
things shall also be considered certain, when the price fixed is
that which the thing sold would have on a definite day, or in a
particular exchange or market, or when an amount is fixed
above or below the price on such day, or in such exchange or
market, provided said amount be certain. (1448)
Art. 1473. The fixing of the price can never be left to the
discretion of one of the contracting parties. However, if the
13

DE GARCIA V. CA: Respondent Angelina D. Guevara, having been

unlawfully deprived of the diamond ring in question, was entitled to recover
it from petitioner Consuelo S. de Garcia who was found in possession of the
same. The only exception the law allows is when there is acquisition in
good faith of the possessor at a public sale, in which case the owner cannot
obtain its return without reimbursing the price. (Cruz v. Pahati; Aznar v.
Yapdiangco);
REBULLIDA V. BUSTAMANTE: It appearing that the ring in question was
lost or was stolen from the place where the lawful owner deposited it, the
case squarely falls under Art. 464 of the Civil Code, which provides that the
one who has lost personal property or who has been unlawfully deprived of
it may recover it from whoever is possessing it. The mere fact that the
possessor, even in good faith, ad purchased the ring from another person
would not bar the right of the owner to recover it once the identity and the
owners deprivation are established.
14
INCHAUSTI V. CROMWELL: Price is the sum stipulated as the
equivalent of the thing sold and also every incident taken into consideration
for the fixing of the price put to the debit of the buyer and agreed to by him

price fixed by one of the parties is accepted by the other,

the sale is perfected. (1449a)
Art. 1474. Where the price cannot be determined in
accordance with the preceding articles, or in any other
manner, the contract is inefficacious. However, if the thing
or any part thereof has been delivered to and
appropriated by the buyer he must pay a reasonable price
therefor. What is a reasonable price is a question of fact
dependent on the circumstances of each particular case.
(n)
1. A contract of sale is null & void and produces no effect
whatsoever if the same is without cause or
consideration or that the price which appears to have
been paid has in fact never been paid.
2. The existence of a contract is permanent & incurable.
3. The statement of a false cause in contracts shall render
them void if it should not be proven that were founded
upon another cause which is true & lawful (1471, 1353)
4. If the price is simulated, the sale is void but the act
may be shown to have been in reality a donation, or
some other act or contract (1471)
A. Requisites of a valid price
1. must be real
Art. 1471. If the price is simulated, the sale is void, but
the act may be shown to have been in reality a donation,
or some other act or contract. (n)
Art. 1386. Rescission referred to in Nos. 1 and 2 of
Article 1381 shall not take place with respect to contracts
approved by the courts. (1296a)
Art. 1353. The statement of a false cause in contracts
shall render them void, if it should not be proved that
they were founded upon another cause which is true and
lawful. (1276)
Art. 1354. Although the cause is not stated in the
contract, it is presumed that it exists and is lawful, unless
the debtor proves the contrary. (1277)
Art. 1470. Gross inadequacy of price does not affect a
contract of sale, except as it may indicate a defect in the
consent, or that the parties really intended a donation or
some other act or contract. (n)
Art. 1381. The following contracts are rescissible:
(1) Those which are entered into by guardians whenever
the wards whom they represent suffer lesion by more
than one-fourth of the value of the things which are the
object thereof;
(2) Those agreed upon in representation of absentees, if
the latter suffer the lesion stated in the preceding
number;
(3) Those undertaken in fraud of creditors when the
latter cannot in any other manner collect the claims due
them;

(4) Those which refer to things under litigation if they have

been entered into by the defendant without the knowledge
and approval of the litigants or of competent judicial
authority;
(5) All other contracts specially declared by law to be subject
to rescission. (1291a)
1. False Price there is a true price but it was not written
down or stipulated in the contract.
There was a
consideration although it was not found in the contract
(Real consideration not stated)
2. Simulated Price15 There was no price paid. The parties
merely said there was a price and created their own price
(no consideration but stated)
2. must be in money or its equivalent
Art. 1458. By the contract of sale one of the contracting
parties obligates himself to transfer the ownership and to
deliver a determinate thing, and the other to pay therefor a
price certain in money or its equivalent.

Art. 1474. Where the price cannot be determined in

accordance with the preceding articles, or in any other
manner, the contract is inefficacious. However, if the
thing or any part thereof has been delivered to and
appropriated by the buyer he must pay a reasonable
price therefor. What is a reasonable price is a question of
fact dependent on the circumstances of each particular
case. (n)
Art. 1469. In order that the price may be considered
certain, it shall be sufficient that it be so with reference
to another thing certain, or that the determination
thereof be left to the judgment of a special person or
persons.
Should such person or persons be unable or unwilling to
fix it, the contract shall be inefficacious, unless the
parties subsequently agree upon the price.
If the third person or persons acted in bad faith or by
mistake, the courts may fix the price.

A contract of sale may be absolute or conditional. (1445a)

Art. 1468. If the consideration of the contract consists partly
in money, and partly in another thing, the transaction shall be
characterized by the manifest intention of the parties. If such
intention does not clearly appear, it shall be considered a
barter if the value of the thing given as a part of the
consideration exceeds the amount of the money or its
equivalent; otherwise, it is a sale. (1446a)
1.The price should be in money or its equivalent 16 (e.g. letters
of credit & other negotiable instruments). Otherwise, the
transaction might be barter or an innominate contract.
2.Property given to the creditor in satisfaction of a debt in
money with the PRICE PAID IN ADVANCE is a sale.
DATION IN PAYMENT
Presupposes a prior existing
credit & extinguishes the
obligation

3. Must be certain or ascertainable at time of

perfection17

SALE
Obligations are created
from the perfection of the
contract

Where such third person or persons are prevented from

fixing the price or terms by fault of the seller or the
buyer, the party not in fault may have such remedies
against the party in fault as are allowed the seller or the
buyer, as the case may be. (1447a)
Art. 1470. Gross inadequacy of price does not affect a
contract of sale, except as it may indicate a defect in the
consent, or that the parties really intended a donation or
some other act or contract. (n)
Art. 1471. If the price is simulated, the sale is void, but
the act may be shown to have been in reality a donation,
or some other act or contract. (n)
Art. 1472. The price of securities, grain, liquids, and
other things shall also be considered certain, when the
price fixed is that which the thing sold would have on a
definite day, or in a particular exchange or market, or
when an amount is fixed above or below the price on
such day, or in such exchange or market, provided said
amount be certain. (1448)

3. Fixing of the price is more or less arrived at with ample

contractual freedom than the value of the thing given in
dation.

17
15

MAPALO V. MAPALO: a contract of purchase and sale is null and void

and produces no effect whatsoever where the same is without cause or
consideration in that the purchase price which appears thereon as paid has
in fact never been paid by the purchaser to the vendor;
BAGNAS V. CA: upon the consideration alone that the apparent gross, not
to say enormous, disproportion between the stipulated price (in each deed)
of P1.00 plus unspecified and unquantilled services and the undisputably
valuable real estate allegedly sold worth at least P10,500.00 going only
by assessments for tax purposes which, it is well-known, are noteriously
low indicators of actual value plainly and unquestionably demonstrates
that they state a false and fictitious consideration, and no other true and
lawful cause having been shown, the Court finds both said deeds, insofar
as they purport to be sales, not merely voidable, but void ab initio.
16
REPUBLIC V. PHIL. RESOURCES: Although Art. 1458 of the new Civil
Code provides that price . . . is always paid in terms of money and the
supposed payment being in kind it is no payment at all," yet the same article
provides that the purchaser may pay "a price certain in money or its
equivalent" which means that payment of the price need not be money.

TOYOTA SHAW V. CA: Article 1458 of the Civil Code defines a

contract of sale and Art. 1475 specifically provides when it is deemed
perfected. The document (in Exhibit A, see case), executed and
signed by the petitioner's sales representative, is not a contract of
sale. No obligation on the part of Toyota to transfer ownership of a
determinate thing to Sosa and no correlative obligation on the part of
the latter to pay therefor a price certain appears therein. The provision
on the downpayment of P100,000 made no specific reference to a
sale of a vehicle. If it was intended for a contract of sale, it could only
refer to a sale on installment basis, as the VSP executed the following
day confirmed. But nothing was mentioned about the full purchase
price and the manner the installments were to be paid. This Court had
already ruled that a definite agreement on the manner of payment of
the price is an essential element in the formation of a binding and
enforceable contract of sale. This is so because the agreement as to
the manner of payment goes into the price such that a disagreement
on the manner of payment is tantamount to a failure to agree on the
price. Definiteness as to the price is an essential element of a binding
agreement to sell personal property.

Art. 1473. The fixing of the price can never be left to the
discretion of one of the contracting parties. However, if the
price fixed by one of the parties is accepted by the other, the
sale is perfected. (1449a)

above or below the price on such day, or in such

exchange or market, provided said amount be certain.
(1448)
d) by reference to another thing certain

4. Manner of Payment must be agreed upon18

e) never by one party

5. How price is determined

Art. 1469. In order that the price may be considered certain,
it shall be sufficient that it be so with reference to another
thing certain, or that the determination thereof be left to the
judgment of a special person or persons.
Should such person or persons be unable or unwilling to fix it,
the contract shall be inefficacious, unless the parties
subsequently agree upon the price.
If the third person or persons acted in bad faith or by mistake,
the courts may fix the price.
Where such third person or persons are prevented from fixing
the price or terms by fault of the seller or the buyer, the party
not in fault may have such remedies against the party in fault
as are allowed the seller or the buyer, as the case may be.
(1447a)

a) by a third person19
b) by the courts
Art. 1469. (3) If the third person or persons acted in bad
faith or by mistake, the courts may fix the price.
c) by reference to definite day, particular exchange market 20
Art. 1472. The price of securities, grain, liquids, and other
things shall also be considered certain, when the price fixed is
that which the thing sold would have on a definite day, or in a
particular exchange or market, or when an amount is fixed

18

VELASCO V. CA: It is not difficult to glean from the aforequoted

averments that the petitioners themselves admit that they and the
respondent still had to meet and agree on how and when the downpayment and the installment payments were to be paid. Such being the
situation, it cannot, therefore, be said that a definite and firm sales
agreement between the parties had been perfected over the lot in question.
Indeed, this Court has already ruled before that a definite agreement on the
manner of payment of the purchase price is an essential element in the
formation of a binding and enforceable contract of sale. The fact, therefore,
that the petitioners delivered to the respondent the sum of P10,000 as part
of the down-payment that they had to pay cannot be considered as
sufficient proof of the perfection of any purchase and sale agreement
between the parties under Art. 1482 of the new Civil Code;
NAVARRO V. SUGARS PRODUCERS: When the manner of payment of
purchase price is discussed after acceptance,, then such acceptance did
not produce a binding and enforceable contract of sale. There was no
complete meeting of the minds
19
BARRETTO V. SANTA MARINA: It is necessary to a perfected sale that
the parties agree upon the thing sold and that the price be fixed, it being
sufficient for the latter purpose that the price be left to the judgment of a
specified person.
20
Price is certain at the point of perfection by reference to another thing
certain, such as to certain invoices then in existence and clearly identified
by the agreement (MCCOLLOUGH V. AENLLE) or known factors or
stipulated formula (MITSUI V. MANILA)

10

Art. 1473. The fixing of the price can never be left to the
discretion of one of the contracting parties. However, if
the price fixed by one of the parties is accepted by the
other, the sale is perfected. (1449a)
6. Inadequacy of price21
Art. 1355. Except in cases specified by law, lesion or
inadequacy of cause shall not invalidate a contract,
unless there has been fraud, mistake or undue influence.
(n)
Art. 1470. Gross inadequacy of price does not affect a
contract of sale, except as it may indicate a defect in the
consent, or that the parties really intended a donation or
some other act or contract. (n)
Art. 1381. The following contracts are rescissible:
(1) Those which are entered into by guardians whenever
the wards whom they represent suffer lesion by more
than one-fourth of the value of the things which are the
object thereof;
(2) Those agreed upon in representation of absentees, if
the latter suffer the lesion stated in the preceding
number;
(3) Those undertaken in fraud of creditors when the
latter cannot in any other manner collect the claims due
them;
(4) Those which refer to things under litigation if they
have been entered into by the defendant without the
knowledge and approval of the litigants or of competent
judicial authority;
(5) All other contracts specially declared by law to be
subject to rescission. (1291a)
Art. 1602. The contract shall be presumed to be an
equitable mortgage, in any of the following cases:
1) When the price of a sale with right to repurchase is
unusually inadequate;
(2) When the vendor remains in possession as lessee or
otherwise;
(3) When upon or after the expiration of the right to
repurchase another instrument extending the period of
redemption or granting a new period is executed;
(4) When the purchaser retains for himself a part of the
purchase price;
(5) When the vendor binds himself to pay the taxes on
the thing sold;
(6) In any other case where it may be fairly inferred that
the real intention of the parties is that the transaction
shall secure the payment of a debt or the performance of
any other obligation.
21

ERENETE V. BEZORE: That the consideration in the sale was

"cheap" is not a ground for the infirmity of the sale. Inadequacy of
cause in a contract does not of itself invalidate the contract.

In any of the foregoing cases, any money, fruits, or other

benefit to be received by the vendee as rent or otherwise shall
be considered as interest which shall be subject to the usury
laws. (n)

offer lapsed even though the offeree later on was

willing to accept the terms and conditions of the offer.
c) vices vitiating consent
Art. 1330. A contract where consent is given through
mistake, violence, intimidation, undue influence, or fraud
is voidable. (1265a)

VI. FORMATION OF THE CONTRACT OF SALE

PREPARATORY STAGE
1. offer
Art. 1475. The contract of sale is perfected at the moment
there is a meeting of minds upon the thing which is the object
of the contract and upon the price.
From that moment, the parties may reciprocally demand
performance, subject to the provisions of the law governing
the form of contracts. (1450a)

Art. 1331. In order that mistake may invalidate consent,

it should refer to the substance of the thing which is the
object of the contract, or to those conditions which have
principally moved one or both parties to enter into the
contract.
Mistake as to the identity or qualifications of one of the
parties will vitiate consent only when such identity or
qualifications have been the principal cause of the
contract.
A simple mistake of account shall give rise to its
correction. (1266a)

a) form of offer22
The
offer
must
be
certain.
Business
advertisements/advertisements
for
bidders
are
mere
invitations to make an offer, unless otherwise stated.
Art. 1319. Consent is manifested by the meeting of the offer
and the acceptance upon the thing and the cause which are to
constitute the contract. The offer must be certain and the
acceptance absolute. A qualified acceptance constitutes a
counter-offer.

Art. 1338. There is fraud when, through insidious words

or machinations of one of the contracting parties, the
other is induced to enter into a contract which, without
them, he would not have agreed to. (1269)
2. option contract24
Art. 1479. A promise to buy and sell a determinate thing
for a price certain is reciprocally demandable.

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. (1262a)

An accepted unilateral promise to buy or to sell a

determinate thing for a price certain is binding upon the
promissor if the promise is supported by a consideration
distinct from the price. (1451a)

Art. 1325. Unless it appears otherwise, business

advertisements of things for sale are not definite offers, but
mere invitations to make an offer. (n)

Art. 1324. When the offerer has allowed the offeree a

certain period to accept, the offer may be withdrawn at
any time before acceptance by communicating such
withdrawal, except when the option is founded upon a
consideration, as something paid or promised. (n)

Art. 1326. Advertisements for bidders are simply invitations

to make proposals, and the advertiser is not bound to accept
the highest or lowest bidder, unless the contrary appears. (n)

Elements of a valid option contract

b) form of acceptance

1.
2.

1.The acceptance must be absolute23.

2.The acceptance must be plain and unconditional.
3.To bind the offeror, the offeree must comply with the
conditions of the offer. Where the acceptance was not in
accordance with the terms and conditions of the offer, the

CONSENT
SUBJECT MATTER: an option right or accepted
unilateral offer to buy, or an option right or
accepted unilateral offer to sell a determinate
object for a price certain, including the manner
of payment thereof

22

VILLONCO V. BORMAHECO: It is true that an acceptance may contain

a request for certain changes in the terms of the offer and yet be a binding
acceptance. 'So long as it is clear that the meaning of the acceptance is
positively and unequivocally to accept-the offer, whether such request is
granted or not, a contract is formed.' Thus, it was held that the vendor's
change in a phrase of the offer to purchase, which change does not
essentially change the terms of the offer, does not amount to a rejection of
the offer and the tender of a counter-offer
23
ZAYCO V SERRA: In an offer to sell, the acceptance must be plain and
unconditional to have the effect of converting the offer to sell to a perfect
contract. It will not be so if it involves any new proposal, for in that case it
would not mean conformity with the offer, which is what gives rise to the
generation of the contract.

11

24

DE LA CAVADA V DIAZ: An option contract is a privilege existing

in one person, for which he had paid a consideration and which gives
him the right to buy certain merchandise or certain specified property,
from another person, if he chooses, at any time within the agreed
period at a fixed price
LIMSON V CA: An option is not of itself a purchase, but merely
secures the privilege to buy. It is not a sale of property, but a sale of
the right to purchase. Its distinguishing characteristic is that it imposes
no binding obligation on the person holding the option, aside from the
consideration for the offer. Although the consideration of P20,000 was
referred to as earnest money, such was not an earnest money.
Rather, it was an option money.

3.

PRESTATION: a consideration25 separate and distinct

from the purchase price for the option given
It must be in writing. [NOTE that the prescription of
written contracts is 4 years.]

3. right of first refusal26

4. bilateral promise to buy and sell (See Article 1479
supra)
1.
2.
3.
4.

Both parties are bound by his promise, although nothing

has been paid or delivered27.
An executory contract of sale the promise of one is the
consideration for the promise of the other.
In a bilateral promise, it is necessary that the thing be
determinate and the price already fixed.
It gives the right to demand fulfillment of the contract but
does not pass title or dominion over the property.

PERFECTION STAGE28
1. when deviation allowed
The rule that acceptance must be absolute is not really
absolute because certain deviations may be made in the
acceptance. Even with such deviations, the offer will still be
converted into a valid and binding contract.

(1) Where goods are put up for sale by auction in lots,

each lot is the subject of a separate contract of sale.
(2) A sale by auction is perfected when the auctioneer
announces its perfection by the fall of the hammer, or in
other customary manner. Until such announcement is
made, any bidder may retract his bid; and the auctioneer
may withdraw the goods from the sale unless the auction
has been announced to be without reserve.
(3) A right to bid may be reserved expressly by or on
behalf of the seller, unless otherwise provided by law or
by stipulation.
(4) Where notice has not been given that a sale by
auction is subject to a right to bid on behalf of the seller,
it shall not be lawful for the seller to bid himself or to
employ or induce any person to bid at such sale on his
behalf or for the auctioneer, to employ or induce any
person to bid at such sale on behalf of the seller or
knowingly to take any bid from the seller or any person
employed by him. Any sale contravening this rule may be
treated as fraudulent by the buyer. (n)
1.
2.

2. sale by auction
Art. 1476. In the case of a sale by auction:

3.

25

SORIANO V BAUTISTA: An option to buy attached to a real estate

mortgage is a valid stipulation, and the mortgagors promise to sell is
supported by the same consideration as that of the mortgage itself, which is
distinct and from that which would support the sale, an additional amount
having been agreed upon to make up the entire price of P3,900 should the
option be exercised. (NOTE: The significance of this ruling is that it shows
the wide range of consideration that can validly support an option contract,
e.g., the real mortgage itself);
SANCHEZ V RIGOS: (NOTE: The significance of this ruling is that it shows
that the only importance of a consideration for an option is that the option
cannot be withdrawn by the grantor during the stipulated period.)
26
EQUATORIAL REALTY DEVELOPMENT, INC. V MAYFAIR THEATER:
In the present case, no fixed price is stated in the contract of lease of the
property in case of sale. Therefore, it cannot be an option contract; it is
more akin to a right of first refusal, in which no separate consideration is
required as it is already included in the reciprocal obligations of the parties
in the contract of lease. Although it cannot be legally categorized as an
option, it is nevertheless a valid and binding stipulation between the parties.
PARAAQUE KINGS ENTERPRISES V CA: The basis of the right of first
refusal must be the current offer to sell of the seller of offer to purchase of
any prospective buyer. Only after could the owner validly offer to sell the
property to a third person under the same terms as offered to the grantee
27
DE LA CAVADA V DIAZ: A promise made by one party, if in accordance
with the form required by law, may be a good consideration for a promise
made by another. In this case, the defendant promised to convey the land
as soon as they become registered. The plaintiff promised to pay the
defendant the price in accordance with the terms of their contract. An option
contract is a privilege existing in one person for which he had paid a
consideration, which gives him the right to buy during the certain period.
The contract of option, being different from the contract, may be entered
into by the parties upon the consummation of the option, its consideration is
likewise entirely different.
28
FULE V CA: Contracts are perfected by mere consent. From this
moment, the parties are bound not only to fulfillment of what has been
expressly stipulated but also to all consequences which, according to their
nature, may be in keeping with good faith, usage and law. Being
consensual, a contract of sale has the force of law and they are expected to
abide in good faith by their contractual commitments.

12

4.

Contract is perfected when the auctioneer

accepts the bid by the fall of the hammer or
gavel or in any other customary manner.
If auction is announced to be without reserve,
goods cannot be withdrawn from the sale after
the bid is made.
By taking part in the auction and offering
bidding, the buyer voluntarily submitted to the
terms and conditions of the auction sale
announced in the notice.
Puffing/by-bidding means employed by owner
to increase the price of the bids; illegal.

3. earnest money (cf. option money)

Art. 1482. Whenever earnest money is given in a
contract of sale, it shall be considered as part of the price
and as proof of the perfection of the contract. (1454a)
Payment of earnest money considered payment of part
of the price; proof of perfection of the contract; may be
given as a guarantee that the vendee would not back
out.
EARNEST
MONEY
(LIMSON
V.
CA

FOOTNOTE 24)
Part of the purchase price
Given only when there is
already a sale
When given, the buyer is
bound to pay the balance

OPTION MONEY

Distinct consideration for an

option contract
Given when the sale is not
yet perfected
When given, the would-be
buyer is not bound to pay
the balance; he may even
forfeit it

4. place of perfection (See Art. 1319 at page 11)

where the offer was made
FORMALITIES OF THE CONTRACT

1. General rule: form not important

Art. 1483. Subject to the provisions of the Statute of Frauds
and of any other applicable statute, a contract of sale may be
made in writing, or by word of mouth, or partly in writing and
partly by word of mouth, or may be inferred from the conduct
of the parties. (n)
Art. 1358. The following must appear in a public document:
(1) Acts and contracts which have for their object the
creation, transmission, modification or extinguishment of real
rights over immovable property; sales of real property or of
an interest therein a governed by Articles 1403, No. 2, and
1405;
(2) The cession, repudiation or renunciation of hereditary
rights or of those of the conjugal partnership of gains;
(3) The power to administer property, or any other power
which has for its object an act appearing or which should
appear in a public document, or should prejudice a third
person;

EXCEPTIONS TO STATUTE OF FRAUDS

a. When there is a note or memorandum thereof in
writing, and subscribed by the party charged or
his agent
b. When there has been partial consummation
c. When there has been a failure to object to the
presentation of evidence
d. Sales through electronic commerce
b) sale of realty through an agent
Art. 1874. When a sale of a piece of land or any interest
therein is through an agent, the authority of the latter
shall be in writing; otherwise, the sale shall be void. (n)
The agents authority to sell should be in writing;
otherwise, void29.
c) sale of large cattle

(4) The cession of actions or rights proceeding from an act

appearing in a public document.

Sec. 529, Revised Administrative Code. No transfer

of large cattle shall be valid unless the same is registered
and a certificate of transfer obtained as herein provided;
but large cattle under two years of age may be registered
and branded gratis for the purpose of effecting a valid
transfer are made at the same time.

2. Exceptions

Registration is made with the municipal treasurer.

a) Statute of Frauds

d) secondary evidence

Art. 1403. The following contracts are unenforceable, unless

they are ratified:

1. Before secondary evidence may be introduced of the

terms of the sale, due execution and subsequent loss of
the original instrument must be proved.

(2) Those that do not comply with the Statute of Frauds as set
forth in this number. In the following cases an agreement
hereafter made shall be unenforceable by action, unless the
same, or some note or memorandum, thereof, be in writing,
and subscribed by the party charged, or by his agent;
evidence, therefore, of the agreement cannot be received
without the writing, or a secondary evidence of its contents:
(a) An agreement that by its terms is not to be performed
within a year from the making thereof;
(d) An agreement for the sale of goods, chattels or things in
action, at a price not less than five hundred pesos, unless the
buyer accept and receive part of such goods and chattels, or
the evidences, or some of them, of such things in action or
pay at the time some part of the purchase money; but when a
sale is made by auction and entry is made by the auctioneer
in his sales book, at the time of the sale, of the amount and
kind of property sold, terms of sale, price, names of the
purchasers and person on whose account the sale is made, it
is a sufficient memorandum;

2. Due execution may be proved by the testimony of

the person who executed it, the person before whom its
execution was acknowledged, or any person who was
present and saw it executed and delivered, or whom,
after its execution and delivery, saw it and recognized the
signatures, or by a person to whom the parties to the
instrument had previously confessed the execution
thereof.
e) RA 8792 -- Electronic Commerce Act
provisions provided infra)

Sec. 7. Legal Recognition of Electronic documentsElectronic documents shall have the legal effect, validity
or enforceability as any other document or legal writing,
and(a) Where the law requires a document to be in
writing, that requirement is met by an electronic
document if the said electronic document
maintains its integrity and reliability and can be
authenticated so as to be usable for subsequent
reference, in that

(e) An agreement of the leasing for a longer period than one

year, or for the sale of real property or of an interest therein;
Art. 1405. Contracts infringing the Statute of Frauds,
referred to in No. 2 of Article 1403, are ratified by the failure
to object to the presentation of oral evidence to prove the
same, or by the acceptance of benefit under them.
PURPOSE OF STATUTE: to prevent fraud and perjury in the
enforcement of obligations depending for their evidence upon
the unassisted memory of witnesses.

13

(pertinent

29

CITY LITE REALTY V CA: There was no perfected contract

between F.P. Holdings and City Lite. Art. 1874 provides that when the
sale of the piece of land or any interest therein is through an agent,
the authority of the agent shall be in writing; otherwise, the sale shall
be void. The absence of the authority to sell can be determined from
the written memorandum issued by F.P. Holdings president,
requesting Metro Drugs assistance in finding buyers. Final
evaluation, appraisal and acceptance can only be made by F.P.
Holdings.

i. The electronic document has remained

complete and unaltered, apart from the addition
of any endorsement and any authorized change,
or any change which arises in the normal course
of communication, storage and display; and
ii. The electronic document is reliable in the light
of the purpose for which it was generated and in
the light of all relevant circumstances.
(b) Paragraph (a) applies whether the requirement
therein is in the form of an obligation or whether the
law simply provides consequences for the document
not being presented or retained in its original from.
(c) Where the law requires that a document be
presented or retained in its original form, that
requirement is met by an electronic document ifi. There exists a reliable assurance as to the
integrity of the document from the time when it
was first generated in its final from; and
ii. That document is capable of being displayed to
the person to whom it is to be presented:
Provided, That no provision of this Act shall apply
to vary any and all requirements of existing laws
on formalities required in the execution of
documents for their validity.
For evidentiary purposes, an electronic document shall be the
functional equivalent of a written document under existing
laws.
This Act does not modify any statutory any statutory rule
relating to admissibility of electronic data massages or
electronic documents, except the rules relating to
authentication and best evidence.
Sec. 8. Legal Recognition of Electronic Signatures.- An
electronic signature on the electronic document shall be
equivalent to the signature of a person on a written document
if the signature is an electronic signature and proved by
showing that a prescribed procedure, not alterable by the
parties interested in the electronic document, existed under
which(a) A method is used to identify the party sought to
be bound and to indicate said party's access to the
electronic document necessary for his consent or
approval through the electronic signature;
(b) Said method is reliable and appropriate for the
purpose for which the electronic document was
generated or communicated, in the light of all
circumstances, including any relevant agreement;
(c) It is necessary for the party sought to be bound,
in or order to proceed further with the transaction to
have executed or provided the electronic signature;
and
(d) The other party is authorized and enable to verify
the electronic signature and to make the decision to
proceed with the transaction authenticated by the
same.
Sec. 11. Authentication of Electronic Data Messages and
Electronic Documents.- Until the Supreme Court by
appropriate rules shall have so provided, electronic
documents, electronic data messages and electronic

14

signatures, shall be authenticated by demonstrating,

substantiating and validating a claimed identity of a user,
device, or another entity is an information or
communication system, among other ways, as follows;
(a)
The
electronic
signatures
shall
be
authenticated by proof that a letter, character,
number or other symbol in electronic form
representing the persons named in and attached
to or logically associated with an electronic data
message, electronic document, or that the
appropriate methodology or security procedures,
when applicable, were employed or adopted by
such person, with the intention of authenticating
or approving in an electronic data message or
electronic document;
(b) The electronic data message or electronic
document shall be authenticated by proof that an
appropriate security procedure, when applicable
was adopted and employed for the purpose of
verifying the originator of an electronic data
message or electronic document, or detecting
error or alteration in the communication, content
or storage of an electronic document or
electronic data message from a specific point,
which, using algorithms or codes, identifying
words or numbers, encryptions, answers back or
acknowledgement procedures, or similar security
devices.
The Supreme Court may adopt such other authentication
procedures, including the use of electronic notarization
systems as necessary and advisable, as well as the
certificate of authentication on printed or hard copies of
the electronic documents or electronic data messages by
electronic notaries, service providers and other duly
recognized or appointed certification authorities.
The person seeking to introduce an electronic data
message or electronic document in any legal proceeding
has the burden of proving its authenticity by evidence
capable of supporting a finding that the electronic data
message or electronic document is what the person
claims it on be.
In the absence of evidence to the contrary, the integrity
of the information and communication system in which
an electronic data message or electronic document is
recorded or stored may be established in any legal
proceeding
a.) By evidence that at all material times the
information and communication system or other
similar device was operating in a manner that did
not affect the integrity of the electronic data
message or electronic document, and there are
no other reasonable grounds to doubt the
integrity of the information and communication
system,
b.) By showing that the electronic data message
or electronic document was recorded or stored
by a party to the proceedings who is adverse in
interest to the party using it; or
c.) By showing that the electronic data message or
electronic document was recorded or stored in the usual
and ordinary course of business by a person who is not a

ii.

party to the proceedings and who did not act under the
control of the party using the record.

VII. TRANSFER OF OWNERSHIP

As opposed to a Conditional Sale (where title

passes upon full payment or satisfaction of
condition passing of legal title), in sale on return,
title passes on delivery
a.b) sale on approval

A. Manner of transfer

i.

Art. 1477. The ownership of the thing sold shall be

transferred to the vendee upon the actual or constructive
delivery thereof. (n)
Art. 1496. The ownership of the thing sold is acquired by the
vendee from the moment it is delivered to him in any of the
ways specified in Articles 1497 to 1501, or in any other
manner signifying an agreement that the possession is
transferred from the vendor to the vendee. (n)

Title passes in case of goods sent to the buyer

on the hope that the latter will find them
satisfactory and order that type of goods when
the goods are used or when they were retained
beyond a reasonable time
a.c) executory sales

i.
ii.

1. General rule

Ownership of the thing shall not pass until the

price is fully paid
Seller may reserve the right of possession or
ownership in the goods until certain conditions
have been fulfilled

Ownership of thing shall transfer to the vendee upon the

ACTUAL or CONSTRUCTIVE DELIVERY of the thing sold30

b) express reservation

OR: any manner signifying an agreement that possession is

transferred from vendor to vendee (Art. 1496)

Art. 1478. The parties may stipulate that ownership in

the thing shall not pass to the purchaser until he has fully
paid the price. (n)

a.
b.

Contract of sale constitutes a RIGHT to TRANSFER or

ACQUISITION of OWNERSHIP
Delivery is the method of accomplishing this right

2. Exceptions
a) sale on approval, trial, or satisfaction
Art. 1502. When goods are delivered to the buyer "on sale or
return" to give the buyer an option to return the goods
instead of paying the price, the ownership passes to the buyer
of delivery, but he may revest the ownership in the seller by
returning or tendering the goods within the time fixed in the
contract, or, if no time has been fixed, within a reasonable
time. (n)
When goods are delivered to the buyer on approval or on trial
or on satisfaction, or other similar terms, the ownership
therein passes to the buyer:
(1) When he signifies his approval or acceptance to the seller
or does any other act adopting the transaction;
(2) If he does not signify his approval or acceptance to the
seller, but retains the goods without giving notice of rejection,
then if a time has been fixed for the return of the goods, on
the expiration of such time, and, if no time has been fixed, on
the expiration of a reasonable time. What is a reasonable time
is a question of fact.
a.a) sale on return
i.

Ownership passes on delivery but buyer may revest

such ownership to the seller by returning or tendering
goods within the time fixed or within a reasonable
time

30

KUENZIE V. MACKE & CHANDLER: the ownership of personal property

can not be transferred to the prejudice of third persons except by delivery of
the property itself; and that a sale without delivery gives the would-be
purchaser no rights in said property except those of a creditor

15

c) implied reservation
Art. 1503. When there is a contract of sale of specific
goods, the seller may, by the terms of the contract,
reserve the right of possession or ownership in the goods
until certain conditions have been fulfilled. The right of
possession or ownership may be thus reserved
notwithstanding the delivery of the goods to the buyer or
to a carrier or other bailee for the purpose of
transmission to the buyer.
3. Kinds of delivery
a) real delivery
Art. 1497. The thing sold shall be understood as
delivered, when it is placed in the control and possession
of the vendee. (1462a)
Delivered when placed in the control and possession
of the vendee; conveyance of ownership without
prejudice to the right of vendor to claim payment of the
price31
b) constructive delivery
b.a) symbolic
Art. 1498. When the sale is made through a public
instrument, the execution thereof shall be equivalent to
the delivery of the thing which is the object of the
contract, if from the deed the contrary does not appear
or cannot clearly be inferred.
31

BEAN V. CADWALLER: Actual manual delivery of an article sold is

not essential to the passing of the title thereto (art 1450, Civil Code)
unless made so by the terms of the contract or by an understanding of
the parties. The parties to the contract may agree when and on what
conditions the property in the subject of the contract was passed to
the prospective owner

With regard to movable property, its delivery may also be

made by the delivery of the keys of the place or depository
where it is stored or kept. (1463a)

Traditio Brevi Manu33 delivery of movable property

takes place when the vendee had the thing already in his
possession before the sale took place, not as owner but
as lessee, borrower or depositary.
iv) Traditio Constitutum Possessorium

i) delivery by public instrument32

When sale is made through a public instrument, the

EXECUTION thereof shall be equivalent to delivery IF
from the deed the contrary does not appear
o
operates as formal/symbolic delivery
o
authorizes buyer to use such document as proof
of ownership
Symbolic delivery may produce the effect of tradition
if vendor have had such control over the thing sold
that at the moment of the sale, its material delivery
could have been made
GENERAL RULE: he who purchases through a public
instrument should be deemed a possessor in fact
and this presumption should give way before proof to
the contrary
A person must be in ACTUAL POSSESSION to be able
to transfer CONSTRUCTIVE POSSESSION through
public instrument
ii) Traditio Longa Manu

Art. 1499. The delivery of movable property may likewise be

made by the mere consent or agreement of the contracting
parties, if the thing sold cannot be transferred to the
possession of the vendee at the time of the sale, or if the
latter already had it in his possession for any other reason.
(1463a)
Traditio Longa Manu delivery takes place when the thing is
placed in the sight of the purchaser so that he can take
possession of it at pleasure

Art. 1500. There may also be tradition constitutum

possessorium. (n)

In traditio constitutum possessorium, the vendor

remains in possession of the property sold, by
virtue of a lease agreement with the vendee 34.
Vendee became as lessor, the legal possessor
while the vendor is in material possession of the
property in the name and representation of the
vendee.
v) delivery to common carrier

Art. 1503. When there is a contract of sale of specific

goods, the seller may, by the terms of the contract,
reserve the right of possession or ownership in the goods
until certain conditions have been fulfilled. The right of
possession or ownership may be thus reserved
notwithstanding the delivery of the goods to the buyer or
to a carrier or other bailee for the purpose of
transmission to the buyer.
Where goods are shipped, and by the bill of lading the
goods are deliverable to the seller or his agent, or to the
order of the seller or of his agent, the seller thereby
reserves the ownership in the goods. But, if except for
the form of the bill of lading, the ownership would have
passed to the buyer on shipment of the goods, the
seller's property in the goods shall be deemed to be only

iii) Traditio brevi manu

33

32

FLORENDO V. FOZ: It is the material delivery of the property sold which

the defendant must make in compliance with the contract, inasmuch as the
formal delivery de jure was made, according to the provisions of article
1462, 2nd paragraph, of the same code: When the sale should be made by
means of a public instrument, the execution thereof shall be equivalent to
the delivery of the thing which is the object of the contract, if in said
instrument the contrary does not appear or may be clearly inferred. As the
contrary does not appear nor is to be inferred from the public instrument
executed by the defendant, its execution was really a formal or symbolical
delivery of the property sold and authorized the plaintiff to use the tile of
ownership as proof that he was thenceforth the owner of the property;
MASALLO V. CESAR: As Matea Crispino admits, however, that she did not
have possession of the land when she executed and delivered her deed to
plaintiff, the mere execution and delivery of the deed did not constitute a
delivery of possession
SPOUSES VELARDE V. CA: The general rule, therefore, is that the
execution of public instrument has the same legal effects as actual or
physical delivery, i.e., it transfers ownership of the subject matter to the
buyer, and constitutes valid compliance by the seller of his obligations
under the contract of sale.

16

HEIRS OF PEDRO ESCANLAR V. CA: The September 15, 1978

sale of rights, interests and participation as to 1/2 portion pro indiviso
of the two subject lots is a contract of sale for the following reasons:
First, private respondents as sellers did not reserve unto themselves
the ownership of the property until full payment of the unpaid balance
of P225,000.00. Second, there is no stipulation giving the sellers the
right to unilaterally rescind the contract the moment the buyer fails to
pay within the fixed period. 24 Prior to the sale, petitioners were in
possession of the subject property as lessees. Upon sale to them of
the rights, interests and participation as to the 1/2 portion pro indiviso,
they remained in possession, not in concept of lessees anymore but
as owners now through symbolic delivery known as traditio brevi
manu. Under Article 1477 of the Civil Code, the ownership of the thing
sold is acquired by the vendee upon actual or constructive delivery
thereof
34
BAUTISTA V SIOSON: Even if the vendor sells the property again
to another, the second purchaser cannot acquire ownership as he
bought the property from a mere tenant. In a case which frequently
occurs, where the vendor, on the same date on which the deed of
sale is executed, by means of a constitutum possessorium agreement
converts himself into a tenant or lessee of the property that he sold,
and continues in possession thereof as such tenant, the purchaser
who acquired the property through delivery or symbolic tradition, with
all the consequent effects of a deed of conveyance, is deemed to be
in possession thereof by the express will of the contracting parties,
and therefore, it must be recognized that, through such constitutum
possessorium agreement, the purchaser, who by that covenant
becomes the lessor, is in lawful possession of the leased property,
and that the vendor, by the same covenant, converted himself into the
lessee and is in material possession of the leased property in the
name and representation of the purchaser, its lawful owner.

for the purpose of securing performance by the buyer of his

obligations under the contract.

Where goods are shipped, and by the bill of lading the goods
are deliverable to order of the buyer or of his agent, but
possession of the bill of lading is retained by the seller or his
agent, the seller thereby reserves a right to the possession of
the goods as against the buyer.
Where the seller of goods draws on the buyer for the price
and transmits the bill of exchange and bill of lading together
to the buyer to secure acceptance or payment of the bill of
exchange, the buyer is bound to return the bill of lading if he
does not honor the bill of exchange, and if he wrongfully
retains the bill of lading he acquires no added right thereby. If,
however, the bill of lading provides that the goods are
deliverable to the buyer or to the order of the buyer, or is
indorsed in blank, or to the buyer by the consignee named
therein, one who purchases in good faith, for value, the bill of
lading, or goods from the buyer will obtain the ownership in
the goods, although the bill of exchange has not been
honored, provided that such purchaser has received delivery
of the bill of lading indorsed by the consignee named therein,
or of the goods, without notice of the facts making the
transfer wrongful. (n)
Art. 1523. Where, in pursuance of a contract of sale, the
seller is authorized or required to send the goods to the buyer,
delivery of the goods to a carrier, whether named by the
buyer or not, for the purpose of
Unless otherwise agreed, where goods are sent by the seller
to the buyer under circumstances in which the seller knows or
ought to know that it is usual to insure, the seller must give
such notice to the buyer as may enable him to insure them
during their transit, and, if the seller fails to do so, the goods
shall be deemed to be at his risk during such transit. (n)

GENERAL RULE: Delivery of goods to carrier is

considered delivery to the buyer, and hence, title
passed to the buyer at the point of shipment

EXCEPTION: Seller may reserve title by the form of

the bill of lading with intent to remain the owner for
all purposes and not merely for the sole purpose of
securing payment, or unless contrary intent appears
in the contract of sale
a.

Terms, f.o.b.; c.i.f.; f.a.s.

i.

f.o.b. - free on board means that the seller

bears expenses of transportation up to the f.o.b.
point.

ii.

c.i.f. - cost, insurance, freight signifies that the

price quoted includes the costs of the goods,
insurance, and freight charges on the goods up to
the place of destination

iii.

Best indication of the intention of parties as to

the place of delivery is the manner and place of
payment agreed upon by the parties
o

Where price is payable upon proof of

shipment, then the buyer agrees to accept
delivery at the point of shipment
Where the price is payable only upon arrival
of the goods at the point of destination, then
that is the place of delivery to the buyer
vi) effect of form of bill of lading

Ownership is retained: The seller may consign

the goods to himself or to his agent and thus
prevent title from passing to the buyer until the
latter pays the price
Mere possession is retained: The seller may
consign the goods to the order of the buyer on
the latters agent but by retaining the bill of
lading, he thereby prevents the buyer from
obtaining the goods from the carrier until price is
paid

4. Double Sales
Art. 1544. If the same thing should have been sold to
different vendees, the ownership shall be transferred to
the person who may have first taken possession thereof
in good faith, if it should be movable property.
Should it be immovable property, the ownership shall
belong to the person acquiring it who in good faith first
recorded it in the Registry of Property.
Should there be no inscription, the ownership shall
pertain to the person who in good faith was first in the
possession; and, in the absence thereof, to the person
who presents the oldest title, provided there is good
faith. (1473)
If the same thing should have been sold by the owner to
different buyers, the question as to who of the latter
acquired ownership depends on the nature of the thing
sold.
a) General Rule Prior tempore, prior jure35
b) sale of movables36

f.a.s. free alongside means that the seller

bears the expenses of transportation until he
delivers the goods alongside a vessel at a named
post.

These terms may be used only in connection with

fixing the price and will not be construed as fixing the
place of delivery to the buyer

17

Art. 1544 (1). If the same thing should have been sold
to different vendees, the ownership shall be transferred

35

CARBONELL V CA: Jose Poncio sold his lot to Carbonell on 27

Jan 1955 and 4 days later sold the same property to Infante. A formal
deed of sale was executed in favor of Infante. Carbonell, upon seeing
Infante building a wall around the lot, registered an adverse claim on
the property. The deed of sale in favor of Infante was later registered
and the latter was thereafter in possession of the lot. Held: The
second sale was not valid. As there in inscription, prior registration in
good faith is pre-condition to a superior title. Carbonell registered her
adverse claim four days before the registration of the property by
Infante.
36
RIVERA V ONG: Ong Che has a better title to the property (over
which he and Rivera had overlapping claims). He was a purchaser of
the articles in good faith, acquired possession by virtue of his
purchase, and therefore has a better title than the first purchaser.

to the person who may have first taken possession thereof in

good faith, if it should be movable property.
c) sale of immovables
Art. 1544 (2). Should it be immovable property, the
ownership shall belong to the person acquiring it who in good
faith first recorded it in the Registry of Property.

To be entitled to priority, the second buyer must not

only show prior recording of his deed but must have
acted in good faith, without knowledge of the
existence of another alienation by the vendor to
another

POSSESSOR IN GOOD FAITH: one who is not aware

that there exists in his title or mode of acquisition any
flaw which invalidates it

o
o

good faith is always presumed;

burden of proof is on person alleging bad faith
good faith of second buyer must
continue until his contract ripens into ownership
by tradition or recording
as to Torrens title: it is enough that
purchaser examines the latest certificate of title
issued in the name of his vendor and he need not
trace its origin to prior certificates of title

d) Sale by virtue of execution or attachment

1.

2.

3.

GENERAL RULE: Article 1544 not applicable to execution

sales because the purchaser at such sales is substituted to
or acquires whatever rights, title or interests the judgment
debtor may have over the property as of the time of levy.
[It is the duty of the purchaser, before bidding, to
ascertain the rights of the judgment debtor over the
property.]
EXCEPTION: Attachment or execution cannot prejudice
prior unrecorded sales made by the judgment debtor, and
is preferred only over claims contracted subsequent to its
recording
EXCEPTION TO THE EXCEPTION: Above rule does not
apply to lands registered under Act 496 which provides
that registration of instruments shall be the operative act
to convey and affect the land; hence, prior unrecorded
sale cannot prejudice execution sales if no third-party
claim was presented before the execution sale took place.
[Third persons are not required to go beyond the register
and determine the condition of the property.]

document, the date, hour and minute it was presented

and received. The recording of the deed and other
instruments relating to unregistered lands shall be
effected by any of annotation on the space provided
therefor in the Registration Book, after the same shall
have been entered in the Primary Entry Book.
(b) If, on the face of the instrument, it appears that it is
sufficient in law, the Register of Deeds shall forthwith
record the instrument in the manner provided herein. In
case the Register of Deeds refuses its administration to
record, said official shall advise the party in interest in
writing of the ground or grounds for his refusal, and the
latter may appeal the matter to the Commissioner of
Land Registration in accordance with the provisions of
Section 117 of this Decree. It shall be understood that
any recording made under this section shall be without
prejudice to a third party with a better right.
(c) After recording on the Record Book, the Register of
Deeds shall endorse among other things, upon the
original of the recorded instruments, the file number and
the date as well as the hour and minute when the
document was received for recording as shown in the
Primary Entry Book, returning to the registrant or person
in interest the duplicate of the instrument, with
appropriate annotation, certifying that he has recorded
the instrument after reserving one copy thereof to be
furnished the provincial or city assessor as required by
existing law.
(d) Tax sale, attachment and levy, notice of lis pendens,
adverse claim and other instruments in the nature of
involuntary dealings with respect to unregistered lands, if
made in the form sufficient in law, shall likewise be
admissible to record under this section.
(e) For the services to be rendered by the Register of
Deeds under this section, he shall collect the same
amount of fees prescribed for similar services for the
registration of deeds or instruments concerning
registered lands.

e) Unregistered land
P.D. 1529, Sec. 113. Recording of instruments relating to
unregistered lands. - No deed, conveyance, mortgage, lease,
or other voluntary instrument affecting land not registered
under the Torrens system shall be valid, except as between
the parties thereto, unless such instrument shall have been
recorded in the manner herein prescribed in the office of the
Register of Deeds for the province or city where the land lies.
(a) The Register of Deeds for each province or city shall keep
a Primary Entry Book and a Registration Book. The Primary
Entry Book shall contain, among other particulars, the entry
number, the names of the parties, the nature of the

18

37

Registration requirement is understood to be without

prejudice to third party with a better right37
Mere registration of sale in ones favor does not give
him any right over the land:
o if the vendor was not the owner of the land
o if the vendor has already parted with his
ownership before such sale in favor of third party
who had previously taken possession of the land,
even though the prior sale was unrecorded
A person having a better right would be one who had
previously acquired ownership thereof through the
modes of acquiring ownership under the Civil Code:
tradition as a result of sale, donation, succession and
prescription38

NAAWAN RURAL BANK V. CA: It is a well-known rule in this

jurisdiction that persons dealing with registered land have the legal
right to rely on the face of the Torrens Certificate of Title and to
dispense with the need to inquire further, except when the party
concerned has actual knowledge of facts and circumstances that
would impel a reasonably cautious man to make such inquiry.
38
HANOPOL V PILAPIL: A better right which is unrecorded and
which would prevail over a recorded sale is one which was gained
independently of the sale, as title by prescription.

f) First in possession in good faith

If neither vendee registered the sale in his favor or
registration was done in bad faith, the vendee who was first in
possession in good faith acquired ownership of the land 39
g) Oldest title
1.

2.
3.

If neither of the vendees registered their deeds of sale nor

acquired possession of the land sold, the one who can
present the oldest title provided there is good faith, has
the better right.
Older title means any document showing acquisition of
the land in good faith, like a deed of sale or a receipt for
the price;
Public document is not included as there is delivery thru a
public instrument, unless the contrary can be clearly
inferred therefrom

perished in part or have wholly or in a material part so

deteriorated in quality as to be substantially changed in
character, the buyer may at his option treat the sale:
(1) As avoided; or
(2) As valid in all of the existing goods or in so much
thereof as have not deteriorated, and as binding the
buyer to pay the agreed price for the goods in which the
ownership will pass, if the sale was divisible. (n)
a)

b)
c)

VIII. RISK OF LOSS OR DETERIORATION

If at the time the sale is perfected, the thing had

been lost entirely, the contract shall be
ineffective. This is because there can be no
contract without an object.
The loss must have occurred before the contract
was entered into, without the knowledge of both
parties.
Options of buyer when there is partial loss and a
loss which results in substantial change in
character
O Withdraw from the contract
O Buy the remainder at a proportionate price

A. General rule
Art. 1263. In an obligation to deliver a generic thing, the loss
or destruction of anything of the same kind does not
extinguish the obligation. (n)
An obligation to deliver a generic thing is not extinguished by
loss because genus never perishes.
NOTE that the next 3 situations contemplate loss of specific
things
1. When loss occurs before perfection
When loss occurred before perfection, it is borne by the seller.
This is because ownership is still with him40.
2. When loss occurs at the time of perfection
Art. 1493. If at the time the contract of sale is perfected, the
thing which is the object of the contract has been entirely lost,
the contract shall be without any effect.
But if the thing should have been lost in part only, the vendee
may choose between withdrawing from the contract and
demanding the remaining part, paying its price in proportion
to the total sum agreed upon. (1460a)
Art. 1494. Where the parties purport a sale of specific goods,
and the goods without the knowledge of the seller have
39

SANCHEZ V RAMOS: Delivery may be actual or constructive. Thus, if

the first sale is evidenced in a public instrument, there is delivery of the
thing sold, if the contrary does not appear in the deed.
QUIMSON V ROSETE: Possession includes not only material but also
symbolic possession which is acquired through the execution of a public
instrument. As the land was considered delivered by the execution of the
public instrument, the vendor remained in possession by mere tolerance of
the first vendee. Hence, when the land was sold again to defendant, the
vendor did not transmit anything to him, and the possession of the latter
was a mere detainer. The first vendee acquired ownership by delivery thru
the execution of a public instrument.
40
ROMAN V GRIMALT: The sale was not perfected as the buyer agreed to
buy the vessel, provided that the title was in proper form. As the vendor
failed to perfect his title, the loss was borne by him

19

3. When loss occurs after perfection but before

delivery
Art. 1496. The ownership of the thing sold is acquired
by the vendee from the moment it is delivered to him in
any of the ways specified in Articles 1497 to 1501, or in
any other manner signifying an agreement that the
possession is transferred from the vendor to the vendee.
(n)
Art. 1504. Unless otherwise agreed, the goods remain at
the seller's risk until the ownership therein is transferred
to the buyer, but when the ownership therein is
transferred to the buyer the goods are at the buyer's risk
whether actual delivery has been made or not, except
that:
(1) Where delivery of the goods has been made to the
buyer or to a bailee for the buyer, in pursuance of the
contract and the ownership in the goods has been
retained by the seller merely to secure performance by
the buyer of his obligations under the contract, the goods
are at the buyer's risk from the time of such delivery;
(2) Where actual delivery has been delayed through the
fault of either the buyer or seller the goods are at the
risk of the party in fault. (n)
Art. 1406. When a contract is enforceable under the
Statute of Frauds, and a public document is necessary for
its registration in the Registry of Deeds, the parties may
avail themselves of the right under Article 1357.
Art. 1189. When the conditions have been imposed with
the intention of suspending the efficacy of an obligation
to give, the following rules shall be observed in case of
the improvement, loss or deterioration of the thing during
the pendency of the condition:
(1) If the thing is lost without the fault of the debtor, the
obligation shall be extinguished;

(2) If the thing is lost through the fault of the debtor, he shall
be obliged to pay damages; it is understood that the thing is
lost when it perishes, or goes out of commerce, or disappears
in such a way that its existence is unknown or it cannot be
recovered;
(3) When the thing deteriorates without the fault of the
debtor, the impairment is to be borne by the creditor;
(4) If it deteriorates through the fault of the debtor, the
creditor may choose between the rescission of the obligation
and its fulfillment, with indemnity for damages in either case;
(5) If the thing is improved by its nature, or by time, the
improvement shall inure to the benefit of the creditor;
(6) If it is improved at the expense of the debtor, he shall
have no other right than that granted to the usufructuary.
(1122)
Art. 1538. In case of loss, deterioration or improvement of
the thing before its delivery, the rules in Article 1189 shall be
observed, the vendor being considered the debtor. (n)
When loss occurs after perfection but before delivery, the
seller bears the risk of loss. The buyer does not bear the risk
of loss until the goods are delivered, actually or constructively.
This is because the rule is a combination of the common-law
rule that the owner bears the risk of loss (res perit domino),
and the Roman law requiring delivery to transfer ownership.
B. When ownership is transferred
GENERAL RULES:

3. Delay through the fault of the buyer or the seller 43 at

the risk of the party at fault
IX. DOCUMENTS OF TITLE
Document of title a document used in the ordinary
course of business in the sale or transfer of goods, as
proof of the possession or control of the goods, or
authorizing or purporting to authorize the possessor of
the document to transfer or receive, either by
endorsement or by delivery, goods represented by such
document. (Art. 1636)44
The functions of documents of title are (1) Evidence of
the possession or control of the goods described therein
(2) Medium of transferring title and possession over the
goods described therein without having to effect actual
delivery thereof (Villanueva)
Art. 1511. A document of title which is not in such form
that it can be negotiated by delivery may be transferred
by the holder by delivery to a purchaser or donee. A nonnegotiable document cannot be negotiated and the
endorsement of such a document gives the transferee no
additional right. (n)
1. Negotiable documents of title
Art. 1507. A document of title in which it is stated that
the goods referred to therein will be delivered to the
bearer, or to the order of any person named in such
document is a negotiable document of title. (n)
Negotiable document of title a document of title in
which it is stated that the goods referred to therein will
be delivered to the bearer, or to the order of any person
named in such document.

1. The risk of loss shall be borne by the owner.

2. Ownership is transferred upon delivery.
EXCEPTIONS:

a) how negotiated

1. Contrary stipulation41
2. Security title42

Art. 1508. A negotiable document of title may be

negotiated by delivery:

41

SUN BROS. APPLIANCES V PEREZ: The law allows an agreement

which stipulates that (1) where goods are sold and delivered to the buyer,
the title is to remain in the seller until full payment, [but] (2) the loss or
destruction of the property while in the possession of the buyer before
payment, does not relieve him from the obligation to pay the price; in which
case, the buyer suffers the loss. The reasons for its validity are: First, the
absolute and unconditional nature of the vendees promise to pay for the
goods. Second, the vendor has fully performed his contract and the vendee
received what he bargained for. Third, the policy of providing an incentive to
care properly for the goods, which is under the control and dominion of the
vendee.
42
LAWYERS COOP. V TABORA: Despite the loss of the books in a fire,
the risk of loss would be borne by the buyer although he was not the owner
yet. This is because the stipulation ownership shall only be transferred
upon full payment was agreed merely to secure the performance by the
buyer of his obligation. Moreover, in the contract, it was agreed that loss or
damage to the books after delivery to the buyer shall be borne by the buyer.
While under the rule, an obligor should be exempt from liability when the
loss occurs in a fortuitous event, this cannot be used by the buyer as a
defense to exempt himself from paying. His obligation does not pertain to
the delivery of the subject matter, but to the payment of the purchase price.
The ability to pay in money or legal tender is never lost through a fortuitous
event.

20

(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; or
(2) Where by the terms of the document the carrier,
warehouseman or other bailee issuing the same
undertakes to deliver the goods to the order of a
specified person, and such person or a subsequent
endorsee of the document has indorsed it in blank or to
the bearer.

43

NORTH NEGROS SUGAR CO. V CIA. GEN DE TABACOS: If

there was delay in accepting delivery but there was segregation of
goods, such that place of delivery was at the sellers warehouse, the
buyer bears the risk of loss. This is because the seller becomes
merely a depositary.
44
PHIL. TRUST CO. V NATIONAL BANK: The purpose of
documents of title is that the seller is allowed by fiction of law to deal
with the goods described therein as though he had physically
delivered them to the buyer; and the buyer may take the document of
title as though he had actually taken possession and control over the
goods described therein

Where by the terms of a negotiable document of title the

goods are deliverable to bearer or where a negotiable
document of title has been indorsed in blank or to bearer, any
holder may indorse the same to himself or to any specified
person, and in such case the document shall thereafter be
negotiated only by the endorsement of such endorsee. (n)
Art. 1509. A negotiable document of title may be negotiated
by the endorsement of the person to whose order the goods
are by the terms of the document deliverable. Such
endorsement may be in blank, to bearer or to a specified
person. If indorsed to a specified person, it may be again
negotiated by the endorsement of such person in blank, to
bearer or to another specified person. Subsequent
negotiations may be made in like manner. (n)
Art. 1510. If a document of title which contains an
undertaking by a carrier, warehouseman or other bailee to
deliver the goods to bearer, to a specified person or order of a
specified person or which contains words of like import, has
placed upon it the words "not negotiable," "non-negotiable" or
the like, such document may nevertheless be negotiated by
the holder and is a negotiable document of title within the
meaning of this Title. But nothing in this Title contained shall
be construed as limiting or defining the effect upon the
obligations of the carrier, warehouseman, or other bailee
issuing a document of title or placing thereon the words "not
negotiable," "non-negotiable," or the like. (n)

TERMS OF THE DOCUMENT

Goods are deliverable to bearer
Endorsed in blank by the person
to whose order the goods were
deliverable
Goods are deliverable to the order
of a specified person

HOW
NEGOTIATED
By delivery of the
document
to
another
By indorsement of
such person

the document as fully as if such bailee had contracted

directly with him. (n)
A person to whom a document has been negotiated
acquires
1. rights of the vendor
2. rights of the original consignee
Thus, a buyer of a document of title may acquire a better
title than his vendor, since he acquires the rights of the
original consignee.
d) Unauthorized negotiation
Art. 1518. The validity of the negotiation of a negotiable
document of title is not impaired by the fact that the
negotiation was a breach of duty on the part of the
person making the negotiation, or by the fact that the
owner of the document was deprived of the possession of
the same by loss, theft, fraud, accident, mistake, duress,
or conversion, if the person to whom the document was
negotiated or a person to whom the document was
subsequently negotiated paid value therefor in good faith
without notice of the breach of duty, or loss, theft, fraud,
accident, mistake, duress or conversion. (n)
There is a conflict between Art. 1512 and Art. 1518 since
under Art. 1512, only the owner of the document or one
to whom possession of the document has been entrusted
may negotiate it. However, under Art. 1518, the validity
of the negotiation of a negotiable document of title is not
impaired by the fact that the negotiation was a breach of
duty on the part of the person making the negotiation, or
by the fact that the owner of the document was deprived
of the possession of the same by loss, theft, fraud,
accident, mistake, duress, or conversion. (Baviera)
e) implied warranties

b) who may negotiate it

Art. 1512. A negotiable document of title may be negotiated:
(1) By the owner therefor; or
(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 in such form
that it may be negotiated by delivery. (n)
c) rights acquired by negotiation
Art. 1513. A person to whom a 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 the
person to whose order the goods were to be delivered by the
terms of the document had or had ability to convey to a
purchaser in good faith for value; and
(2) The direct obligation of the bailee issuing the document to
hold possession of the goods for him according to the terms of

21

Art. 1516. A person who for value negotiates or

transfers a document of title by endorsement or delivery,
including one who assigns for value a claim secured by a
document of title unless a contrary intention appears,
warrants:
(1) That the document is genuine;
(2) That he has a legal right to negotiate or transfer it;
(3) That he has knowledge of no fact which would impair
the validity or worth of the document; and
(4) That he has a right to transfer the title to the goods
and that the goods are merchantable or fit for a
particular purpose, whenever such warranties would have
been implied if the contract of the parties had been to
transfer without a document of title the goods
represented thereby. (n)
Art. 1517. The endorsement of a document of title shall
not make the endorser liable for any failure on the part of
the bailee who issued the document or previous
endorsers thereof to fulfill their respective obligations.
(n)
A person who negotiates a document of title warrants

1. the genuineness and validity of the document;

2. his right to negotiate it; and,
3. all the warranties of a vendor of goods.

or a subsequent purchaser from the transfer of a

subsequent sale of the goods by the transferor. (n)
b) rights acquired by transfer of document of title

But he does not warrant that

1. the common carrier will fulfill its obligation to the deliver
the goods; or
2. the previous indorsers will fulfill their obligation.
f) creditors right against the goods
Art. 1519. If goods are delivered to a bailee by the owner or
by a person whose act in conveying the title to them to a
purchaser in good faith for value would bind the owner and a
negotiable document of title is issued for them they cannot
thereafter, while in possession of such bailee, be attached by
garnishment or otherwise or be levied under an execution
unless the document be first surrendered to the bailee or its
negotiation enjoined. The bailee shall in no case be compelled
to deliver up the actual possession of the goods until the
document is surrendered to him or impounded by the court.
(n)
Art. 1520. A creditor whose debtor is the owner of a
negotiable document of title shall be entitled to such aid from
courts of appropriate jurisdiction by injunction and otherwise
in attaching such document or in satisfying the claim by
means thereof as is allowed at law or in equity in regard to
property which cannot readily be attached or levied upon by
ordinary legal process. (n)

Art. 1515. Where a negotiable document of title is

transferred for value by delivery, and the endorsement of
the transferor is essential for negotiation, the transferee
acquires a right against the transferor to compel him to
endorse the document unless a contrary intention
appears. The negotiation shall take effect as of the time
when the endorsement is actually made. (n)
The law makes a distinction between negotiation
[negotiable document of title] and transfer [nonnegotiable document of title].
Transfer the assignment of rights of the
consignee of a non-negotiable document of title
to another
where an order document of title was
sold or
assigned, without indorsement
The transferee does not acquire a better title than his
transferor [unlike in a negotiable document of title,
where the buyer may acquire a better title].

X. REMEDIES OF AN UNPAID SELLER

Goods in the hands of the carrier covered by a negotiable

document cannot be attached or levied upon, UNLESS

MEANING OF UNPAID SELLER

1. the document be first surrendered to the carrier; or

2. impounded by the court; or
3. its negotiation be enjoined.

Art 1524. The seller of goods is deemed to be an

unpaid seller within the meaning of this Title:

Rationale for the rule:

A negotiable document of title represents the goods; hence it
is not allowable for a carrier to deliver the goods without the
surrender of the bill of lading to them, or for the law to allow
attachment on the goods.
2. Non-negotiable documents of title
a) how transferred
Art. 1514. A person to whom a document of title has been
transferred, but not negotiated, acquires thereby, as against
the transferor, the title to the goods, subject to the terms of
any agreement with the transferor.
If the document is non-negotiable, such
the right to notify the bailee who issued
transfer thereof, and thereby to acquire
of such bailee to hold possession of
according to the terms of the document.

person also acquires

the document of the
the direct obligation
the goods for him

Prior to the notification to such bailee by the transferor or

transferee of a non-negotiable document of title, the title of
the transferee to the goods and the right to acquire the
obligation of such bailee may be defeated by the levy of an
attachment of execution upon the goods by a creditor of the
transferor, or by a notification to such bailee by the transferor

22

(1) When the whole of the price has not been paid or
tendered;
(2) When a bill of exchange or other negotiable
instrument has been received as conditional payment,
and the condition on which it was received has been
broken by reason of the dishonor of the instrument, the
insolvency of the buyer, or otherwise.
In Articles 1525 to 1535 the term "seller" includes an
agent of the seller to whom the bill of lading has been
indorsed, or a consignor or agent who has himself paid,
or is directly responsible for the price, or any other
person who is in the position of a seller. (n)
a) Unpaid seller if the whole price has not been paid or
tendered, or when the check received as conditional
payment was dishonored by non-payment or insolvency
of the buyer.
b) seller includes the agent of the seller to whom the
bill of lading was endorsed, or the consignor or agent
who had paid the price or is responsible for the price, or
any other person who is in the position of a seller.
REMEDIES OF AN UNPAID SELLER
Art 1526. Subject to the provisions of this Title,
notwithstanding that the ownership in the goods may

have passed to the buyer, the unpaid seller of goods, as such,

has:
(1) A lien on the goods or right to retain them for the price
while he is in possession of them;

(2) When the buyer or his agent lawfully obtains

possession of the goods;
(3) By waiver thereof.

(2) In case of the insolvency of the buyer, a right of stopping

the goods in transitu after he has parted with the possession
of them;

The unpaid seller of goods, having a lien thereon, does

not lose his lien by reason only that he has obtained
judgment or decree for the price of the goods. (n)

(3) A right of resale as limited by this Title;

a) The unpaid sellers lien implies that he has a right to

retain possession of the goods until payment or tender of
the whole price, unless he agreed to sell on credit.

(4) A right to rescind the sale as likewise limited by this Title.

Where the ownership in the goods has not passed to the
buyer, the unpaid seller has, in addition to his other remedies
a right of withholding delivery similar to and coextensive with
his rights of lien and stoppage in transitu where the ownership
has passed to the buyer. (n)

b) If the unpaid seller agrees to sell on credit, he may

refuse to deliver them if the buyer becomes insolvent, or
if the term of the credit had expired and the price has not
been paid.

a) If ownership over the goods had not yet passed to the

buyer: the seller, as owner, could retain the goods or resell
them to another, without prejudice to his liability for damages
for any breach of contract committed by him.

c) Loss of lien: the unpaid seller losses his lien when:

1. he delivers the goods to the carrier or other bailee,
consigning them to the buyer under a straight or nonnegotiable bill of lading, or
2. when the goods were delivered to the buyer, or
3. when he waived his lien.

b) If ownership had passed to the buyer but the goods are

still in the possession of the seller or are in transit to the
buyer: the unpaid seller could withhold delivery or stop the
goods in transit should the buyer become insolvent. As a
consequence of his lien over the goods, the unpaid seller
could resell the goods to another or resume ownership over
them, without court order, and may still used the buyer for
damages
1. Lien

d) It is not lost on the remainder of the goods when only

partial delivery was made, unless such was intended to
operate as symbolical delivery of the whole. The lien is
not lost by the mere fact that the seller had already
obtained judgment for the price.
e) Revival of lien: the unpaid sellers lien is revived if the
goods are returned by the buyer in wrongful repudiation
of the contract.
2. Stoppage in Transitu

Art 1527. Subject to the provisions of this Title, the unpaid

seller of goods who is in possession of them is entitled to
retain possession of them until payment or tender of the price
in the following cases, namely:
(1) Where the goods have been sold without any stipulation
as to credit;
(2) Where the goods have been sold on credit, but the term of
credit has expired;
(3) Where the buyer becomes insolvent.
The seller may exercise his right of lien notwithstanding that
he is in possession of the goods as agent or bailee for the
buyer. (n)
Art 1528. Where an unpaid seller has made part delivery of
the goods, he may exercise his right of lien on the remainder,
unless such part delivery has been made under such
circumstances as to show an intent to waive the lien or right
of retention. (n)

Art 1530. Subject to the provisions of this Title, when

the buyer of goods is or becomes insolvent, the unpaid
seller who has parted with the possession of the goods
has the right of stopping them in transitu, that is to say,
he may resume possession of the goods at any time
while they are in transit, and he will then become entitled
to the same rights in regard to the goods as he would
have had if he had never parted with the possession. (n)
Art 1531. Goods are in transit within the meaning of the
preceding article:
(1) From the time when they are delivered to a carrier by
land, water, or air, or other bailee for the purpose of
transmission to the buyer, until the buyer, or his agent in
that behalf, takes delivery of them from such carrier or
other bailee;
(2) If the goods are rejected by the buyer, and the carrier
or other bailee continues in possession of them, even if
the seller has refused to receive them back.
Goods are no longer in transit within the meaning of the
preceding article:

Art 1529. The unpaid seller of goods loses his lien thereon:
(1) When he delivers the goods to a carrier or other bailee for
the purpose of transmission to the buyer without reserving
the ownership in the goods or the right to the possession
thereof;

23

(1) If the buyer, or his agent in that behalf, obtains

delivery of the goods before their arrival at the appointed
destination;

(2) If, after the arrival of the goods at the appointed

destination, the carrier or other bailee acknowledges to the
buyer or his agent that he holds the goods on his behalf and
continues in possession of them as bailee for the buyer or his
agent; and it is immaterial that further destination for the
goods may have been indicated by the buyer;
(3) If the carrier or other bailee wrongfully refuses to deliver
the goods to the buyer or his agent in that behalf.
If the goods are delivered to a ship, freight train, truck, or
airplane chartered by the buyer, it is a question depending on
the circumstances of the particular case, whether they are in
the possession of the carrier as such or as agent of the buyer.
If part delivery of the goods has been made to the buyer, or
his agent in that behalf, the remainder of the goods may be
stopped in transitu, unless such part delivery has been under
such circumstances as to show an agreement with the buyer
to give up possession of the whole of the goods. (n)
Art 1532. The unpaid seller may exercise his right of
stoppage in transitu either by obtaining actual possession of
the goods or by giving notice of his claim to the carrier or
other bailee in whose possession the goods are. Such notice
may be given either to the person in actual possession of the
goods or to his principal. In the latter case the notice, to be
effectual, must be given at such time and under such
circumstances that the principal, by the exercise of reasonable
diligence, may prevent a delivery to the buyer.
When notice of stoppage in transitu is given by the seller to
the carrier, or other bailee in possession of the goods, he must
redeliver the goods to, or according to the directions of, the
seller. The expenses of such delivery must be borne by the
seller. If, however, a negotiable document of title representing
the goods has been issued by the carrier or other bailee, he
shall not obliged to deliver or justified in delivering the goods
to the seller unless such document is first surrendered for
cancellation. (n)
Art 1533. Where the goods are of perishable nature, or
where the seller expressly reserves the right of resale in case
the buyer should make default, or where the buyer has been
in default in the payment of the price for an unreasonable
time, an unpaid seller having a right of lien or having stopped
the goods in transitu may resell the goods. He shall not
thereafter be liable to the original buyer upon the contract of
sale or for any profit made by such resale, but may recover
from the buyer damages for any loss occasioned by the
breach of the contract of sale.
Where a resale is made, as authorized in this article, the
buyer acquires a good title as against the original buyer.
It is not essential to the validity of resale that notice of an
intention to resell the goods be given by the seller to the
original buyer. But where the right to resell is not based on
the perishable nature of the goods or upon an express
provision of the contract of sale, the giving or failure to give
such notice shall be relevant in any issue involving the
question whether the buyer had been in default for an
unreasonable time before the resale was made.
It is not essential to the validity of a resale that notice of the
time and place of such resale should be given by the seller to
the original buyer.

24

The seller is bound to

judgment in making a
requirement may make
private sale. He cannot,
buy the goods. (n)

exercise reasonable care and

resale, and subject to this
a resale either by public or
however, directly or indirectly

Art 1534. An unpaid seller having the right of lien or

having stopped the goods in transitu, may rescind the
transfer of title and resume the ownership in the goods,
where he expressly reserved the right to do so in case
the buyer should make default, or where the buyer has
been in default in the payment of the price for an
unreasonable time. The seller shall not thereafter be
liable to the buyer upon the contract of sale, but may
recover from the buyer damages for any loss occasioned
by the breach of the contract.
The transfer of title shall not be held to have been
rescinded by an unpaid seller until he has manifested by
notice to the buyer or by some other overt act an
intention to rescind. It is not necessary that such overt
act should be communicated to the buyer, but the giving
or failure to give notice to the buyer of the intention to
rescind shall be relevant in any issue involving the
question whether the buyer had been in default for an
unreasonable time before the right of rescission was
asserted. (n)
Art 1535. Subject to the provisions of this Title, the
unpaid seller's right of lien or stoppage in transitu is not
affected by any sale, or other disposition of the goods
which the buyer may have made, unless the seller has
assented thereto.
If, however, a negotiable document of title has been
issued for goods, no seller's lien or right of stoppage in
transitu shall defeat the right of any purchaser for value
in good faith to whom such document has been
negotiated, whether such negotiation be prior or
subsequent to the notification to the carrier, or other
bailee who issued such document, of the seller's claim to
a lien or right of stoppage in transitu. (n)
a) Old common law remedy which is an extension of the
lien for the price and entitles the unpaid seller to resume
possession of the goods while they are in transit before
the goods come in possession of the vendee if the later is
or becomes insolvent.
b) Goods are considered to be in transit from the time
they are delivered to a carrier or other bailee by the
seller for the purpose of transmission to the buyer, until
the buyer or his agent takes delivery of them from the
carrier. To terminate the transit by delivery to a
middleman, it must be delivery to keep, not to transport.
c) Goods are still considered to be in transit even if they
reached their ultimate destination when the buyer rejects
them and they remain in the possession of the carrier.
d) Goods are no longer in transit if the buyer or his agent
obtained delivery of the goods even before they reached
their ultimate destination, or when the goods arrived at
the ultimate destination but the carrier or other bailee
wrongfully refuses to deliver the goods to the buyer or
his agent, or when the carrier, upon arrival of the goods

at the ultimate destination, enters into a new contract with

the buyer or his agent.
e) If there was partial delivery of the goods to the buyer, the
remainder of the goods may be stopped in transitu, unless
such part delivery has been made under such circumstances
as to show an agreement with the buyer to give up possession
of the whole.
Where the buyer has taken some portion of
the whole mass which was then susceptible of possession,
there is constructive possession of the whole.
f) Sale of goods in transit: the unpaid sellers right of lien or
stoppage in transitu is not affected by any sale or other
disposition of the goods which the buyer may have made
unless the seller has assented thereto.
1) Where a negotiable document of title has been issued for
the goods, no sellers lien or right of stoppage in transitu
cannot defeat the rights of any purchaser for value in good
faith to whom such document has been negotiated.
2.) Where the document of title is a straight bill of lading, the
sellers right of stoppage will not be cut off as the transferee
acquires no greater or added rights than his transferor.
Right of Stoppage; How Exercised-The unpaid seller may
exercise his right by
1. obtaining actual possession of the goods or
2. by giving notice of his claim to the carrier or other bailee in
whose possession the goods are.
When notice of stoppage in transit is given to the carrier, the
latte must redeliver the goods to, or according to the
directions of, the seller. If however, a negotiable document of
title representing the goods has been issued by the carrier,
the latter shall not be obliged to deliver the goods unless such
document is first surrendered for cancellation.

The seller is bound to

judgment in making a
requirement may make
private sale. He cannot,
buy the goods. (n)

exercise reasonable care and

resale, and subject to this
a resale either by public or
however, directly or indirectly

a) When the goods are of perishable nature, or where the

seller expressly reserves the right of resale in case the
buyer should default in payment, or where the buyer has
been in default for an unreasonable length of time, the
unpaid seller, having a right of lien or having stopped the
goods in transitu, may resell the goods and recover from
the buyer damages for breach of contract.
b) The resale may be in a public or private sale, but the
seller cannot buy them directly or indirectly. The seller is
entitled to any profit he may make out of the resale.
c) In case he sells them at a loss, he is entitled to
recover the difference from the original buyer. It is not
essential to the validity of a resale that previous notice of
an intention to resell or notice of the time and place or
resale be given to the original buyer.
d) Damages recoverable: Whether the action is for
damages or to recover loss from a resale, the purpose is
to compensate the seller for loss for breach of contract.
Thus, if the purchaser fails to take delivery and pay the
price, the vendor, without need of first rescinding the
contract judicially, is entitled to resell, and if obliged to
sell for less than the contract price, the buyer is liable for
the difference.
e) Due diligence must be exercised to secure the highest
price obtainable in the best available market.
The
burden of showing it was exercised is on the vendor.
4. Rescission45

3. Resale
Art 1533. Where the goods are of perishable nature, or
where the seller expressly reserves the right of resale in case
the buyer should make default, or where the buyer has been
in default in the payment of the price for an unreasonable
time, an unpaid seller having a right of lien or having stopped
the goods in transitu may resell the goods. He shall not
thereafter be liable to the original buyer upon the contract of
sale or for any profit made by such resale, but may recover
from the buyer damages for any loss occasioned by the
breach of the contract of sale.
Where a resale is made, as authorized in this article, the
buyer acquires a good title as against the original buyer.
It is not essential to the validity of resale that notice of an
intention to resell the goods be given by the seller to the
original buyer. But where the right to resell is not based on
the perishable nature of the goods or upon an express
provision of the contract of sale, the giving or failure to give
such notice shall be relevant in any issue involving the
question whether the buyer had been in default for an
unreasonable time before the resale was made.
It is not essential to the validity of a resale that notice of the
time and place of such resale should be given by the seller to
the original buyer.

25

Art 1534. An unpaid seller having the right of lien or

having stopped the goods in transitu, may rescind the
transfer of title and resume the ownership in the goods,
where he expressly reserved the right to do so in case
the buyer should make default, or where the buyer has
been in default in the payment of the price for an
unreasonable time. The seller shall not thereafter be
liable to the buyer upon the contract of sale, but may
recover from the buyer damages for any loss occasioned
by the breach of the contract.
The transfer of title shall not be held to have been
rescinded by an unpaid seller until he has manifested by
notice to the buyer or by some other overt act an
intention to rescind. It is not necessary that such overt
act should be communicated to the buyer, but the giving
45

MERCHANTS REFRIGERATING CORP v TITMAN: A rescission

of the contract would accomplish the following results:
(1) termination of the original contract
(2) return of the title to the undelivered portion of the goods to
the seller
(3) release of the buyer from his obligation to take and pay for
the balance of the goods
(4) the unpaid seller would be free to pursue its remedies on
quantum meruit to recover what it had delivered to the
buyer (Merchants Refrigerating Co. v Benjamin Titman
Corp)

or failure to give notice to the buyer of the intention to rescind

shall be relevant in any issue involving the question whether
the buyer had been in default for an unreasonable time before
the right of rescission was asserted. (n)

Art. 1524. The vendor shall not be bound to deliver the

thing sold, if the vendee has not paid him the price, or if
no period for the payment has been fixed in the contract.
(1466)

a) An unpaid seller having the right of lien or having stopped

the goods in transitu may rescind the transfer of title and
resume ownership in the goods where he expressly reserved
the right to do so in case the buyer defaults, or where the
buyer has been in default in payment of the price for an
unreasonable time. The transfer of title shall not be held to
have been rescinded by the unpaid seller until he manifests
by notice to the buyer or by some overt act an intention to
rescind. After rescinding the transfer of title, the seller may
still recover damages from the buyer for breach of contract.

a) Generally, payment and delivery of the thing sold are

concurrent acts, in consonance with the rule in reciprocal
obligations. Agreement of the parties determines whether
it is for the buyer to take possession of the goods or for
the seller to send them to the buyer. Absent stipulation to
the contrary, the ff. rules shall be observed:

As used in Art. 1534, the term rescind is equivalent to

return of the title over the undelivered goods to the seller and
the right to recover damages for loss due to breach of
contract.

2.

In case of sale of specific goods which, at the time of

the sale, are known to the parties to be in ANOTHER
PLACE, the buyer should take delivery from such
place.

XI. PERFORMANCE OF THE CONTRACT

3.

DEMAND or TENDER of PAYMENT shall be made at a

reasonable hour. Where by agreement, the seller is
bound to send the goods to the buyer, he is bound to
send them within the time agreed upon, or if no time
was fixed, within a reasonable time. REASONABLE
TIME for delivery is determined by the circumstances
attending the particular transaction

4.

Where the goods at the time of the sale are in the

possession of a THIRD PERSON, there is NO delivery
UNLESS
and
UNTIL
such
their
person
ACKNOWLEDGES to the buyer that the holds the
goods on the latters behalf.

5.

EXPENSES of placing the goods in a DELIVERABLE

STATE shall be borne by the SELLER unless otherwise
stipulated.

6.

If the sale involves a specific thing, the vendor is

bound to deliver the thing sold and its accessions and
accessories in the condition in which they were upon
the perfection of the contract.

7.

All of the fruits of the thing shall pertain to the

vendee from the time of the perfection of the
contract but he does not acquire a real right over it
until they are delivered to him.
The vendee has the obligation to pay the expenses
incurred by the vendor in the production, gathering
and preservation of the fruits.

1. the buyer should take delivery of the goods from the

sellers place of business if he has one, and if none, his
residence.

A. DELIVERY OF THE THING SOLD

1.

Place, time, and manner of delivery

Art. 1521. Whether it is for the buyer to take possession of

the goods or of the seller to send them to the buyer is a
question depending in each case on the contract, express or
implied, between the parties. Apart from any such contract,
express or implied, or usage of trade to the contrary, the
place of delivery is the seller's place of business if he has one,
and if not his residence; but in case of a contract of sale of
specific goods, which to the knowledge of the parties when
the contract or the sale was made were in some other place,
then that place is the place of delivery.
Where by a contract of sale the seller is bound to send the
goods to the buyer, but no time for sending them is fixed, the
seller is bound to send them within a reasonable time.
Where the goods at the time of sale are in the possession of a
third person, the seller has not fulfilled his obligation to
deliver to the buyer unless and until such third person
acknowledges to the buyer that he holds the goods on the
buyer's behalf.
Demand or tender of delivery may be treated as ineffectual
unless made at a reasonable hour. What is a reasonable hour
is a question of fact.
Unless otherwise agreed, the expenses of and incidental to
putting the goods into a deliverable state must be borne by
the seller. (n)
Art. 1169. xxx In reciprocal obligations, neither party incurs
in delay if the other does not comply or is not ready to comply
in a proper manner with what is incumbent upon him. From
the moment one of the parties fulfills his obligation, delay by
the other begins. (1100a)

26

8.

When time is of essence46

46

SMITH BELL v MATTI: In this case, the seller had done all that
could be expected when he placed the machinery at the disposal of
the buyer on Apr 1919. When the time of delivery is not fixed in the
contract, time is not of the essence; delivery could hence be made
within a reasonable time.
SOLER v CHELSEY: Defendant cannot be compelled to accept
delivery as he gave his consent to the contract, on the assurance of
the plaintiff that the goods were on the way when as a matter of fact,
they were not yet shipped at the time. This assertion was an essential
element of the contract.

Time is of the essence of the contract whenever the intention

of the parties is clear that performance of its terms shall be
accomplished exactly at the stipulated day or implied from the
nature of the contract itself, the subject matter or the
circumstances under which the contract is made

a.

Delivery by installment

Art. 1583. Unless otherwise agreed, the buyer of goods

is not bound to accept delivery thereof by installments.

When not bound to deliver

Art. 1524. The vendor shall not be bound to deliver the thing
sold, if the vendee has not paid him the price, or if no period
for the payment has been fixed in the contract. (1466)
Art. 1536. The vendor is not bound to deliver the thing sold
in case the vendee should lose the right to make use of the
terms as provided in Article 1198. (1467a)
Art. 1198. The debtor shall lose every right to make use of
the period:
(1) When after the obligation has been contracted, he
becomes insolvent, unless he gives a guaranty or security for
the debt;
(2) When he does not furnish to the creditor the guaranties or
securities which he has promised;
(3) When by his own acts he has impaired said guaranties or
securities after their establishment, and when through a
fortuitous event they disappear, unless he immediately gives
new ones equally satisfactory;
(4) When the debtor violates any undertaking,
consideration of which the creditor agreed to the period;

2. Sale of Goods

in

(5) When the debtor attempts to abscond. (1129a)

The vendor is not bound to deliver the thing sold in case the
vendee should lose the right to make use of the stipulated
term in the following cases:
1. When the vendee becomes insolvent
2. When the vendee does not furnish the guaranties or
securities he has promised
3. When the guaranties or securities given were impaired
through the vendees acts or were lost or destroyed
through a fortuitous event, unless he gives new equally
satisfactory guaranties or securities
4. When the vendee violates any condition for which he
was granted the term
5. When the vendee attempts to abscond
NOTE: Art. 1467 has been replaced by Art. 1198 which
provides that the vendee shall lose the benefit of the term
when, after the obligation has been contracted, he becomes
insolvent, unless he gives a guaranty or security.
Insolvency under this article cannot be understood in
the sense of a judicially declared insolvency or
suspension of payments, because the debtor cannot
give a security or guaranty in such case. The doctrine
therefore in Visayan Distributors v Flores interpreting
insolvency in Art 1467 old CC as something which must be
judicially declared or something which involves suspension of
payments, no longer holds.
REPUBLIC V LITTON: Court ruled for plaintiff. It was shown that the goods
were intended for election purposes, and the purchase order provided that
the stipulated delivery period shall not be exceeded.

27

Where there is a contract of sale of goods to be delivered

by stated installments, which are to be separately paid
for, and the seller makes defective deliveries in respect of
one or more installments, or the buyer neglects or
refuses without just cause to take delivery of or pay for
one more installments, it depends in each case on the
terms of the contract and the circumstances of the case,
whether the breach of contract is so material as to justify
the injured party in refusing to proceed further and suing
for damages for breach of the entire contract, or whether
the breach is severable, giving rise to a claim for
compensation but not to a right to treat the whole
contract as broken. (n)
a) GENERAL RULE: the buyer is not bound to accept
delivery of goods by installments. EXCEPTION: When
otherwise stipulated
b) In case of a contract that calls for the delivery of the
goods at stated intervals which are to be paid for
separately, the terms of the contract and the
circumstances surrounding the case would determine
whether prompt payment or delivery is of the essence
such that a delay or breach would entitle the aggrieved
to treat the entire contract as broken OR to regard each
breach as severable. SEVERABILITY depends on whether
the breach is so material as to justify the aggrieved party
in refusing to proceed further with the entire contract or
so immaterial that the breach is severable, giving rise
merely to a claim for damages
b.

Delivery of wrong quantity

Art. 1522. Where the seller delivers to the buyer a

quantity of goods less than he contracted to sell, the
buyer may reject them, but if the buyer accepts or
retains the goods so delivered, knowing that the seller is
not going to perform the contract in full, he must pay for
them at the contract rate. If, however, the buyer has
used or disposed of the goods delivered before he knows
that the seller is not going to perform his contract in full,
the buyer shall not be liable for more than the fair value
to him of the goods so received.
Where the seller delivers to the buyer a quantity of goods
larger than he contracted to sell, the buyer may accept
the goods included in the contract and reject the rest. If
the buyer accepts the whole of the goods so delivered he
must pay for them at the contract rate.
Where the seller delivers to the buyer the goods he
contracted to sell mixed with goods of a different
description not included in the contract, the buyer may
accept the goods which are in accordance with the
contract and reject the rest.
In the preceding two paragraphs, if the subject matter is
indivisible, the buyer may reject the whole of the goods.

The provisions of this article are subject to any usage of trade,

special agreement, or course of dealing between the parties.
(n)
a) GENERAL RULE: The buyer is not bound to accept delivery
of a quantity of goods more or less than that agreed upon or
to accept goods which are of a description different from that
agreed upon. EXCEPTION: There is usage of trade, special
stipulation or course of dealing to the contrary.
REMEDIES:
1. Where the seller delivers a quantity less than that
agreed upon, the buyer may reject them. If the buyer
accepts or retains that goods delivered, knowing the
inability of the seller to deliver the rest, the buyer is
bound to pay for them at the contract rate. If the
buyer has used or disposed of the goods before
knowing the inability of the seller to deliver the rest,
the buyer shall pay not more than the fair value of
the goods. (NOTE: fair value means the price of the
goods in the open market.)
2. If the quantity delivered is more than that agreed
upon, the buyer may reject the excess, unless the
subject matter is indivisible, in which case, the buyer
may reject the whole.
3. Where the seller delivers the goods mixed with goods
of a different description not included in the contract,
the buyer may accept the goods which are in
accordance with the contract, and reject the rest,
unless the subject matter is indivisible, in which case,
the buyer may reject the whole.
b) Delivery by the seller of only a part of an entire contract
would itself be an indication that he might not intend to fully
perform. PRESUMPTION: Buyer knows that the seller might
intend to not fully perform, if said purchaser accepts a partial
delivery on an entire contract, absent any statement to the
contrary. (The law applies peculiarly to installment and
divisible contracts.)
3. Sale of Immovables
Art. 1539. The obligation to deliver the thing sold includes
that of placing in the control of the vendee all that is
mentioned in the contract, in conformity with the following
rules:
If the sale of real estate should be made with a statement of
its area, at the rate of a certain price for a unit of measure or
number, the vendor shall be obliged to deliver to the vendee,
if the latter should demand it, all that may have been stated
in the contract; but, should this be not possible, the vendee
may choose between a proportional reduction of the price and
the rescission of the contract, provided that, in the latter case,
the lack in the area be not less than one-tenth of that stated.
The same shall be done, even when the area is the same, if
any part of the immovable is not of the quality specified in the
contract.
The rescission, in this case, shall only take place at the will of
the vendee, when the inferior value of the thing sold exceeds
one-tenth of the price agreed upon.
Nevertheless, if the vendee would not have bought the
immovable had he known of its smaller area of inferior quality,
he may rescind the sale. (1469a)

28

Art. 1540. If, in the case of the preceding article, there

is a greater area or number in the immovable than that
stated in the contract, the vendee may accept the area
included in the contract and reject the rest. If he accepts
the whole area, he must pay for the same at the contract
rate. (1470a)
Art. 1541. The provisions of the two preceding articles
shall apply to judicial sales. (n)
Art. 1542. In the sale of real estate, made for a lump
sum and not at the rate of a certain sum for a unit of
measure or number, there shall be no increase or
decrease of the price, although there be a greater or less
area or number than that stated in the contract.
The same rule shall be applied when two or more
immovables as sold for a single price; but if, besides
mentioning the boundaries, which is indispensable in
every conveyance of real estate, its area or number
should be designated in the contract, the vendor shall be
bound to deliver all that is included within said
boundaries, even when it exceeds the area or number
specified in the contract; and, should he not be able to
do so, he shall suffer a reduction in the price, in
proportion to what is lacking in the area or number,
unless the contract is rescinded because the vendee does
not accede to the failure to deliver what has been
stipulated. (1471)
Art. 1543. The actions arising from Articles 1539 and
1542 shall prescribe in six months, counted from the day
of delivery. (1472a)

a.

Where price is at certain rate per unit of measure

The seller is bound to deliver the entire land sold in

accordance with the terms of the contract.
GENERAL RULE: The vendee has to option to demand
a proportionate reduction of the price or rescission
of the contract: if price is fixed at a certain rate per unit
of measure and the area is delivered is less than that
stated in the contract, or even if the area is correct but
part of the land is not of the quality stated in the contract
EXCEPTION: Where the entire land is not of the quality
stated in the contract, as in such a case, the consent
must have been obtained by mistake or fraud (contract
may then be voidable.)
Art. 1539. see above.
b.
47

Sale for a lump sum47

AZARRAGA v GAY: Where the price was for a lump sum and the
area which was stated in the contract to be 98 hectares, turned out to
be only 60 hectares, but the purchaser had previously investigated
and inspected the condition of the land, and had ample opportunity to
do so, the purchaser cannot later on allege that the vendor made
false representation.
ASIAIN v JALANDONI: There was mutual mistake which was so
material as would go into the essence of the contract. Rescission is
proper. The buyer would have not have bought the land had he known
of the smaller area or inferior quantity.

Art. 1542. see above.

a) If the sale of real property is for a lump sum, there shall be
no increase or decrease in the price, whether the actual area
delivered turned out to be greater or less than that stated in
the contract.
b) If besides mentioning the boundaries, the area should also
be stated in the contract, the vendor shall be bound to deliver
all that is included within said boundaries and there shall be
no increase or decrease in the price whether the area so
delivered be greater or less than that stated in the contract. 48
c) If the vendor fails to deliver all the land included within said
boundaries, as where part of the land belongs to a third
person, the vendee shall have the option to demand a
reduction in the price in proportion to the deficiency in
the area stated in the contract or a rescission of the
contract (Actions prescribe in six months from date of
delivery.)
4. Inspections and Acceptance
a.

Right of inspection

a) The buyer is deemed to have accepted the goods

when:
1. he intimates to the seller that the has accepted
them
2. the goods have been delivered to him and he does
any act in relation to them which is inconsistent with
the ownership of the seller
3. after the lapse of a reasonable time, he retains the
goods without intimating to the seller that he has
rejected them.
Exercise of acts of ownership over the goods is a
manifestation of acceptance, such as making use of them
as owner, making alterations in the goods or subjecting it
to the process of manufacture. EXCEPTION: Buyers right
to make a test of goods, but only if necessary, to
enable him to determine whether to accept or reject the
goods.
c.

Art. 1584. Where goods are delivered to the buyer, which he

has not previously examined, he is not deemed to have
accepted them unless and until he has had a reasonable
opportunity of examining them for the purpose of ascertaining
whether they are in conformity with the contract if there is no
stipulation to the contrary.
Unless otherwise agreed, when the seller tenders delivery of
goods to the buyer, he is bound, on request, to afford the
buyer a reasonable opportunity of examining the goods for
the purpose of ascertaining whether they are in conformity
with the contract.
Where goods are delivered to a carrier by the seller, in
accordance with an order from or agreement with the buyer,
upon the terms that the goods shall not be delivered by the
carrier to the buyer until he has paid the price, whether such
terms are indicated by marking the goods with the words
"collect on delivery," or otherwise, the buyer is not entitled to
examine the goods before the payment of the price, in the
absence of agreement or usage of trade permitting such
examination. (n)
The buyer is entitled to examine the goods to decide whether
he will become the owner, and until the examination is
completed or waived, he is under NO obligation to accept
them. He may however waive this right by simply refusing to
inspect the goods, taking them as they are or by any other
similar act.
b.

act in relation to them which is inconsistent with the

ownership of the seller, or when, after the lapse of a
reasonable time, he retains the goods without intimating
to the seller that he has rejected them. (n)

Manifestation of acceptance

Art. 1585. The buyer is deemed to have accepted the goods

when he intimates to the seller that he has accepted them, or
when the goods have been delivered to him, and he does any
48

ROBLE v ARBASA: A vendee of land, when sold in gross or with the

description "more or less" with reference to its area, does not thereby ipso
facto take all risk of quantity in the land. The use of "more or less" or similar
words in designating quantity covers only a reasonable excess or
deficiency.

29

Breach of warranty

Art. 1586. In the absence of express or implied

agreement of the parties, acceptance of the goods by the
buyer shall not discharge the seller from liability in
damages or other legal remedy for breach of any promise
or warranty in the contract of sale. But, if, after
acceptance of the goods, the buyer fails to give notice to
the seller of the breach in any promise of warranty within
a reasonable time after the buyer knows, or ought to
know of such breach, the seller shall not be liable
therefor. (n)
a) The purpose of the notice of breach of warranty is to
PROTECT the seller against belated damage claims which
would prevent the seller from making an adequate and
proper investigation of his alleged liability.
b) Acceptance of delivery means an ASSENT to become
OWNER of the goods on the part of the buyer, but not an
assent that the goods fulfill the description and terms of
the contract.
d.

Refusal to accept

Art. 1587. Unless otherwise agreed, where goods are

delivered to the buyer, and he refuses to accept them,
having the right so to do, he is not bound to return them
to the seller, but it is sufficient if he notifies the seller
that he refuses to accept them. If he voluntarily
constitutes himself a depositary thereof, he shall be liable
as such. (n)
Art. 1588. If there is no stipulation as specified in the
first paragraph of article 1523, when the buyer's refusal
to accept the goods is without just cause, the title
thereto passes to him from the moment they are placed
at his disposal. (n)
Art. 1589. The vendee shall owe interest for the period
between the delivery of the thing and the payment of the
price, in the following three cases:

(1) Should it have been so stipulated;

(2) Should the thing sold and delivered produce fruits or
income;
(3) Should he be in default, from the time of judicial or
extrajudicial demand for the payment of the price. (1501a)

a) Unless otherwise agreed, when the goods are delivered to

the buyer and he has a right to refuse to accept them, he
need not return them. It is sufficient that the buyer notifies
the seller that he refuses to accept the goods, and thereafter,
the former becomes the depository of the rejected goods.
b) However, where title already passed to the buyer and there
was a breach of warranty, the buyer may RESCIND the
contract by returning or offering to return the goods to the
seller and recover the price which had been paid.
e.

Refusal to accept

Art. 1582. The vendee is bound to accept delivery and to pay

the price of the thing sold at the time and place stipulated in
the contract.
If the time and place should not have been stipulated, the
payment must be made at the time and place of the delivery
of the thing sold. (1500a)

Art. 1504. Unless otherwise agreed, the goods remain at the

seller's risk until the ownership therein is transferred to the
buyer, but when the ownership therein is transferred to the
buyer the goods are at the buyer's risk whether actual
delivery has been made or not, except that:
(1) Where delivery of the goods has been made to the buyer
or to a bailee for the buyer, in pursuance of the contract and
the ownership in the goods has been retained by the seller
merely to secure performance by the buyer of his obligations
under the contract, the goods are at the buyer's risk from the
time of such delivery;
(2) Where actual delivery has been delayed through the fault
of either the buyer or seller the goods are at the risk of the
party in fault. (n)

B. PAYMENT OF PRICE

a) disturbance or threat of disturbance must come

through a vindicatory action or foreclosure of mortgage,
and not through a mere threat or claim of a third person.
b) If the third person claims a servitude on the thing
sold, the remedy of the buyer is to demand rescission of
the contract or payment of the proper indemnity.
c) In order that the buyer may have a right to suspend
payment, it is absolutely necessary that the cause of
disturbance or danger be based on a fact arising before
the sale or if it arose after the sale, the cause is
imputable to the vendor or his successor in interest.49
2.

Sale of Real Property

Art. 1592. In the sale of immovable property, even

though it may have been stipulated that upon failure to
pay the price at the time agreed upon the rescission of
the contract shall of right take place, the vendee may
pay, even after the expiration of the period, as long as no
demand for rescission of the contract has been made
upon him either judicially or by a notarial act. After the
demand, the court may not grant him a new term.
(1504a)

Art. 1560. If the immovable sold should be encumbered

with any non-apparent burden or servitude, not
mentioned in the agreement, of such a nature that it
must be presumed that the vendee would not have
acquired it had he been aware thereof, he may ask for
the rescission of the contract, unless he should prefer the
appropriate indemnity. Neither right can be exercised if
the non-apparent burden or servitude is recorded in the
Registry of Property, unless there is an express warranty
that the thing is free from all burdens and encumbrances.
Within one year, to be computed from the execution of
the deed, the vendee may bring the action for rescission,
or sue for damages.
One year having elapsed, he may only bring an action for
damages within an equal period, to be counted from the
date on which he discovered the burden or servitude.
(1483a)

1. Liability for interest

Art. 1582, 1589. See above.
The buyer shall owe interest on the price from the time the
thing is delivered up to the time of payment if there is
stipulation requiring interests, or even if there is none, if the
thing delivered produces fruits or income, or if the buyer
incurs in default from the time of judicial or extra-judicial
demand for payment
1.

action or a foreclosure of mortgage, he may suspend the

payment of the price until the vendor has caused the
disturbance or danger to cease, unless the latter gives
security for the return of the price in a proper case, or it
has been stipulated that, notwithstanding any such
contingency, the vendee shall be bound to make the
payment. A mere act of trespass shall not authorize the
suspension of the payment of the price. (1502a)

Suspension of Payment

Art. 1590. Should the vendee be disturbed in the possession

or ownership of the thing acquired, or should he have
reasonable grounds to fear such disturbance, by a vindicatory

30

Art. 1664. The lessor is not obliged to answer for a mere

act of trespass which a third person may cause on the
49

BARENG v CA: The vendee had a right to suspend payment from

the time he was informed of the co-owners claim. But such right
ceased from the time a compromise was reached between the coowners whereby the vendor agreed to give to the co-owner two-thirds
of whatever he could collect from the buyer. After the compromise,
when the vendor brought an action against the buyer to collect the
balance, said buyer owed interests on the amount from the time of the
filing of the complaint.

use of the thing leased; but the lessee shall have a direct
action against the intruder.
There is a mere act of trespass when the third person claims
no right whatever. (1560a)
a.

Effect of Non-payment

Art. 1191. The power to rescind obligations is implied in

reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him.
The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in
either case. He may also seek rescission, even after he has
chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be
just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of
third persons who have acquired the thing, in accordance with
Articles 1385 and 1388 and the Mortgage Law. (1124)

In absolute sales of real property, even if there is a stipulation

providing for ipso jure rescission, in case of default in
payment, the law requires the seller to demand the resolution
of the contract from the buyer judicially or by a notarial act,
before such stipulation could be given effect. Otherwise, the
buyer could still pay the price EVEN after the expiration of the
period to pay.50
b.

R.A. 6553; P.D. 957 (Secs. 23 and 24)

a) Approved on 26 Aug 1972, the Realty Installment Buyer

Protection Act declared that it is a public policy to protect
buyers of real-estate on installments, including residential
condominiums,
apartments,
excluding
industrial
lots,
commercial buildings and lands sold under R.A. 3844 as
amended, against onerous and oppressive conditions
b) R.A. 6552, sec 2, in sale or financing of real estate on
installment payments where the buyer has paid at least two
years of installments, provides that in case such buyer
defaults in the payment of the succeeding installments, he has
a right to pay, without additional interests, the arrears within
a grace period of one month for every year of
installment payments made;
c) In the same case, if the contract is cancelled, the seller
shall refund to the buyer the case surrender value of
payments made, equivalent to 50% of total payments and an
additional 5% for every year after five years of the life of the
contract and its extensions, if any.
d) Actual cancellation shall not take place until after 30 days
from receipt by the buyer of the notice of cancellation or
demand for rescission by a notarial act, and only upon full
payment of the cash surrender value to the buyer.51
50

DELA CRUZ v LEGAZPI: The injured party may choose between

fulfillment and rescission of the obligation, with payment of damages in
either the rescission claimed unless there is just cause authorizing the
granting of a new period, as in this case.
51

ACTIVE REALTY v DAROYA: In this case, respondent has already

paid in four (4) years a total of P314,860.76 or P90,835.76 more than

31

e) Down-payments, deposits or options in the contract

shall be included in the computation of the total number
of installments made. The right to pay the arrears within
the grace period could only be availed of by the buyer
once in every five years of the life of the contract and its
extensions, if any.
f) In case of less than two years of installments were
paid, the grace period shall be not less than 60 days from
the date the installment became due. If the buyer fails to
pay within the grace period, the seller may cancel the
contract within 30 days from receipt by the buyer of the
notice of cancellation or demand for rescission of the
contract by a notarial act.
g) During the grace period or before the actual
cancellation of the contract, the buyer shall have the
right to:
1. sell or assign his rights, to be evidenced in a
notarial instrument, to a third person
2. update his account
3. pay in advance any installment or the full unpaid
balance of the price without interest
XII. WARRANTIES
A. EXPRESS WARRANTIES
a) Warranty where one party promised that the
contingency or some act fixed by the contract shall be
performed, like a promise that the goods are of a certain
kind and character or that certain state of facts would
exist, the promise constitutes a warranty, and failure of
which gives rise to an action for its breach.
the contract price of P224,035.00. Also, the records clearly show
that the petitioner failed to comply with the mandatory twin
requirements for a valid and effective cancellation under the law, 19
i.e., he failed to send a notarized notice of cancellation and refund the
cash surrender value.
VALARAO v CA: The Court held that the rescission of the contract
and the forfeiture of the payments already made could not be effected
as per the pertinent provision of the aforementioned law. Section 3(a)
of Maceda Law provided that a buyer who has paid at least two
years of installments is entitled to pay, without additional interest the
unpaid installment due within the total grace period earned by him,
which is hereby fixed at a rate of one month grace period for every
year of installment payments made. Hence, since the private
respondent was entitled to a one-month grace period for every year of
installments paid, she had a total grace period of three months from
31 December 1990
OLYMPIA HOUSING v PANASIATIC TRAVEL: Unfortunately for
petitioner, it would be incorrect to apply Layug c IAC to the instant
case. Layug is basically an action for annulment of contract, a kindred
concept of rescission, whereas the instant case before the Court is
one for recovery of possession on the thesis of a prior rescission of
the contract covering the property. Not only is an action for
reconveyance conceptually different from an action for rescission but
that, also, the effects that flow from an affirmative judgment in either
case would be materially dissimilar in various respects. The judicial
resolution of a contract gives rise to mutual restitution which is not
necessarily the situation that can arise in an action for reconveyance.
Additionally, in an action for rescission (also often termed as
resolution), unlike in an action for reconveyance predicated on an
extrajudicial rescission (rescission by notarial act), the Court, instead
of decreeing rescission, may authorize for a just cause the fixing of a
period.

Breach: the buyer may

1. accept goods + maintain an action for damages
2. accept goods + set up breach of warranty as a
recoupment in diminution/ extinction of price
3. refuse to accept goods and maintain action for
damages
4. rescind + refuse to accept goods; or return (or offer
to return) goods + recover price paid

opinion only, shall be construed as a warranty, unless the

seller made such affirmation or statement as an expert
and it was relied upon by the buyer. (n)

1.

b) Opinion/dealers talk an affirmation of the value of

the thing or any statement of the sellers opinion shall
not be construed as a warranty, unless the seller made
such an affirmation as an expert and it was relied upon
by the buyer

Distinguished from condition

Art 1545. Where the obligation of either party to a contract

of sale is subject to any condition which is not performed,
such party may refuse to proceed with the contract or he may
waive performance of the condition. If the other party has
promised that the condition should happen or be performed,
such first mentioned party may also treat the nonperformance
of the condition as a breach of warranty.
Where the ownership in the thing has not passed, the buyer
may treat the fulfillment by the seller of his obligation to
deliver the same as described and as warranted expressly or
by implication in the contract of sale as a condition of the
obligation of the buyer to perform his promise to accept and
pay for the thing. (n)
Condition an uncertain event or contingency fixed by
parties, the existence or happening of which was necessary to
the efficacy of the contract, and failure of which permits the
injured party to treat the contract as at an end, but creates no
right of action. Where a condition is not performed, the buyer
may refuse to proceed with the contract, or accept the goods
and waive performance of the condition.52

Must be stipulated by the

parties in order to form
part of an obligation
May attach itself either to
obligation of seller to
deliver
possession
or
transfer ownership over
subject matter of sale

2.

Test: whether the vendor assumes to assert a fact of

which the buyer is ignorant, in which case it is a
warranty, or whether it is merely an expression of an
opinion or judgment on the part of the seller on a matter
of which the seller has no special knowledge and on
which the buyer may be expected also to have an opinion
or exercise his judgment.

In good condition v. Excellent quality the first

relates to the quantity, kind or condition of the goods
sold, it is an affirmation of fact or promise, and not a
mere expression of an opinion; the second is not an
express warranty and the purchaser must rely on the
implied warranty that the goods are merchantable;
mere expression of an opinion53

3.

Distinguished from false representation54

B. IMPLIED WARRANTIES55
1.

Distinctions according to Villanueva (Law on Sales , 2004)

Condition
Generally goes into the
root of the existence of
the obligation

a) Warranty an affirmation of fact or any promise by

seller relating to the thing which has a natural tendency
to induce the buyer to purchase the same, relying on
such promise of affirmation

Implied warranty of title

Art 1547. In a contract of sale, unless a contrary

intention appears, there is:

Warranty
Goes into the performance
of such obligation, and in
fact may constitute an
obligation in itself
May form part of obligation
by contract or provision of
law, without parties having
agreed thereto
Whether express or implied,
relates to subject matter
itself or to the obligations of
the seller as to the subject
matter of the sale

(1) An implied warranty on the part of the seller 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
53

SONGCO v SELLNER: Opinion or dealers talk is not warranty.

Opinion or dealers talk is the usual or ordinary means used by sellers
to get a high price and is understood as affording to buyers no ground
for omitting to make inquiries. Caveat emptor. A man who relies on
such an affirmation does so at his own peril and must take the
consequences of his imprudence.
What would make a misrepresentation void: (a) false
representation is as to matters of fact substantially affecting buyers
interest, and not as to matters of opinion, judgment, probability or
expectation; (b) the party to the contract who has special/expert
knowledge takes advantage of the ignorance of another to impose
upon him the false representation.

Distinguished from opinion, dealers talk

Art 1546. Any affirmation of fact or any promise by the seller

relating to the thing is an express warranty if the natural
tendency of such affirmation or promise is to induce the buyer
to purchase the same, and if the buyer purchase the thing
relying thereon. No affirmation of the value of the thing, nor
any statement purporting to be a statement of the seller's
52

ROMERO v CA, LIM v CA: distinguished condition imposed on perfection

on the contract vs condition imposed on performance of obligation; failure to
comply with 1st condition results in failure of contract, while failure to comply
with 2nd only gives other party option to either refuse to proceed with the
sale or to waive the condition as mandated under Art 1545.

32

MOLES v IAC: Ordinarily, what does not appear on the face of the
written instrument should be regarded as dealer's or trader's talk;
conversely, what is specifically represented as true in said document,
as in the instant case, cannot be considered as mere dealer's talk
54

PHIL. MANUFACTURING v. Go JUCCO: An intention to deceive

or mislead the other party to his prejudice is an essential element of
fraud. Concealment of facts does not necessarily amount to false
representation, unless there was an active misstatement of fact or a
partial statement of fact, such that withholding of that which is not
stated makes that which is stated absolutely false.
55

time have and enjoy the legal and peaceful possession of the
thing;

(2) The income or fruits, if he has been ordered to deliver

them to the party who won the suit against him;

(2) An implied warranty that the thing shall be free from any
hidden faults or defects, or any charge or encumbrance not
declared or known to the buyer.

(3) The costs of the suit which caused the eviction, and,
in a proper case, those of the suit brought against the
vendor for the warranty;

This Article shall not, however, be held to render liable a

sheriff, auctioneer, mortgagee, pledgee, or other person
professing to sell by virtue of authority in fact or law, for the
sale of a thing in which a third person has a legal or equitable
interest. (n)

(4) The expenses of the contract, if the vendee has paid

them;

Art 1548. Eviction shall take place whenever by a final

judgment based on a right prior to the sale or an act
imputable to the vendor, the vendee is deprived of the whole
or of a part of the thing purchased.
The vendor shall answer for the eviction even though nothing
has been said in the contract on the subject.

Art 1556. Should the vendee lose, by reason of the

eviction, a part of the thing sold of such importance, in
relation to the whole, that he would not have bought it
without said part, he may demand the rescission of the
contract; but with the obligation to return the thing
without other encumbrances that those which it had
when he acquired it.

The contracting parties, however, may increase, diminish, or

suppress this legal obligation of the vendor. (1475a)

He may exercise this right of action, instead of enforcing

the vendor's liability for eviction.

Art 1549. The vendee need not appeal from the decision in
order that the vendor may become liable for eviction. (n)

The same rule shall be observed when two or more

things have been jointly sold for a lump sum, or for a
separate price for each of them, if it should clearly
appear that the vendee would not have purchased one
without the other. (1479a)

Art 1550. When adverse possession had been commenced

before the sale but the prescriptive period is completed after
the transfer, the vendor shall not be liable for eviction. (n)
Art 1551. If the property is sold for nonpayment of taxes due
and not made known to the vendee before the sale, the
vendor is liable for eviction. (n)
Art 1552. The judgment debtor is also responsible for
eviction in judicial sales, unless it is otherwise decreed in the
judgment. (n) 56
Art 1553. Any stipulation exempting the vendor from the
obligation to answer for eviction shall be void, if he acted in
bad faith. (1476)
Art 1554. If the vendee has renounced the right to warranty
in case of eviction, and eviction should take place, the vendor
shall only pay the value which the thing sold had at the time
of the eviction. Should the vendee have made the waiver with
knowledge of the risks of eviction and assumed its
consequences, the vendor shall not be liable. (1477)
Art 1555. When the warranty has been agreed upon or
nothing has been stipulated on this point, in case eviction
occurs, the vendee shall have the right to demand of the
vendor:
(1) The return of the value which the thing sold had at the
time of the eviction, be it greater or less than the price of the
sale;

56

SANTIAGO LAND v CA: Although in voluntary sales or transaction, the

vendor can be expected to defend his title because of his warranty to the
vendees: no such obligation is owed by the owner whose land is sold at
execution sale.

33

(5) The damages and interests, and ornamental

expenses, if the sale was made in bad faith. (1478)

Art 1557. The warranty cannot be enforced until a final

judgment has been rendered, whereby the vendee loses
the thing acquired or a part thereof. (1480)

Art 1558. The vendor shall not be obliged to make good

the proper warranty, unless he is summoned in the suit
for eviction at the instance of the vendee. (1481a)
Art 1559. The defendant vendee shall ask, within the
time fixed in the Rules of Court for answering the
complaint, that the vendor be made a co-defendant.
(1482a)
2.

Implied
warranty
encumbrances or defects57

against

hidden

Art 1561. The vendor shall be responsible for warranty

against the hidden defects which the thing sold may
have, should they render it unfit for the use for which it
is intended, or should they diminish its fitness for such
use to such an extent that, had the vendee been aware
thereof, he would not have acquired it or would have
57

MOLES v IAC : we have to consider the rule on redhibitory

defects contemplated in Article 1561 of the Civil Code. A redhibitory
defect must be an imperfection or defect of such nature as to
engender a certain degree of importance. An imperfection or defect of
little consequence does not come within the category of being
redhibitory.
INVESTMENTS AND DEVT INC. v CA: Implied warranty against
hidden faults or defects under Art 1547 of the Civil Code cover only
those that make the object of the sale unfit for the use for which it was
intended at the time of the sale, and that in the sale of agricultural
land, the existing tenancy relationship pertaining thereto cannot be
considered as hidden fault or defect.

given a lower price for it; but said vendor shall not be
answerable for patent defects or those which may be visible,
or for those which are not visible if the vendee is an expert
who, by reason of his trade or profession, should have known
them. (1484a)

If the vendor acted in bad faith, he shall pay damages to

the vendee. (1488a)

Art 1562. In a sale of goods, there is an implied warranty or

condition as to the quality or fitness of the goods, as follows:

Art 1571. Actions arising from the provisions of the

preceding ten articles shall be barred after six months,
from the delivery of the thing sold. (1490)

(1) Where the buyer, expressly or by implication, makes

known to the seller the particular purpose for which the goods
are acquired, and it appears that the buyer relies on the
seller's skill or judgment (whether he be the grower or
manufacturer or not), there is an implied warranty that the
goods shall be reasonably fit for such purpose;
(2) Where the goods are brought by description from a seller
who deals in goods of that description (whether he be the
grower or manufacturer or not), there is an implied warranty
that the goods shall be of merchantable quality. (n)
Art 1563. In the case of contract of sale of a specified article
under its patent or other trade name, there is no warranty as
to its fitness for any particular purpose, unless there is a
stipulation to the contrary. (n)
Art 1564. An implied warranty or condition as to the quality
or fitness for a particular purpose may be annexed by the
usage of trade. (n)
Art 1565. In the case of a contract of sale by sample, if the
seller is a dealer in goods of that kind, there is an implied
warranty that the goods shall be free from any defect
rendering them unmerchantable which would not be apparent
on reasonable examination of the sample. (n)
Art 1566. The vendor is responsible to the vendee for any
hidden faults or defects in the thing sold, even though he was
not aware thereof.
This provision shall not apply if the contrary has been
stipulated, and the vendor was not aware of the hidden faults
or defects in the thing sold. (1485)
Art 1567. In the cases of Articles 1561, 1562, 1564, 1565
and 1566, the vendee may elect between withdrawing from
the contract and demanding a proportionate reduction of the
price, with damages in either case. (1486a)
Art 1568. If the thing sold should be lost in consequence of
the hidden faults, and the vendor was aware of them, he shall
bear the loss, and shall be obliged to return the price and
refund the expenses of the contract, with damages. If he was
not aware of them, he shall only return the price and interest
thereon, and reimburse the expenses of the contract which
the vendee might have paid. (1487a)
Art 1569. If the thing sold had any hidden fault at the time of
the sale, and should thereafter be lost by a fortuitous event or
through the fault of the vendee, the latter may demand of the
vendor the price which he paid, less the value which the thing
had when it was lost.

34

Art 1570. The preceding articles of this Subsection shall

be applicable to judicial sales, except that the judgment
debtor shall not be liable for damages. (1489a)

Warranties in sale of animals

Art 1577. The redhibitory action, based on the faults or
defects of animals, must be brought within forty days
from the date of their delivery to the vendee.
This action can only be exercised with respect to faults
and defects which are determined by law or by local
customs. (1496a)
Art 1578. If the animal should die within three days
after its purchase, the vendor shall be liable if the
disease which cause the death existed at the time of the
contract. (1497a)
Art 1579. If the sale be rescinded, the animal shall be
returned in the condition in which it was sold and
delivered, the vendee being answerable for any injury
due to his negligence, and not arising from the
redhibitory fault or defect. (1498)
Art 1580. In the sale of animals with redhibitory defects,
the vendee shall also enjoy the right mentioned in article
1567; but he must make use thereof within the same
period which has been fixed for the exercise of the
redhibitory action. (1499)
Sale by sample or description
Art 1481. In the contract of sale of goods by description
or by sample, the contract may be rescinded if the bulk
of the goods delivered do not correspond with the
description or the sample, and if the contract be by
sample as well as description, it is not sufficient that the
bulk of goods correspond with the sample if they do not
also correspond with the description.
The buyer shall have a reasonable opportunity of
comparing the bulk with the description or the sample.
(n)
Art 1565. In the case of a contract of sale by sample, if
the seller is a dealer in goods of that kind, there is an
implied warranty that the goods shall be free from any
defect rendering them unmerchantable which would not
be apparent on reasonable examination of the sample.
(n)
3.

Implied warranty of quality

Art 1562. In a sale of goods, there is an implied

warranty or condition as to the quality or fitness of the
goods, as follows:

(1) Where the buyer, expressly or by implication, makes

known to the seller the particular purpose for which the goods
are acquired, and it appears that the buyer relies on the
seller's skill or judgment (whether he be the grower or
manufacturer or not), there is an implied warranty that the
goods shall be reasonably fit for such purpose;
(2) Where the goods are brought by description from a seller
who deals in goods of that description (whether he be the
grower or manufacturer or not), there is an implied warranty
that the goods shall be of merchantable quality. (n)
Art 1563. In the case of contract of sale of a specified article
under its patent or other trade name, there is no warranty as
to its fitness for any particular purpose, unless there is a
stipulation to the contrary. (n)
Art 1564. An implied warranty or condition as to the quality
or fitness for a particular purpose may be annexed by the
usage of trade. (n)
Art. 1599. Where there is a breach of warranty by the seller,
the buyer may, at his election:
(1) Accept or keep the goods and set up against the seller, the
breach of warranty by way of recoupment in diminution or
extinction of the price;
(2) Accept or keep the goods and maintain an action against
the seller for damages for the breach of warranty;
(3) Refuse to accept the goods, and maintain an action
against the seller for damages for the breach of warranty;
(4) Rescind the contract of sale and refuse to receive the
goods or if the goods have already been received, return them
or offer to return them to the seller and recover the price or
any part thereof which has been paid.
When the buyer has claimed and been granted a remedy in
anyone of these ways, no other remedy can thereafter be
granted, without prejudice to the provisions of the second
paragraph of Article 1191.
Where the goods have been delivered to the buyer, he cannot
rescind the sale if he knew of the breach of warranty when he
accepted the goods without protest, or if he fails to notify the
seller within a reasonable time of the election to rescind, or if
he fails to return or to offer to return the goods to the seller in
substantially as good condition as they were in at the time the
ownership was transferred to the buyer. But if deterioration or
injury of the goods is due to the breach or warranty, such
deterioration or injury shall not prevent the buyer from
returning or offering to return the goods to the seller and
rescinding the sale.
Where the buyer is entitled to rescind the sale and elects to
do so, he shall cease to be liable for the price upon returning
or offering to return the goods. If the price or any part thereof
has already been paid, the seller shall be liable to repay so
much thereof as has been paid, concurrently with the return
of the goods, or immediately after an offer to return the
goods in exchange for repayment of the price.
Where the buyer is entitled to rescind the sale and elects to
do so, if the seller refuses to accept an offer of the buyer to
return the goods, the buyer shall thereafter be deemed to

35

hold the goods as bailee for the seller, but subject to a

lien to secure payment of any portion of the price which
has been paid, and with the remedies for the
enforcement of such lien allowed to an unpaid seller by
Article 1526.
(5) In the case of breach of warranty of quality, such
loss, in the absence of special circumstances showing
proximate damage of a greater amount, is the difference
between the value of the goods at the time of delivery to
the buyer and the value they would have had if they had
answered to the warranty. (n)
4.

Additional warranties in sale of consumer

products

Art. 68, RA 7394. Additional Provisions on Warranties. In addition to the Civil Code provisions on sale with
warranties, the following provisions shall govern the sale
of consumer products with warranty:
(a) Terms of express warranty. - Any seller or
manufacturer who gives an express warranty shall:
(1) set forth the terms of warranty in clear and
readily understandable language and clearly identify
himself as the warrantor;
(2) identify the party to whom the warranty is
extended;
(3) state the products or parts covered;
(4) state what the warrantor will do in the event of a
defect, malfunction of failure to conform to the written
warranty and at whose expense;
(5) state what the consumer must do to avail of the
rights which accrue to the warranty; and
(6) stipulate the period within which, after notice of
defect, malfunction or failure to conform to the warranty,
the warrantor will perform any obligation under the
warranty.
(b) Express warranty - operative from moment of sale. All written warranties or guarantees issued by a
manufacturer, producer, or importer shall be operative
from the moment of sale.
(1) Sales Report. - All sales made by distributors of
products covered by this Article shall be reported to the
manufacturer, producer, or importer of the product sold
within thirty (30) days from date of purchase, unless
otherwise agreed upon. The report shall contain, among
others, the date of purchase, model of the product
bought, its serial number, name and address of the
buyer. The report made in accordance with this provision
shall be equivalent to a warranty registration with the
manufacturer, producer, or importer. Such registration is
sufficient to hold the manufacturer, producer, or importer
liable, in appropriate cases, under its warranty.
(2) Failure to make or send report. - Failure of the
distributor to make the report or send them the form
required by the manufacturer, producer, or importer shall
relieve the latter of its liability under the warranty:
Provided, however, That the distributor who failed to
comply with its obligation to send the sales reports shall
be personally liable under the warranty. For this purpose,
the manufacturer shall be obligated to make good the
warranty at the expense of the distributor.
(3) Retail. - The retailer shall be subsidiarily liable
under the warranty in case of failure of both the
manufacturer and distributor to honor the warranty. In

such case, the retailer shall shoulder the expenses and costs
necessary to honor the warranty. Nothing therein shall
prevent the retailer from proceeding against the distributor or
manufacturer.
(4) Enforcement of warranty or guarantee. - The warranty
rights can be enforced by presentment of a claim. To this end,
the purchaser needs only to present to the immediate seller
either the warranty card of the official receipt along with the
product to be serviced or returned to the immediate seller. No
other documentary requirement shall be demanded from the
purchaser. If the immediate seller is the manufacturer's
factory or showroom, the warranty shall immediately be
honored. If the product was purchased from a distributor, the
distributor shall likewise immediately honor the warranty. In
the case of a retailer other than the distributor, the former
shall take responsibility without cost to the buyer of
presenting the warranty claim to the distributor in the
consumer's behalf.
(5) Record of purchases. - Distributors and retailers
covered by this Article shall keep a record of all purchases
covered by a warranty or guarantee for such period of time
corresponding to the lifetime of the product's respective
warranties or guarantees.
(6) Contrary stipulations: null and void. - All covenants,
stipulations or agreements contrary to the provisions of this
Article shall be without legal effect.
(c) Designation of warranties. - A written warranty shall
clearly and conspicuously designate such warranty as:
(1) "Full warranty" if the written warranty meets the
minimum requirements set forth in paragraph (d); or
(2) "Limited warranty" if the written warranty does not
meet such minimum requirements.
(d) Minimum standards for warranties. - For the warrantor of
a consumer product to meet the minimum standards for
warranty, he shall:
(1) remedy such consumer product within a reasonable
time and without charge in case of a defect, malfunction or
failure to conform to such written warranty;
(2) permit the consumer to elect whether to ask for a
refund or replacement without charge of such product or part,
as the case may be, where after reasonable number of
attempts to remedy the defect or malfunction, the product
continues to have the defect or to malfunction.
The warrantor will not be required to perform the above
duties if he can show that the defect, malfunction or failure to
conform to a written warranty was caused by damage due to
unreasonable use thereof.
(e) Duration of warranty. - The seller and the consumer may
stipulate the period within which the express warranty shall be
enforceable. If the implied warranty on merchantability
accompanies an express warranty, both will be of equal
duration.
Any other implied warranty shall endure not less than
sixty (60) days nor more than one (1) year following the sale
of new consumer products.
(f) Breach of warranties.
(1) In case of breach of express warranty, the consumer
may elect to have the goods repaired or its purchase price
refunded by the warrantor. In case the repair of the product in
whole or in part is elected, the warranty work must be made
to conform to the express warranty within thirty (30) days by
either the warrantor or his representative. The thirty-day
period, however, may be extended by conditions which are

36

beyond the control of the warrantor or his representative.

In case the refund of the purchase price is elected, the
amount directly attributable to the use of the consumer
prior to the discovery of the non-conformity shall be
deducted.
(2) In case of breach of implied warranty, the
consumer may retain in the goods and recover damages,
or reject the goods, cancel and contract and recover from
the seller so much of the purchase price as has been
paid, including damages.

C. BUYERS WAIVER IN CASE OF BREACH OF WARRANTY

Art. 1599. xxx Where the goods have been delivered to
the buyer, he cannot rescind the sale if he knew of the
breach of warranty when he accepted the goods without
protest, or if he fails to notify the seller within a
reasonable time of the election to rescind, or if he fails to
return or to offer to return the goods to the seller in
substantially as good condition as they were in at the
time the ownership was transferred to the buyer. But if
deterioration or injury of the goods is due to the breach
or warranty, such deterioration or injury shall not prevent
the buyer from returning or offering to return the goods
to the seller and rescinding the sale. xxx

XII. BREACH OF CONTRACTS

A. SALE OF GOODS
1. Remedies of the Seller

1.

Action for the price

Art 1595. Where, under a contract of sale, the

ownership of the goods has passed to the buyer and he
wrongfully neglects or refuses to pay for the goods
according to the terms of the contract of sale, the seller
may maintain an action against him for the price of the
goods.
Where, under a contract of sale, the price is payable on a
certain day, irrespective of delivery or of transfer of title
and the buyer wrongfully neglects or refuses to pay such
price, the seller may maintain an action for the price
although the ownership in the goods has not passed. But
it shall be a defense to such an action that the seller at
any time before the judgment in such action has
manifested an inability to perform the contract of sale on
his part or an intention not to perform it.
Although the ownership in the goods has not passed, if
they cannot readily be resold for a reasonable price, and
if the provisions of article 1596, fourth paragraph, are
not applicable, the seller may offer to deliver the goods
to the buyer, and, if the buyer refuses to receive them,
may notify the buyer that the goods are thereafter held
by the seller as bailee for the buyer. Thereafter the seller
may treat the goods as the buyer's and may maintain an
action for the price. (n)

2.

Action for damages

Art 1596. Where the buyer wrongfully neglects or refuses to

accept and pay for the goods, the seller may maintain an
action against him for damages for nonacceptance.
The measure of damages is the estimated loss directly and
naturally resulting in the ordinary course of events from the
buyer's breach of contract.
Where there is an available market for the goods in question,
the measure of damages is, in the absence of special
circumstances showing proximate damage of a different
amount, the difference between the contract price and the
market or current price at the time or times when the goods
ought to have been accepted, or, if no time was fixed for
acceptance, then at the time of the refusal to accept.
If, while labor or expense of material amount is necessary on
the part of the seller to enable him to fulfill his obligations
under the contract of sale, the buyer repudiates the contract
or notifies the seller to proceed no further therewith, the
buyer shall be liable to the seller for labor performed or
expenses made before receiving notice of the buyer's
repudiation or countermand. The profit the seller would have
made if the contract or the sale had been fully performed shall
be considered in awarding the damages. (n)

3.

Rescission

Art 1597. Where the goods have not been delivered to the
buyer, and the buyer has repudiated the contract of sale, or
has manifested his inability to perform his obligations
thereunder, or has committed a breach thereof, the seller may
totally rescind the contract of sale by giving notice of his
election so to do to the buyer. (n)
2. Remedies of the Buyer
1.

Specific performance

Art 1598. Where the seller has broken a contract to deliver

specific or ascertained goods, a court may, on the application
of the buyer, direct that the contract shall be performed
specifically, without giving the seller the option of retaining
the goods on payment of damages. The judgment or decree
may be unconditional, or upon such terms and conditions as
to damages, payment of the price and otherwise, as the court
may deem just. (n)

2.

Breach of warranty

or offer to return them to the seller and recover the price

or any part thereof which has been paid.
When the buyer has claimed and been granted a remedy
in anyone of these ways, no other remedy can thereafter
be granted, without prejudice to the provisions of the
second paragraph of Article 1191.
Where the goods have been delivered to the buyer, he
cannot rescind the sale if he knew of the breach of
warranty when he accepted the goods without protest, or
if he fails to notify the seller within a reasonable time of
the election to rescind, or if he fails to return or to offer
to return the goods to the seller in substantially as good
condition as they were in at the time the ownership was
transferred to the buyer. But if deterioration or injury of
the goods is due to the breach or warranty, such
deterioration or injury shall not prevent the buyer from
returning or offering to return the goods to the seller and
rescinding the sale.
Where the buyer is entitled to rescind the sale and elects
to do so, he shall cease to be liable for the price upon
returning or offering to return the goods. If the price or
any part thereof has already been paid, the seller shall
be liable to repay so much thereof as has been paid,
concurrently with the return of the goods, or immediately
after an offer to return the goods in exchange for
repayment of the price.
Where the buyer is entitled to rescind the sale and elects
to do so, if the seller refuses to accept an offer of the
buyer to return the goods, the buyer shall thereafter be
deemed to hold the goods as bailee for the seller, but
subject to a lien to secure payment of any portion of the
price which has been paid, and with the remedies for the
enforcement of such lien allowed to an unpaid seller by
Article 1526.
(5) In the case of breach of warranty of quality, such
loss, in the absence of special circumstances showing
proximate damage of a greater amount, is the difference
between the value of the goods at the time of delivery to
the buyer and the value they would have had if they had
answered to the warranty. (n)
Art 1571. Actions arising from the provisions of the
preceding ten articles shall be barred after six months,
from the delivery of the thing sold. (1490)
3.

Rescission

Art. 1599. Where there is a breach of warranty by the seller,

the buyer may, at his election:

Art. 1599. Where there is a breach of warranty by the

seller, the buyer may, at his election:

(1) Accept or keep the goods and set up against the seller, the
breach of warranty by way of recoupment in diminution or
extinction of the price;

(1) Accept or keep the goods and set up against the

seller, the breach of warranty by way of recoupment in
diminution or extinction of the price;

(2) Accept or keep the goods and maintain an action against

the seller for damages for the breach of warranty;

(2) Accept or keep the goods and maintain an action

against the seller for damages for the breach of
warranty;

(3) Refuse to accept the goods, and maintain an action

against the seller for damages for the breach of warranty;
(4) Rescind the contract of sale and refuse to receive the
goods or if the goods have already been received, return them

37

(3) Refuse to accept the goods, and maintain an action

against the seller for damages for the breach of
warranty;

(4) Rescind the contract of sale and refuse to receive the

goods or if the goods have already been received, return them
or offer to return them to the seller and recover the price or
any part thereof which has been paid.
When the buyer has claimed and been granted a remedy in
anyone of these ways, no other remedy can thereafter be
granted, without prejudice to the provisions of the second
paragraph of Article 1191.
Where the goods have been delivered to the buyer, he cannot
rescind the sale if he knew of the breach of warranty when he
accepted the goods without protest, or if he fails to notify the
seller within a reasonable time of the election to rescind, or if
he fails to return or to offer to return the goods to the seller in
substantially as good condition as they were in at the time the
ownership was transferred to the buyer. But if deterioration or
injury of the goods is due to the breach or warranty, such
deterioration or injury shall not prevent the buyer from
returning or offering to return the goods to the seller and
rescinding the sale.
Where the buyer is entitled to rescind the sale and elects to
do so, he shall cease to be liable for the price upon returning
or offering to return the goods. If the price or any part thereof
has already been paid, the seller shall be liable to repay so
much thereof as has been paid, concurrently with the return
of the goods, or immediately after an offer to return the
goods in exchange for repayment of the price.
Where the buyer is entitled to rescind the sale and elects to
do so, if the seller refuses to accept an offer of the buyer to
return the goods, the buyer shall thereafter be deemed to
hold the goods as bailee for the seller, but subject to a lien to
secure payment of any portion of the price which has been
paid, and with the remedies for the enforcement of such lien
allowed to an unpaid seller by Article 1526.
(5) In the case of breach of warranty of quality, such loss, in
the absence of special circumstances showing proximate
damage of a greater amount, is the difference between the
value of the goods at the time of delivery to the buyer and the
value they would have had if they had answered to the
warranty. (n)

B. SALE OF IMMOVABLES AND THINGS OTHER THAN GOODS

which of the parties first violated the contract, the same

shall be deemed extinguished, and each shall bear his
own damages. (n)
Art 1385. Rescission creates the obligation to return the
things which were the object of the contract, together
with their fruits, and the price with its interest;
consequently, it can be carried out only when he who
demands rescission can return whatever he may be
obliged to restore.
Neither shall rescission take place when the things which
are the object of the contract are legally in the
possession of third persons who did not act in bad faith.
In this case, indemnity for damages may be demanded
from the person causing the loss. (1295)
Art 1591. Should the vendor have reasonable grounds
to fear the loss of immovable property sold and its price,
he may immediately sue for the rescission of the sale.
Should such ground not exist, the provisions of Article
1191 shall be observed. (1503)

C. SALE OF MOVABLES ON INSTALLMENT58

Art 1484. In a contract of sale of personal property the
price of which is payable in installments, the vendor may
exercise any of the following remedies:
(1) Exact fulfillment of the obligation, should the vendee
fail to pay;
(2) Cancel the sale, should the vendee's failure to pay
cover two or more installments;
(3) Foreclose the chattel mortgage on the thing sold, if
one has been constituted, should the vendee's failure to
pay cover two or more installments. In this case, he shall
have no further action against the purchaser to recover
any unpaid balance of the price. Any agreement to the
contrary shall be void. (1454-A-a) 59
58

Art 1191. The power to rescind obligations is implied in

reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him.
The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in
either case. He may also seek rescission, even after he has
chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be
just cause authorizing the fixing of a period.

LEVY v GERVACIO: CC Art 1454 is aimed at sales where the price

is payable in several installments. A cash payment (in sales with two
installments) cannot be considered as a payment in installments, and
even if it can be so considered, still the law does not apply, for it
requires nonpayment of two or more installments in order that its
provisions may be invoked. In this case, only one installment was
unpaid.
59

TAJANLANGIT v SOUTHERN MOTORS: It is true that there was a

chattel mortgage on the goods sold, but Southern Motors elected to
sue the note exclusively to exact fulfillment of the obligation to
pay. It had the right to select among the three remedies established
in Art 1484. In choosing to sue on the note, it was not thereby limited
to the proceeds of the sale, on execution, of the mortgaged good.

This is understood to be without prejudice to the rights of

third persons who have acquired the thing, in accordance with
Articles 1385 and 1388 and the Mortgage Law. (1124)

FILINVEST v CA: The remedies IN 1484 are alternative and not

cumulative. Hence, the exercise of one bars the exercise of the
others.

Art. 1192. In case both parties have committed a breach of

the obligation, the liability of the first infractor shall be
equitably tempered by the courts. If it cannot be determined

NONATO v IAC: The corporation is barred from exacting payment

from Nonato of the balance of the price of the vehicle when it had
already repossessed it.

38

Art 1485. The preceding article shall be applied to contracts

purporting to be leases of personal property with option to
buy, when the lessor has deprived the lessee of the
possession or enjoyment of the thing. (1454-A-a)

Art 1486. In the case referred to in two preceding articles, a

stipulation that the installments or rents paid shall not be
returned to the vendee or lessee shall be valid insofar as the
same may not be unconscionable under the circumstances.
(n)

When the seller assigns his credit to another person, the

latter may likewise avail of the remedies under Art 1484
(assuming case is one of sale of movables on
installment). If the remedy chosen is rescission, a
stipulation in the contract that the installments paid shall
not be returned to the vendee is valid insofar as the
same
may
not
be
unconscionable
under
the
circumstances (Villanueva citing Delta Motor v. Niu Kim
Duan, 213 SCRA 259)
D. SALE OF IMMOVABLES ON INSTALLMENT
1.

Art 1533. Where the goods are of perishable nature, or

where the seller expressly reserves the right of resale in case
the buyer should make default, or where the buyer has been
in default in the payment of the price for an unreasonable
time, an unpaid seller having a right of lien or having stopped
the goods in transitu may resell the goods. He shall not
thereafter be liable to the original buyer upon the contract of
sale or for any profit made by such resale, but may recover
from the buyer damages for any loss occasioned by the
breach of the contract of sale.
Where a resale is made, as authorized in this article, the
buyer acquires a good title as against the original buyer.
It is not essential to the validity of resale that notice of an
intention to resell the goods be given by the seller to the
original buyer. But where the right to resell is not based on
the perishable nature of the goods or upon an express
provision of the contract of sale, the giving or failure to give
such notice shall be relevant in any issue involving the
question whether the buyer had been in default for an
unreasonable time before the resale was made.
It is not essential to the validity of a resale that notice of the
time and place of such resale should be given by the seller to
the original buyer.
The seller is bound to exercise reasonable care and judgment
in making a resale, and subject to this requirement may make
a resale either by public or private sale. He cannot, however,
directly or indirectly buy the goods. (n)

Anticipatory breach

Art 1591. Should the vendor have reasonable grounds

to fear the loss of immovable property sold and its price,
he may immediately sue for the rescission of the sale.
Should such ground not exist, the provisions of Article
1191 shall be observed. (1503)

2.

PD 957, Section 23 & 2460

PD 957, Sec 23. Non-Forfeiture of Payments. No

installment payment made by a buyer in a subdivision or
condominium project for a lot or unit he contracted to
buy shall be forfeited in favor of the owner or developer
when the buyer, after due notice to the owner or
developer, desists from further payment due to the
failure of the owner or developer to develop the
subdivision or condominium project according to the
approved plans and within the time limit for complying
with the same.
Such buyer may, at his option, be
reimbursed the total amount paid including amortization
interests but excluding delinquency interests, with
interest thereon at the legal rate.
PD 957, Sec 24. Failure to pay installments. The
rights of the buyer in the event of his failure to pay the
installments due for reasons other than failure of the
owner or developer to develop the project shall be
governed by Republic Act No. 6552
3.

RA 6552 Maceda Law: Sale of Residential

Realty on Installment61

60

CRUZ v FILIPINAS INVESTMENTS: The vendor of personal property sold

on installment basis is precluded, after foreclosing the chattel mortgage on
the thing sold, from having a recourse against the additional security put up
by a third party to guarantee the purchasers performance of his obligation.
NORTHERN MOTORS v SAPINOSO: What Art 1484 (3) prohibits is
further action against the purchaser to recover any unpaid balance of the
price; and although this Court has construed the word action to mean
any judicial or extrajudicial proceeding by virtue of which the vendor may
lawfully be enabled to exact recovery of the supposed unsatisfied balance
of the purchase price from the purchaser or his privy, there is no occasion
at this stage to apply the restrictive provision of the said article because
there has not yet been a foreclosure sale resulting in a deficiency. The
payment of the sum of P1,250 of Sapinoso was a voluntary act on his part
and did not result from a further action instituted by Northern Motors.
When
the seller
assigns his credit
to another person, the latter is likewise
BORBON
v SERVICE-WIDE
SPECIALIST:
bound by the same law. Accordingly, when the assignee forecloses on the
mortgage, there can be no further recovery of the deficiency, and the sellermortgagee is deemed to have renounced any right thereto.

39

CASA FILIPINAS REALTY v OP: PD 957 to stem the tide of

fraudulent manipulations perpetrated by unscrupulous subdivision
and condominium sellers and operators, such as failure to deliver
titles to buyers or titles free from liens and encumbrances. Should the
notice requirement in Sec 23 be construed as required to be given
before a buyer desists from further paying, the intent of the law to
protect subdivision lot buyers will tend to be defeated.
BRICKTOWN DEVT v TIERRA: When a grace period is provided for
in the contract of sale, it should be construed as a right, not an
obligation of the debtor, and when unconditionally conferred, the
grace period is effective without further need of demand either calling
for the payment of the obligation or for honoring the right.
61

MCLAUGHLIN v CA: Sec 4 of RA 6552 provides: In case where

less than two years of installments were paid, the seller shall give the
buyer a grace period of not less than sixty days from the date the
installment became due. If the buyer fails to pay the installments due
at the expiration of the grace period, the seller may cancel the
contract after thirty days from receipt by the buyer of the notice of the
cancellation or the demand for rescission of the contract by a notarial
act. Flores tendered the managers check after 17 days, which is well
within the 30-day period. However, Flores did not follow tender of

4.

Rescission on Sale on Non-Residential Realty on

Installment

Art 1191. The power to rescind obligations is implied in

reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him.
The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in
either case. He may also seek rescission, even after he has
chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be
just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of
third persons who have acquired the thing, in accordance with
Articles 1385 and 1388 and the Mortgage Law. (1124)
Art 1592. In the sale of immovable property, even though it
may have been stipulated that upon failure to pay the price
at the time agreed upon the rescission of the contract shall
of right take place, the vendee may pay, even after the
expiration of the period, as long as no demand for rescission
of the contract has been made upon him either judicially or
by a notarial act. After the demand, the court may not grant
him a new term. (1504a)

XIV. EXTINGUISHMENT OF THE SALE

Art. 1600. Sales are extinguished by the same causes as all
other obligations, by those stated in the preceding articles of
this Title, and by conventional or legal redemption. (1506)
Art. 1231. Obligations are extinguished:
(1) By payment or performance:
(2) By the loss of the thing due:
(3) By the condonation or remission of the debt;
(4) By the confusion or merger of the rights of creditor and
debtor;
(5) By compensation;
(6) By novation.

Distinguished from equitable mortgage

Equitable mortgage one which, although lacking in
some formality or other requisites demanded by a
statute, nevertheless reveals the intention of the
parties to charge real property as a security for debt,
and contains nothing impossible or contrary to law
Badges of an equitable mortgage63
Art. 1602. The contract shall be presumed to be an
equitable mortgage, in any of the following cases:
(1) When the price of a sale with right to repurchase is
unusually inadequate;
(2) When the vendor remains in possession as lessee or
otherwise;
(3) When upon or after the expiration of the right to
repurchase another instrument extending the period of
redemption or granting a new period is executed;
(4) When the purchaser retains for himself a part of the
purchase price;
(5) When the vendor binds himself to pay the taxes on
the thing sold;
(6) In any other case where it may be fairly inferred that
the real intention of the parties is that the transaction
shall secure the payment of a debt or the performance of
any other obligation. In any of the foregoing case, any
money, fruits, or other benefit to be received by the
vendees as rent or otherwise shall be considered as
interest which shall be subject to the usury laws.
A contract shall be construed as an equitable mortgage
when any of the circumstance in Art. 1602 is present.

A. CONVENTIONAL REDEMPTION

Reason for the rule: To curtail the practice of creditors in

making their agreement of mortgage appear in the form
of a sale with pacto de retro, in order to circumvent the
prohibition of pactum commissorium in pledge and
mortgage (Art. 2208. The creditor cannot appropriate
the things given by way of pledge or mortgage, or
dispose of them. Any stipulation to the contrary is null
and void) [because in making it appear a pacto de retro
sale, the creditors can do away with foreclosure
proceedings]

Conventional redemption the vendor reserves the right to

repurchase the thing sold, with the obligation of returning the
price of the sale the expenses of the contract, the necessary
and useful expenses made on the thing, and other payments
made by reason of the sale.62

Remedy: reformation of the instrument [must be brought

within 10 years]
1) If the agreement is construed to be an equitable
mortgage, any money or other benefit received as
rents, shall be considered as interest.

Other causes of extinguishment of obligations, such as

annulment, rescission, fulfillment of a resolutory condition,
and prescription, are governed elsewhere in this Code.
(1156a)

payment with consignation. Since McLaughlin refused to accept the tender

of payment, it was incumbent upon Flores to deposit the amount in court.
62

VILLARICA v CA: The right of repurchase is not a right granted the

vendor by the vendee in a subsequent instrument, but is a right reserved by
the vendor in the same instrument of sale as one of the stipulations of the
contract.
TORRES v CA: For a sale to be one a retro, it is necessary that the right be
reserved in the same contract

40

63

CLARAVALL v CA: The urgent necessity for money of the apparent

vendor, the inadequacy of the consideration for the supposed sale,
and the extension of the period of redemption are circumstances
which are indicative that the contract is an equitable mortgage.

2) Where the agreement is upheld as a pacto de retro

sale, the vendor may still exercise the right within 30
days from the time the judgment becomes final.
Distinguished from option to buy64
Right of redemption
Not a separate contract,
but merely part of a main
contract of sale; cannot
exist unless reserved at the
time of the perfection of
the main contract of sale
Need not have separate
consideration in order to be
valid and effective
May not be beyond the 10
year period
Requires
tender
of
payment
of
amount
required by law, including
consignment
thereof
if
tender cannot be made
effectively

Exercise of the right to redeem66

Option to buy
Principal contract and may
be created independent of
another contract

a) A vendor must manifest his right to redeem in writing.

This must be accompanied with an actual or
simultaneous tender of payment of the redemption price.
Redemption price includes the amount of the sale,
the expenses of the contract and other legitimate
payments made by the vendee by reason of such
sale, and the necessary and useful expenses made
on the thing by the vendee.
b) It is only when the vendee flatly refused that tender of
payment is not necessary. Consignation of the
redemption price in court is not necessary to preserve
the right. In the absence of the vendee a retro, the right
may be exercised by filing a suit against him and
consigning the amount in court.

Must have a consideration

separate and distinct from
purchase price
May be beyond the 10 year
period
May be exercised by notice

Period of redemption
Art. 1606. The right referred to in Article 1601, in the
absence of an express agreement, shall last four years from
the date of the contract.
Should there be an agreement, the period cannot exceed ten
years.
However, the vendor may still exercise the right to repurchase
within thirty days from the time final judgment was rendered
in a civil action on the basis that the contract was a true sale
with right to repurchase. (1508a)
GENERAL RULE: Period starts running at the date of the
execution of the contract.
EXCEPTION: when there is a suspensive condition.
4.

when no period agreed upon

period: 4 years from the date of the contract

5.

The period is binding and it may also be extended, as

long as it does not exceed 10 years. Reason for
limitation: A pacto de retro is a suspension of title and it
is against public interest to permit such uncertainty to
continue for a long time.

when period agreed upon65

64

ADIARTE v TUMANENG: An agreement to repurchase becomes an

option to buy when entered into after the time to redeem stipulated had
already expired, because then the vendee a retro became the absolute
owner of the thing sold, and the subsequent grant of the right to repurchase
is a new agreement.
65

TAYAO v DULAY: Although the stipulation as to the period may be

unclear or void, a period of redemption was agreed upon. Thus, it is the 10year period that applies, not the 4-year period.
BALUYOT v VENEGAS: The object of the sale cannot be repurchased
during the first 10 years.
The stipulation is void and against public policy.
BANDONG v Austria : The provisions of the contract, whereby the parties
undertook by express agreement to secure to the vendors a right to
repurchase in the month of March of any year after the date of the contract,
were valid and binding upon the parties for a period of ten years from the
date of the contract but wholly without force and effect thereafter.

41

The exercise of redemption is not limited only to the total

redemption price enumerated in Art 1616 of the CC,
since said legal provision is not restrictive nor exclusive.
It includes other stipulations which may have been
agreed upon (Villanueva citing Solid Homes v. CA, 275
SCRA 267)
a. by whom exercised
Art. 1610. The creditors of the vendor cannot make use
of the right of redemption against the vendee, until after
they have exhausted the property of the vendor. (1512)
Art. 1611. In a sale with a right to repurchase, the
vendee of a part of an undivided immovable who acquires
the whole thereof in the case of article 498, may compel
the vendor to redeem the whole property, if the latter
wishes to make use of the right of redemption. (1513)
Art. 1612. If several persons, jointly and in the same
contract, should sell an undivided immovable with a right
of repurchase, none of them may exercise this right for
more than his respective share.
The same rule shall apply if the person who sold an
immovable alone has left several heirs, in which case
each of the latter may only redeem the part which he
may have acquired. (1514)
Art. 1613. In the case of the preceding article, the
vendee may demand of all the vendors or co-heirs that
they come to an agreement upon the purchase of the
whole thing sold; and should they fail to do so, the
vendee cannot be compelled to consent to a partial
redemption. (1515)

66

GARGOLLO v DUERO: The vendor a retro is not given the option

to require the vendee a retro to remove the useful improvement, but
must pay for the useful improvements introduced by the vendee a
retro; otherwise, the latter may retain possession of the thing until
reimbursement is made.

a) Who may redeem

1.Vendor
2. His heirs or assigns
3. His agent

a) The vendor can eject a lessee only after the expiration

of the period of lease or of the period for redemption.
b) The vendor a retro is entitled to the return of the thing
with damages for the use and occupation if the same.

b) The creditors of the vendor cannot make use of the right of

redemption against the vendee, until after they have
exhausted the property of the vendor.

d. effect of non-redemption

b) If several persons, jointly and in the same contract, should

sell an undivided immovable with a right of repurchase, none
of them may exercise this right for more than his respective
share. The same rule shall apply if the person who sold an
immovable alone has left several heirs.
c) When the co-owners of an indivisible immovable, in order
to end the co-ownership, sold their interests absolutely to the
same person who previously bought the share of a co-owner
subject to a right of redemption, the latter can be compelled
to redeem the whole property.

Art. 1607. In case of real property, the consolidation of

ownership in the vendee by virtue of the failure of the
vendor to comply with the provisions of article 1616 shall
not be recorded in the Registry of Property without a
judicial order, after the vendor has been duly heard. (n)

Art. 1606. x x x
However, the vendor may still exercise the right to
repurchase within thirty days from the time final
judgment was rendered in a civil action on the basis that
the contract was a true sale with right to repurchase.67

b. from whom to redeem

a) The ownership of the vendee becomes absolute and

irrevocable by operation of law.

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.

b) The vendee is not entitled to recover damages by

virtue of non-redemption, notwithstanding a stipulation in
the contract for payment of damages.

But if the inheritance has been divided, and the thing sold has
been awarded to one of the heirs, the action for redemption
may be instituted against him for the whole. (1517)
Art. 1608. The vendor may bring his action against every
possessor whose right is derived from the vendee, even if in
the second contract no mention should have been made of the
right to repurchase, without prejudice to the provisions of the
Mortgage Law and the Land Registration Law with respect to
third persons. (1510)
From whom to redeem
1. Vendee a retro
2. His heirs or assigns
3. His agent
c. effect of redemption
Art. 1617. If at the time of the execution of the sale there
should be on the land, visible or growing fruits, there shall be
no reimbursement for or prorating of those existing at the
time of redemption, if no indemnity was paid by the purchaser
when the sale was executed.
Should there have been no fruits at the time of the sale and
some exist at the time of redemption, they shall be prorated
between the redemptioner and the vendee, giving the latter
the part corresponding to the time he possessed the land in
the last year, counted from the anniversary of the date of the
sale. (1519a)
Art. 1618. The vendor who recovers the thing sold shall
receive it free from all charges or mortgages constituted by
the vendee, but he shall respect the leases which the latter
may have executed in good faith, and in accordance with the
custom of the place where the land is situated. (1520)

42

B. LEGAL REDEMPTION
Legal redemption right to be subrogated, upon the
same terms and conditions stipulated in the contract, in
the place of one who acquires a thing by purchase or
dation in payment, or by any other transaction whereby
ownership is transmitted by onerous title.
When period of legal redemption begins
Art. 1623. The right of legal pre-emption or redemption
shall not be exercised except within thirty days from the
notice in writing by the prospective vendor, or by the
vendor, as the case may be. The deed of sale shall not be
recorded in the Registry of Property, unless accompanied
by an affidavit of the vendor that he has given written
notice thereof to all possible redemptioners.
The right of redemption of co-owners excludes that of
adjoining owners. (1524a)68
67

ABILLA v GABONSENG: The applicability of Article 1606 rests on

the bona fide intent of the vendor a retro, i.e., respondent in this case.
If he honestly believed that the transaction was an equitable
mortgage, the said article applies and he can still repurchase the
property within thirty days from finality of the judgment declaring the
transaction as a sale with pacto de retro. Parenthetically, it matters
not what the vendee intended the transaction to be.

681

HERMOSO v CA : It was error for the respondent court to rule that

the right of the petitioner to redeem the alienated share had long
proscribed. This finding fails to take into account that the period of
legal redemption is not a prescriptive period. It is a condition
precedent to the exercise of the right of redemption. It is a period set
by law to restrict the right of the person exercising the right of legal
redemption. It is not one of prescription. While the law requires that
the notice must be in writing, it does not state any particular form
thereof, so long as the reasons for a written notice are present. The
records of the case show that the sale of the brothers share was

1. to prevent the rural land not exceeding 1 ha. from

passing into the hands of a person other than the
adjacent owners who can make use of the alienated
property for the development of their own lands
2. to consolidate scattered small agricultural lands
under one ownership

Laches seems to be a special exception to notice rule under

Art 1623. (Villanueva citing Alonzo v. IAC)
1. Redemption among co-owners
Art. 1620. A co-owner of a thing may exercise the right of
redemption in case the shares of all the other co-owners or of
any of them, are sold to a third person. If the price of the
alienation is grossly excessive, the redemptioner shall pay
only a reasonable one.
Should two or more co-owners desire to exercise the right of
redemption, they may only do so in proportion to the share
they may respectively have in the thing owned in common.
(1522a)
a) When the right may be exercised: when a share of a coowner is sold to a third person, who is a stranger.
b) Thrust of the law: to reduce the number of co-owners until
the community is done away with.
c) When the right is not available
1) Where the share of the co-owner is sold to another coowner
2) Where the share of a co-owner was merely mortgaged
d) Should two or more co-owners desire to exercise the right,
they may only do so in proportion to the share they may
respectively have in the thing owned in common.
2. Redemption among adjoining owners
The law distinguishes between rural and urban lands. The
distinction is based on the character of the community or
vicinity in which it is found.
This is to encourage the maximum development and
utilization of lands.
a. Rural lands
Art. 1621. The owners of adjoining lands shall also have the
right of redemption when a piece of rural land, the area of
which does not exceed one hectare, is alienated, unless the
grantee does not own any rural land.

c) When the right is not available

o
Adjacent lands which are separated by brooks,
drains, ravines, roads and other apparent
servitudes for the benefit of other estates
[because owners cannot be said to be adjoining
owners anymore]
d) If two or more adjoining owners desire to exercise the
right of redemption at the same time, the owner of the
adjoining land of smaller area shall be preferred; and
should both lands have the same area, the one who first
requested the redemption.
b. Urban lands69
Art. 1622. Whenever a piece of urban land which is so
small and so situated that a major portion thereof cannot
be used for any practical purpose within a reasonable
time, having been bought merely for speculation, is
about to be re-sold, the owner of any adjoining land has
a right of pre-emption at a reasonable price.
If the re-sale has been perfected, the owner of the
adjoining land shall have a right of redemption, also at a
reasonable price.
When two or more owners of adjoining lands wish to
exercise the right of pre-emption or redemption, the
owner whose intended use of the land in question
appears best justified shall be preferred. (n)
a) When the right may be exercised: when a piece of
urban land which is so small and so situated that a major
portion thereof cannot be used for any practical purpose
within a reasonable time, having been bought merely for
speculation, is about to be resold
b) Thrust of the law: to discourage speculation in real
estate and aggravate the housing problem.

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.

c) When the right is not available: When the urban land

is transferred under an exchange of properties
[because there is no resale]70

If two or more adjoining owners desire to exercise the right of

redemption at the same time, the owner of the adjoining land
of smaller area shall be preferred; and should both lands have
the same area, the one who first requested the redemption.
(1523a)

d) When two or more owners of adjoining lands wish to

exercise the right of pre-emption or redemption, the
owner whose intended use of the land in question
appears best justified shall be preferred.

a) When the right may be exercised: when a piece of rural

land not exceeding 1 ha., is alienated [unless the grantee
does not own any rural land]
b) Thrust of the law

deliberately hidden from the petitioners. For sometime after the sale, the
petitioners were ignorant about its execution. When they somehow heard
rumors about it, they had to take one step after another to find out if the
information was true.

43

Assignment of a chose in action

69

ORTEGA v ORCINE The term urban in Art. 1622 does not

necessarily refer to the nature of the land itself but to the character of
the community or vicinity in which it is found.
70

SEN PO EK MARKETING v. MARTINEZ:

Article 1622 is not applicable to a lessee trying to buy the land he is
leasing.

Art. 1634. When a credit or other incorporeal right in

litigation is sold, the debtor shall have a right to extinguish it
by reimbursing the assignee for the price the latter paid
therefor, the judicial costs incurred by him, and the interest on
the price from the day on which the same was paid.
A credit or other incorporeal right shall be considered in
litigation from the time the complaint concerning the same is
answered.
The debtor may exercise his right within thirty days from the
date the assignee demands payment from him. (1535)
a) When the right may be exercised: when a credit or other
incorporeal right in litigation is sold.

Who may redeem

1. the delinquent taxpayer
2. anyone for him
Period of redemption: within 1 year from the date of sale
Redemption by a judgment debtor
Rules of Civil Procedure. Rule 39. Sec. 27. Who may
redeem
real
property
so
sold.

b) Thrust of the law: to discourage speculation in lawsuits

which would make the courts an instrument for profit.

Real property sold as provided in the last preceding

section, or any part thereof sold separately, may be
redeemed in the manner hereinafter provided, by the
following persons:

c) When the right is not available [because the assignee has a

valid interest in the right or property assigned]

(a) The judgment obligor, or his successor in interest in

the whole or any part of the property;

1. When the assignment of a credit was made before any

litigation

(b) A creditor having a lien by virtue of an attachment,

judgment or mortgage on the property sold, or on some
part thereof, subsequent to the lien under which the
property was sold. Such redeeming creditor is termed a
redemptioner.

2) Assignments made to a co-heir or co-owner of the

credit, to a creditor in payment of his credit, to the
possessor of a tenement or land which is subject to the
assigned credit. (Art. 1635)
Redemption of homestead
CA 141. Sec. 119. Every conveyance of land acquired under
a free patent or homestead, when proper, shall be subject to
repurchase by the applicant, his widow or legal heirs within 5
years from the date of conveyance.
a) Who may redeem
1. the applicant
2. his widow
3. legal heirs
b) Period of redemption: within 5 years from the date of
conveyance
Redemption in tax sales
NIRC of 1997. Sec. 215. Forfeiture to Government for Want
of Bidder. - In case there is no bidder for real property
exposed for sale as herein above provided or if the highest bid
is for an amount insufficient to pay the taxes, penalties and
costs, the Internal Revenue Officer conducting the sale shall
declare the property forfeited to the Government in
satisfaction of the claim in question and within two (2) days
thereafter, shall make a return of his proceedings and the
forfeiture which shall be spread upon the records of his office.
It shall be the duty of the Register of Deeds concerned, upon
registration with his office of any such declaration of
forfeiture, to transfer the title of the property forfeited to the
Government without the necessity of an order from a
competent court.
Within one (1) year from the date of such forfeiture, the
taxpayer, or any one for him may redeem said property by
paying to the Commissioner or the latter's Revenue Collection
Officer the full amount of the taxes and penalties, together
with interest thereon and the costs of sale, but if the property
be not thus redeemed, the forfeiture shall become absolute.

44

a) Who may redeem

1. the judgment obligor
2. his successors-in-interest
3. creditor having a lien by virtue of an attachment
Period of redemption: within 1 year from the date of
registration of the certificate of sale
Redemption in extrajudicial foreclosure of mortgages
Act No. 3135. Sec. 6. In extrajudicial foreclosure of
mortgage, the debtor, his successors-in-interest, any
judicial or judgment creditor of said debtor, or any junior
encumbrancer may redeem the property within 1 year
from the date of the sale. [This provision is taken from
Baviera only not sure if this is the exact wording of the
law.]
a)
1.
2.
3.
4.

Who may redeem

the debtor
his successors- in-interest
judicial creditor/judgment creditor of the debtor
any person having a lien on the property

Period of redemption: within 1 year from the date of the

sale
Redemption in judicial foreclosure of mortgages
RA 8791 (The General Banking of Law of 2000). Sec.
47. Foreclosure of Real Estate Mortgage. - In the event
of foreclosure, whether judicially or extra-judicially, of
any mortgage on real estate which is security for any
loan or other credit accommodation granted, the
mortgagor or debtor whose real property has been sold
for the full or partial payment of his obligation shall have
the right within one year after the sale of the real estate,
to redeem the property by paying the amount due under
the mortgage deed, with interest thereon at rate

specified in the mortgage, and all the costs and expenses

incurred by the bank or institution from the sale and custody
of said property less the income derived therefrom. However,
the purchaser at the auction sale concerned whether in a
judicial or extra-judicial foreclosure shall have the right to
enter upon and take possession of such property immediately
after the date of the confirmation of the auction sale and
administer the same in accordance with law. Any petition in
court to enjoin or restrain the conduct of foreclosure
proceedings instituted pursuant to this provision shall be
given due course only upon the filing by the petitioner of a
bond in an amount fixed by the court conditioned that he will
pay all the damages which the bank may suffer by the
enjoining or the restraint of the foreclosure proceeding.
Notwithstanding Act 3135, juridical persons whose property
is being sold pursuant to an extrajudicial foreclosure, shall
have the right to redeem the property in accordance with this
provision until, but not after, the registration of the certificate
of foreclosure sale with the applicable Register of Deeds which
in no case shall be more than three (3) months after
foreclosure, whichever is earlier. Owners of property that has
been sold in a foreclosure sale prior to the effectivity of this
Act shall retain their redemption rights until their expiration.
GENERAL RULE: No right to redeem is granted to the debtormortgagor when there has been judicial foreclosure of real
estate mortgage.
EXCEPTION: When the mortgagee is a bank or a banking
institution.
Legal right to redeem under the Agrarian Reform Code
RA 3844. Sec. 12. Lessees Right of Redemption.-In case the
landholding is sold to a third person without the knowledge of
the agricultural lessee, the latter shall have the right to
redeem the same at a reasonable price and consideration;
Provided, That the entire landholding sold must be redeemed:
Provided, further, That where there are two or more
agricultural lessees, each shall be entitled to said right of
redemption only to the extent of the area actually cultivated
by him. The right of redemption under this Section may be
exercised within two years from the registration of the sale,
and shall have priority over any other right of legal
redemption.
a) Who may redeem: the lessee who has no knowledge of the
sale to a third person
b) Period of redemption: within 2 years from the registration
the sale
c) Conditions for redemption: the entire landholding sold must
be redeemed
d) where there are two or more agricultural lessees, each
shall be entitled to said right of redemption only to the extent
of the area actually cultivated by him
XV. BULK SALES LAW71

71

LIWANAG v MENGHRAJ: The constitutional right to dispose freely of

ones property is not absolute. The creditor should be protected in his rights
against the debtor. The State, in the exercise of its police power, seeks to
protect such creditor against insolvent and fraudulent vendors

45

ACT NO. 3952. An act to regulate the sale, transfer,

mortgage
or
assignment
of
goods,
wares,
merchandise, provisions or materials, in bulk, and
prescribing penalties for the violation of the
provisions thereof.
Sec 1. This Act shall be known as "The Bulk Sales Law."
Sec. 2. Sale and transfer in bulk. Any sale, transfer,
mortgage or assignment of a stock of goods, wares,
merchandise, provisions, or materials otherwise than in
the ordinary course of trade and the regular prosecution
of the business of the vendor, mortgagor, transferor, or
assignor, or sale, transfer, mortgage or assignment of all,
or substantially all, of the business or trade theretofore
conducted by the vendor, mortgagor, transferor, or
assignor, or of all, or substantially all, of the fixtures and
equipment used in and about the business of the vendor,
mortgagor, transferor, or assignor, shall be deemed to be
a sale and transfer in bulk, in contemplation of this Act:
Provided, however, That if such vendor, mortgagor,
transferor or assignor, produces and delivers a written
waiver of the provisions of this Act from his creditors as
shown by verified statements, then, and in that case, the
provisions of this section shall not apply.
Sec. 3. Statement of creditors. It shall be the duty of
every person who shall sell, mortgage, transfer, or assign
any stock of goods, wares, merchandise, provisions or
materials in bulk, for cash or on credit, before receiving
from the vendee, mortgagee, or his, or its agent or
representative any part of the purchase price thereof, or
any promissory note, memorandum, or other evidence
therefor, to deliver to such vendee, mortgagee, or agent,
or if the vendee, mortgagee, or agent be a corporation,
then to the president, vice-president, treasurer, secretary
or manager of said corporation, or, if such vendee or
mortgagee be a partnership firm, then to a member
thereof, a written statement, sworn to substantially as
hereinafter provided, of the names and addresses of all
creditors to whom said vendor or mortgagor may be
indebted, together with the amount of indebtedness due
or owing, or to become due or owing by said vendor or
mortgagor to each of said creditors, which statement
shall be verified by an oath to the following effect:
PHILIPPINE ISLANDS
PROVINCE OR CITY OF _________________}
Before me, the undersigned authority, personally
appeared __________________ (vendor, mortgagor,
agent or representative, as the case may be), bearing
cedula No. ____________ issued at ___________ on the
day of _____________ who, by me being first duly
sworn, upon his oath, deposes and states that the
foregoing statement contains the names of all of the
creditors of ________________ (vendor, or mortgagor)
together with their addresses, and that the amount set
opposite each of said respective names, is the amount
now due and owing, and which shall become due and
owing by _____________ (vendor or mortgagor) to such
creditors, and that there are no creditors holding claims
due or which shall become due, for or on account of
goods, wares, merchandise, provisions or materials
purchased upon credit or on account of money borrowed,
to carry on the business of which said goods, wares,
merchandise, provisions or materials are a part, other
than as set forth in said statement.

______________________
Subscribed and sworn to before me this __________ day of
_________, 19____, at _____________.
Sec. 4. Fraudulent and void sale, transfer or mortgage.
Whenever any person shall sell, mortgage, transfer, or assign
any stock of goods, wares, merchandise, provisions or
materials, in bulk, for cash or on credit, and shall receive any
part of the purchase price, or any promissory note, or other
evidence of indebtedness for said purchase price or advance
upon mortgage, without having first delivered to the vendee
or mortgagee or to his or its agent or representative, the
sworn statement provided for in section three hereof, and
without applying the purchase or mortgage money of the said
property to the pro rata payment of the bona fide claim or
claims of the creditors of the vendor or mortgagor, as shown
upon such sworn statement, he shall be deemed to have
violated this Act, and any such sale, transfer or mortgage
shall be fraudulent and void.
Sec. 5. Inventory. It shall be the duty of every vendor,
transferor, mortgagor, or assignor, at least ten days before the
sale, transfer or execution of a mortgage upon any stock of
goods, wares, merchandise, provisions or materials, in bulk,
to make a full detailed inventory thereof and to preserve the
same showing the quantity and, so far as is possible with the
exercise of reasonable diligence, the cost price to the vendor,
transferor, mortgagor or assignor of each article to be
included in the sale, transfer or mortgage, and notify every
creditor whose name and address is set forth in the verified
statement of the vendor, transferor, mortgagor, or assignor, at
least ten days before transferring possession thereof,
personally or by registered mail, of the price, terms conditions
of the sale, transfer, mortgage, or assignment.
Sec. 6. Any vendor, transferor, mortgagor or assignor of any
stock of goods, wares, merchandise, provisions or materials,
in bulk, or any person acting for, or on behalf of any such
vendor, transferor, mortgagor, or assignor, who shall
knowingly or willfully make, or deliver or cause to be made or
delivered, a statement, as provided for in section three
hereof, which shall not include the names of all such creditors,
with the correct amount due and to become due to each of
them, or shall contain any false or untrue statement, shall be
deemed to have violated the provisions of this Act.
Sec. 7. It shall be unlawful for any person, firm or
corporation, as owner of any stock of goods, wares,
merchandise, provisions or materials, in bulk, to transfer title
to the same without consideration or for a nominal
consideration only.

Head, to prescribe and adopt from time to time such

rules and regulations as may be deemed necessary for
the proper and efficient enforcement of the provisions of
this Act.
Sec. 11. Any person violating any provision of this Act
shall, upon conviction thereof, be punished by
imprisonment not less than six months, nor more than
five years, or fined in sum not exceeding five thousand
pesos, or both such imprisonment and fine, in the
discretion of the court.
Sec. 12. This Act shall take effect on its approval.
A. RA 3952
Sec. 2. Any sale, transfer, mortgage or assignment of a
stock of goods, wares, merchandise, provisions, or
materials otherwise than in the ordinary course of trade
and the regular prosecution of the business of the
vendor, mortgagor, transferor, or assignor, or any sale,
transfer, mortgage or assignment of all, or substantially
all, of the business or trade theretofore conducted by the
vendor, mortgagor, transferor, or assignor, or of all, or
substantially all, of the fixtures and equipment used in
and about the business of the vendor, mortgagor,
transferor or assignor, shall be deemed to be a sale and
transfer in bulk, in contemplation of this Act: Provided,
however, that if such vendor, mortgagor, transferor or
assignor produces and delivers a written waiver of the
provisions of this Act from his creditors as shown by
verified statements, then, and in that case, the
provisions of this section shall not apply.
a) Thrust of the law: to protect persons who extended
credit to merchants, relying on the fact that their stock of
merchandise was not to be sold in bulk, but kept up and
replenished from time to time (with the extension of
credit comes the presupposition of continuance in the
business of merchandising)
Types of transactions covered 72
1. any sale, transfer, mortgage or assignment of a
stock of goods, wares, merchandise, provisions
or materials otherwise than in the ordinary
course of trade and the regular prosecution of
the business

Sec. 8. Nothing in this Act contained shall apply to executors,

administrators, receivers, assignees in insolvency, or public
officers, acting under judicial process.
Sec. 9. The sworn statement containing the names and
addresses of all creditors of the vendor or mortgagor provided
for in section three of this Act, shall be registered in the
Bureau of Commerce. For the registration of each such sworn
statement a fee of five pesos shall be charged to the vendor
or mortgagor of the stock of goods, wares, merchandise,
provisions or materials, in bulk.
Sec. 10. The provisions of this Act shall be administered by
the Director of the Bureau of Commerce and Industry, who is
hereby empowered, with the approval of the Department

46

2.

any sale, transfer, mortgage or assignment of all,

or substantially all, of the business or trade
theretofore conducted by the vendor, etc.

3.

any sale, transfer, mortgage or assignment of all,

or substantially all, of the fixtures and equipment
used in and about the business of the vendor,
etc.

Stock common use when applied to goods in a

mercantile house refers to those which are kept for sale
72

PEOPLE v WONG: The object of the sale in this case is not

covered by the provision alleged to have been infringed. Wongs
business was a foundry shop that manufactures iron works and
processes or casts metalsMerchandise something that is sold
everday and is constantly going out of the store and being replaced
by other goods.

B. COMPLIANCE REQUIREMENT
a) delivery of the list of creditors to the vendee or mortgagee
before receiving the consideration
b) application of the consideration to the pro-rata payment of
the claims of creditors appearing in the list
c) preparation of a full, detailed inventory of the goods sold or
mortgaged
d) notification to creditors at least 10 days before delivery

(c) Sales in restaurant operations by a hotel owner or

inn-keeper irrespective of the amount of capital:
Provided, that the restaurant is incidental to the hotel
business; and
(d) Sales which are limited only to products
manufactured,
processed
or
assembled
by
a
manufacturer through a single outlet, irrespective of
capitalization.

C. EFFECTS OF NON-COMPLIANCE
a) If the purchase or mortgage money is not applied pro-rata
to the payment of the bona fide claims of the creditors of the
vendor/mortgagor, the sale, transfer, or mortgage shall be
fraudulent and void.

(2) "High-end or luxury goods" shall refer to goods which

are not necessary for life maintenance and whose
demand is generated in large part by the highest income
groups. Luxury goods shall include, but are not limited
to, products such as: jewelry, branded or designer
clothing and footwear, wearing apparel, leisure and
sporting goods, electronics and other personal effects.

b) The law penalizes any intentional omission of the names of

the creditors in the required list, with the correct amount due
or to become due, or any false or untrue statement therein.
The law also penalizes any transfer of title in bulk, without
consideration or for a nominal consideration only

Sec. 4. Treatment of Natural-Born Citizen Who Has Lost

His Philippine Citizenship. - A natural-born citizen of the
Philippines who has lost his Philippine citizenship but who
resides in the Philippines shall be granted the same rights
as Filipino citizens for purposes of this Act.

PENALTY: 6 months 5 years imprisonment; fine of <

P5,000; or both; penalty imposable to the debtor

Sec. 5. Foreign Equity Participation. - Foreign-owned

partnerships, associations and corporations formed and
organized under the laws of the Philippines may, upon
registration
with
the
Securities
and
Exchange
Commission (SEC) and the Department of Trade and
Industry (DTI) or in case of foreign-owned single
proprietorships, with the DTI, engage or invest in the
retail trade business, subject to the following categories:

XVI. RETAIL TRADE LIBERALIZATION ACT

RA 8762. An act liberalizing the retail trade business,
repealing for the purpose RA 1180, as amended, and for
other purposes.
Sec. 1. Title. - This Act shall be known as the "Retail Trade
Liberalization
Act
of
2000."
Sec. 2. Declaration of Policy. - It is the policy of the State to
promote consumer welfare in attracting, promoting and
welcoming productive investments that will bring down prices
for the Filipino consumer, create more jobs, promote tourism,
assist small manufacturers, stimulate economic growth and
enable Philippine goods and services to become globally
competitive through the liberalization of the retail trade sector.
Pursuant to this policy, the Philippine retail industry is hereby
liberalized to encourage Filipino and foreign investors to forge
an efficient and competitive retail trade sector in the interest
of empowering the Filipino consumer through lower prices,
higher quality if goods, better services and wider choices.
Sec.
3.
Definition.
As
used
in
this
Act:
(1) "Retail Trade" shall mean any act, occupation or calling of
habitually selling direct to the general public merchandise,
commodities or goods for consumption, but the restriction of
this law shall not apply to the following:

Category A - Enterprises with paid-up capital of the

equivalent in Philippine Pesos of less than Two Million Five
Hundred Thousand US Dollars (US$2,500,000.00) shall
be reserved exclusively for Filipino citizens and
corporations wholly-owned by Filipino citizens.
Category B - Enterprises with a minimum paid-up capital
of the equivalent in Philippine Pesos of Two Million Five
Hundred Thousand US Dollars (US$2,500,000.00) may
be wholly owned by foreigners except for the first two (2)
years after the effectivity of this Act wherein foreign
participation shall be limited to not more than (60%) of
total
equity.
Category C - Enterprises with a paid-up capital of the
equivalent in Philippine Pesos of Seven Million Five
Hundred Thousand US Dollars (US$7,500,000.00) or
more maybe wholly owned by foreigners: Provided,
however, that in no case shall the investments for
establishing a store in Categories B and C be less than
the equivalent in Philippine Pesos of Eight Hundred Thirty
Thousand
US
Dollars
(US$830,000.00).

(a) Sales by a manufacturer, processor, laborer, or worker, to

the general public the products manufactured, processed or
produced by him if his capital does not exceed One Hundred
Thousand
Pesos
(P100,000.00);

Category D - Enterprises specializing in high-end or

luxury products with a paid up capital of the equivalent in
Philippine Pesos of Two Hundred Fifty Thousand US
Dollars (US$250,000.00) per store may be wholly-owned
by foreigners.

(b) Sales by a farmer or agriculturist selling the products of

his farm;

The foreign investor shall be required to maintain in the

Philippines, the full amount of the prescribed minimum
capital. Unless the foreign investor has notified the SEC
and the DTI of its intention to repatriate its capital and

47

cease operations in the Philippines. The actual use in

Philippine operations of the inwardly remitted minimum capital
requirements
shall
be
monitored
by
the
SEC.
Failure retail stores shall secure a certification from the
Bangko Sentral ng Pilipinas (BSP) and the DTI, which will
verify or confirm inward remittance of the minimum required
capital
investment.
Sec. 6. Foreign Investors Acquiring Shares of Stock of Local
Retailers. - Foreign Investors acquiring shares from existing
retail stores whether or not publicly listed whose net worth is
in excess of the peso equivalent of Two Million Five Hundred
Thousand US Dollars (US$2,500,000.00) may purchase only
up to a minimum of sixty percent (60%) of the equity thereof
within the first two (2) years from the effectivity of this Act
and thereafter, they may acquire the remaining percentage
consistent with the allowable foreign participation as herein
provided.
Sec. 7. Public Offering of Shares of Stock. - All retail trade
enterprises under Categories B and C in which foreign
ownership exceeds eighty percent (80%) of equity shall offer
a minimum of thirty percent (30%) of their equity to the
public through any stock exchange in the Philippines within
eight (8) years from their start of operations.
Sec. 8. Qualifications of Foreign Retailers. - No foreign retailer
shall be allowed to engage in retail trade in the Philippines
unless all the following qualifications are met:
(a)
A minimum of Two Hundred Million US Dollars
(US$200,000,000.00) net worth in its parent corporation for
Categories B and C, and Fifty Million US Dollars
(US$50,000,000.00) net worth in its parent corporation for
Category
D;
(b) Five (5) retailing branches or franchises in operation
anywhere around the world unless such retailers has at least
one (1) store capitalized at a minimum of Twenty-Five Million
US
Dollars
(US$25,000,000.00);
(c)

Five

(5)-year

track

record

in

retailing;

and

(d) Only nationals from, or judicial entities formed or

incorporated in, countries which allow the entry of Filipino
retailers, shall be allowed to engage in retail trade in the
Philippines.
The DTI is hereby authorized to pre-qualify all foreign
retailers, subject to the provisions of this Act, before they are
allowed to conduct business in the Philippines.
The DTI shall keep a record of qualified foreign retailers who
may, upon compliance with law, establish retail stores in the
Philippines. It shall ensure that the parent retail trading
company of the foreign investor complies with the
qualifications on capitalization and track record prescribed in
this
section.
The Inter-Agency Committee on Tariff and Related Matters of
the National Economic Development Authority (NEDA) Board
shall formulate and regularly update a list of foreign retailers
of high-end or luxury goods and render an annual report on
the
same
to
Congress.

Sec. 9. Promotional of Locally Manufactured Products. For ten (10) years after the effectivity of this Act, at least
thirty percent (30%) of the aggregate cost of the stock
inventory of foreign retailers falling under Categories B
and C and ten percent (10%) for Category D, shall be
made in the Philippines.
Sec. 10. Prohibited Activities of Qualified Foreign
Retailers. - Qualified foreign retailers shall not be allowed
to engage in certain retailing activities outside their
accredited stores through the use of mobile or rolling
stores or carts, the use of sales representatives, door-todoor selling, restaurants and sari-sari stores and such
other similar retailing activities: Provided, that a detailed
list of prohibited activities shall hereafter be formulated
by
the
DTI.
Sec. 11. Implementing Agency; Rules and Regulations. The monitoring and regulation of foreign sole
proprietorships,
partnerships,
associations
or
corporations allowed to engage in retail trade shall be the
responsibility of the DTI. This shall include resolution of
conflicts.
The DTI, in coordination with the SEC, the NEDA and the
BSP, shall formulate and issue the implementing rules
and regulations necessary to implement this Act within
ninety
(90)
days
after
its
approval.
Sec. 12. Penalty Clause. - Any person who shall be found
guilty of violation of any provision of this Act shall be
punished by imprisonment of not less than six (6) years
and one (1) day but not more than eight (8) years, and a
fine of not less than One Million Pesos (P1,000,000.00)
but
not
more
than
Twenty
Million
Pesos
(P20,000,000.00).
In the case of associations, partnerships or corporations,
the penalty shall be imposed upon its partners, president,
directors, managers and other officers responsible for the
violation. If the offender is not a citizen of the
Philippines, he shall be deported immediately after
service of sentence. If the Filipino offender is a public
officer or employee, he shall, in addition to the penalty
prescribed herein, suffer dismissal and permanent
disqualification
from
public
office.
Sec. 13. Repealing Clause. - Republic Act No. 1180, as
amended, is hereby repealed. Republic Act No. 3018, as
amended, and all other laws, executive orders, rules and
regulations or parts thereof inconsistent with this Act are
repealed
or
modified
accordingly.
Sec. 14. Separability Clause. - If any provision of this
Act shall be held unconstitutional, the other provisions
not otherwise affected thereby shall remain in force and
effect.
Sec. 15. Effectivity. - This Act shall take effect fifteen
(15) days after its approval and publication in at least
two (2) newspapers of general circulation in the
Philippines.
A.
73

SCOPE AND DEFINITION OF RETAIL TRADE73

KING v HERNAEZ : There is no distinction between control and

non-control positions with respect to employment of aliens. The Retail
Trade Law read in connection with the Anti-Dummy Act seeks a

48

Retail Trade any act, occupation or calling of habitually

selling direct to the general public merchandise, commodities
or goods for consumption
EXCEPT:
1. sales by a manufacturer, processor, laborer or worker
of products made by him if his capital is less than or
equal to 100,000 pesos
2. sales by a farmer or agriculturist of the products of
his farm
3. sales limited only to products manufactured,
processed or assembled by the manufacturer in a
single outlet irrespective of capitalization
a) General public : activities of seller must be such that the
target clientele are not only a particular person or group of
persons.
b) SEC Opinion No. 11, series of 2003: Engaging in the
selling of merchandise as an incident to the primary purpose
of a corporation does not constitute retail trade (e.g.,
operation of pharmacy by a hospital) within the purview of
the Act (Villanueva)
B.

RIGHTS OF FORMER NATURAL-BORN FILIPINOS

Natural-born Filipinos who have lost their citizenship but who

reside in the Philippines shall be given the same rights as
Filipino citizens with respect to this law.
C.

CATEGORIES OF RETAIL TRADE ENTERPRISES (Sec.

5)

D. HOW ALIENS MAY INVEST IN RETAIL TRADE IN THE

PHILIPPINES (Sec. 8)
E.

RULES ON FOREIGN RETAILERS IN THE PHILIPPINES

F.

PENALTY CLAUSE (Sec. 12)

CA 108 (Anti-Dummy Act). An act to punish acts of

evasion of the laws on the nationalization of certain
rights, franchises or privileges.
Sec. 1. Penalty In all cases in which any constitutional or
legal provisions requires Philippine or any other specific
citizenship as a requisite for the exercise or enjoyment of a
right, franchise or privilege, any citizen of the Philippines or of
any other specific country who allows his name or citizenship
to be used for the purpose of evading such provision, and any
alien or foreigner profiting thereby, shall be punished by
imprisonment for not less than five nor more than fifteen
years, and by a fine of not less than the value of the right
franchise or privilege, which is enjoyed or acquired in violation
of the provisions hereof but in no case less than P5000.
The fact that the citizen of the Philippines or of any specific
country charged with a violation of this Act had, at the time of
the acquisition of his holdings in the corporations or
associations referred to in section two of this Act, no real or
personal property, credit or other assets the value of which
shall at least be equivalent to said holdings, shall be evidence
of a violation of this Act.1
complete ban on aliens.

49

Sec. 2. Simulation of minimum capital stock In all

cases in which a constitutional or legal provision requires
that, in order that a corporation or association may
exercise or enjoy a right, franchise or privilege, not less
than a certain per centum of its capital must be owned
by citizens of the Philippines or of any other specific
country, it shall be unlawful to falsely simulate the
existence of such minimum stock or capital as owned by
such citizens, for the purpose of evading said provision.
The president or managers and directors or trustees of
corporations or associations convicted of a violation of
this section shall be punished by imprisonment of not
less than five nor more than fifteen years, and by a fine
not less than the value of the right, franchise or privilege,
enjoyed or acquired in violation of the provisions hereof
but in no case less than P5000.2
Sec. 2-A. Unlawful use, Exploitation or enjoyment Any
person, corporation, or association which, having in its
name or under its control, a right, franchise, privilege,
property or business, the exercise or enjoyment of which
is expressly reserved by the Constitution or the laws to
citizens of the Philippines or of any other specific country,
or to corporations or associations at least sixty per
centum of the capital of which is owned by such citizens,
permits or allows the use, exploitation or enjoyment
thereof by a person, corporation or association not
possessing the requisites prescribed by a the Constitution
or the laws of the Philippines; or leases, or in any other
way, transfers or conveys said right, franchise, privilege,
property or business to a person, corporation or
association
not
otherwise
qualified
under
the
Constitution, or the provisions of the existing laws; or in
any manner permits or allows any person, not possessing
the qualifications required by the Constitution, or existing
laws to acquire, use, exploit or enjoy a right, franchise,
privilege, property or business, the exercise and
enjoyment of which are expressly reserved by the
Constitution or existing laws to citizens of the Philippines
or of any other specific country, to intervene in the
management, operation, administration or control
thereof, whether as an officer, employee or laborer
therein with or without remuneration except technical
personnel whose employment may be specifically
authorized by the Secretary of Justice, and any person
who knowingly aids, assists or abets in the planning
consummation or perpetration of any of the acts herein
above enumerated shall be punished by imprisonment for
not less than five nor more than fifteen years and by a
fine of not less than the value of the right, franchise or
privilege enjoyed or acquired in violation of the provisions
hereof but in no case less than five thousand pesos:
Provided, however, That the president, managers or
persons in charge of corporations, associations or
partnerships violating the provisions of this section shall
be criminally liable in lieu thereof: Provided, further, That
any person, corporation or association shall, in addition
to the penalty imposed herein, forfeit such right,
franchise, privilege, and the property or business enjoyed
or acquired in violation of the provisions of this Act: And
provided, finally, That the election of aliens as members
of the board of directors or governing body of
corporations or associations engaging in partially
nationalized activities shall be allowed in proportion to
their allowable participation or share in the capital of
such entities.3

Sec. 2-B. Any violation of the provisions of this Act by the

spouse of any public official, if both live together, shall be
cause for the dismissal of such public official. 4
Sec. 2-C. The exercise, possession or control by a Filipino
citizen having a common-law relationship with an alien of a
right, privilege, property or business, the exercise or
enjoyment of which is expressly reserved by the Constitution
or the laws to citizens of the Philippines, shall constitute a
prima facie evidence of violation of the provisions of Section
2-A hereof.5
Sec. 3. Any corporation or association violating any of the
provisions of this Act shall, upon proper court proceedings, be
dissolved.
Sec. 3-A. Reward to informer. In case of conviction under
the provisions of this Act, twenty-five per centum of any fine
imposed shall accrue to the benefit of the informer who
furnishes to the Government original information leading to
said conviction and who shall be ascertained and named in the
judgment of the court. If the informer is a dummy, who shall
voluntarily take the initiative of reporting to the proper
authorities any violation of the provisions of this Act and
assist in the prosecution, resulting in the conviction of any
person or corporation profiting thereby or involved therein, he
shall be entitled to the reward hereof in the sum equivalent to
twenty-five per centum of the fine actually paid to or received
by the Government, and shall be exempted from the penal
liabilities provided for in this Act. 6
Sec. 4. This Act shall take effect upon its approval.
Approved, October 30, 1936.

50