CONTRACTS

a. Nominate Contracts – are those which have their FORMALITY

own name and individuality, and are regulated by
provisions of law. (e.g. Sale) Q: What are rules on the form of contracts?
b. Innominate Contracts – are those which lack
name or individuality, and are not regulated by A:
special provisions of law. 1. Contracts shall be obligatory, in whatever form they
(Jurado, Comments and Jurisprudence on Obligations and may have been entered into, provided all essential
Contracts. 2011 ed. pp. 359-361) requisites for their validity are present.
2. Contracts must be in a certain form –when the law
Q: What are the formalities required in the following requires that a contract be in some form to be:
contracts? a. valid;
b. enforceable; or
A: c. for the convenience of the parties.
1. Donations: 3. The parties may compel each other to reduce the
a. Personal property- if value exceeds 5,000, the verbal agreement into writing.
donation and acceptance must both be written.
(Art. 748) Note: GR: Form is not required in consensual contracts.
b. Real property:
i. donation must be in a public instrument, XPNs: When the law requires a contract be in writing for its:
1. validity (formal contracts); or
specifying therein the property donated and
2. enforceability (under Statute of Frauds).
value of charges which donee must satisfy.
ii. acceptance must be written, either in the
Q: What are the contracts which must appear in writing to
same deed of donation or in a separate
be valid?
instrument.
iii. if acceptance is in a separate instrument, the
A:
donor shall be notified thereof in authentic
1. Donation of personal property whose value
form, and this step shall be noted in both
exceeds five thousand pesos (Art. 748) – the
instruments. (Art. 749)
donation and acceptance must be in writing
2. Sale of a piece of land or any interest therein
2. Partnership where real property contributed:
through an agent (Art. 1874) – the authority of
a. there must be a public instrument regarding
the agent shall appear in writing
the partnership;
3. Agreements regarding payment of interest in
b. the inventory of the realty must be made,
contracts of loan (Art. 1956)
signed by the parties and attached to the
4. Antichresis (Art. 2134) – the amount of the
public instrument. (Art. 1773)
principal and the interest shall be specified in
writing (Jurado, Comments and Jurisprudence on
3. Antichresis - the amount of the principal and interest
Obligations and Contracts. 2011 ed. p. 481)
must be in writing. (Art. 2134)
Q: What are the contracts which must appear in a public
4. Agency to sell real property or an interest therein -
document?
authority of the agent must be in writing. (Art. 1874)
A:
5. Stipulation to charge interest - interest must be
1. Donation of real properties (Art. 719);
stipulated in writing. (Art. 1956)
2. Partnership where immoveable property or real rights
are contributed to the common fund (Arts. 1171 &
6. Stipulation limiting common carrier's duty of
1773);
extraordinary diligence to ordinary diligence:
3. Acts and contracts which have for their object the
a. must be in writing, signed by shipper or owner
creation, transmission, modification or extinguishment
b. supported by valuable consideration other than
of real rights over immovable property; sales of real
the service rendered by the comon carrier
property or of an interest therein is governed by Arts.
c. reasonable, just and not contrary to public policy.
1403, No. 2, and 1405 [Art. 1358 (1)];
(Art. 1744)
4. The cession, repudiation or renunciation of hereditary
rights or of those of the conjugal partnership of gains
7. Chattel mortgage - personal property must be
[Art. 1358 (2)]
recorded in the Chattel Mortgage Register. (Art. 2140)
5. 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 [Art. 1358 (3)];
6. The cession of actions or rights proceeding from an act
appearing in a public document [Art. 1358 (4)].

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Q: What are contracts that must be registered? that the property is sold absolutely or with a right of
repurchase (Art. 1365).
A:
1. Chattel mortgages (Art. 2140) Q: In what cases is reformation of instruments not
allowed?
Note: In accordance with Article 2125 of the Civil Code, an
unregistered chattel mortgage is a valid and binding between A:
the parties because registration is necessary only for the 1. Simple, unconditional donations inter vivos
purpose of binding third persons (Filipinas Marble
2. Wills
Corporation v. Intermediate Appellate Court, G.R. No. L-
68010, 1986). 3. When the agreement is void
4. When an action to enforce the instrument is filed
2. Sale or transfer of large cattle (Cattle Registration Act) (estoppel).

REFORMATION Q: What is the prescriptive period in reformation of

instruments?
Q: What is reformation of instruments?
A: 10 years from the date of the execution of the
A: It is a remedy to conform to the real intention of the instrument (Pineda, Obligations and Contracts, 2000 ed.,
parties due to mistake, fraud, inequitable conduct, accident p.483)
(Art. 1359).
Q: Who may ask for the reformation of an instrument?
Note: Reformation is based on justice and equity (Pineda,
Obligations and Contracts, 2000 ed., p.469). A: It may be ordered at the instance of:
1. if the mistake is mutual – either party or his
Q: What are the requisites in reformation of instruments? successors in interest; otherwise;
2. upon petition of the injured party; or
A: 3. his heirs and assigns.
1. Meeting of the minds to the contract
2. True intention is not expressed in the instrument Note: When one of the parties has brought an action to enforce
3. By reason of: (MARFI) the instrument, no subsequent reformation can be asked
(estoppel) (Art. 1367)
a. Mistake,
b. Accident,
Q: In case of reformation of contracts, is the prescription
c. Relative simulation,
period in bringing an action for reformation run from the
d. Fraud, or
time the contract became disadvantageous to one party?
e. Inequitable conduct
f. Clear and convincing proof of MARFI.
A: In reformation of contracts, what is reformed is not the
Note: When there is no meeting of the minds, the proper remedy contract itself, but the instrument embodying the contract.
is annulment and not reformation (Pineda, Obligations and It follows that whether the contract is disadvantageous or
Contracts, 2000 ed., p.471). not is irrelevant to reformation and therefore, cannot be an
element in the determination of the period for prescription
Q: In what cases is reformation of instrument allowed? of the action to reform. (Pineda, Obligations and Contracts,
2000 ed., p.469)
A:
1. When a mutual mistake of the parties causes the
failure of the instrument to disclose their agreement.
(Art. 1361)
2. When one party was mistaken and the other acted
fraudulently or inequitably in such a way that the
instrument does not show their true intention, the
former may ask for the reformation of the instrument
(Art. 1362)
3. When one party was mistaken and the other knew or
believed that the instrument did not state their real
agreement, but concealed that fact from the former
(Art. 1363).
4. When through the ignorance, lack of skill, negligence
or bad faith on the part of the person drafting the
instrument or of the clerk or typist, the instrument
does not express the true intention of the parties (Art.
1364).
5. If the parties agree upon the mortgage or pledge of
real or personal property, but the instrument states

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DEFECTIVE CONTRACTS

RESCISSIBLE VOIDABLE UNENFORCEABLE VOID INEXISTENT

Defect is cause by
Defect is caused by
Defect is caused by lack lack of the essential
injury/damage either Defect is caused by Defect is caused by
of form, authority or requisites of contract
to one of the parties or vices of consent illegality
rd capacity of both parties (consent, object,
to a 3 person
cause)
Not Curable Not curable by
Curable by prescription Curable by prescription Curable by prescription
prescription prescription
Binding unless the
Binding unless
Binding until annulled defect is raised against Not binding Not binding
rescinded
enforcement

Note: Inexistent contracts are not perfected contracts. Rescissible, voidable, unenforceable and void contracts are perfected contracts.
Rescissible, voidable, and unenforceable contracts are valid and binding unless otherwise declared by the court upon a petition commenced for
such purpose or upon being raised as a defense. Rescissible and voidable contracts are valid, binding and enforceable unless otherwise declared
by the court upon a petition commenced for such purpose or upon being raised as a defense.

BASIC DISTINCTIONS

VOID and
BASIS RESCISSIBLE VOIDALBE UNENFORCEABLE
INEXISTENT
Illegality (void) or
Incapacity of one of Entered without authority or in excess
Economic damage or absence of any of
Origin of the parties to give thereof; non-compliance with Statute of
lesion; declaration essential requisites
defect consent or vitiated Frauds; incapacity of both parties to give
by law of a contract
consent consent
(inexistent)
rd
Damage/ One of parties or 3 To other party not
Not necessary Not necessary
prejudice person necessary
Valid & legally Valid & legally Inoperative until ratified; not
Legal effect enforceable until enforceable until enforceable in court without proper None
judicially rescinded judicially annulled ratification
Rescission or Annulment of Declaration of nullity
Remedy/ action Just a personal defense
rescissory action contract of contract
Must be a direct Attacked directly or
Nature of action Direct action needed Indirect attack allowed
action indirectly
Generally rd
Contracting party; 3 persons cannot
Who can file the contracting party;
XPN: CRs who are rd Must be contracting party unless interest are
action XPN: 3 person
defrauded directly affected
prejudiced
Susceptibility of Yes, but not of
Yes Yes No
ratification ratification proper
Action for
Action for Action for recovery; specific
Action for rescission declaration of nullity
Susceptibility annulment performance or damages prescribes (10
prescribes after 4 or putting of defense
prescription prescribes after 4 years if basis written contract; 6 years if
years of nullity does not
years unwritten)
prescribe

RESCISSIBLE CONTRACTS Q: What are the characteristics of rescissible contract?

Q: What are rescissible contracts? A:

1. It has all the elements of a valid contract;
A: Those contracts validly agreed upon but have caused a 2. It has the defect consisting in an injury to one of the
particular economic damage or lesion either to one of the contracting parties or third person,
parties or to a third person and which may be set aside
even if valid. It may be set aside in whole or in part, to the generally in the form of economic damage or lesion,
extent of the damage caused (Art. 1381) fraud, and alienation of the property.
3. It is valid and effective until rescinded;
Those contracts have all the essential requisites but may be 4. It can be attacked only directly.
set aside by reason of damage or injury to third pesons. 5. It is susceptible of convalidation only by prescription
(Pineda, Obligations and Contracts, 2000 ed., p. 513)

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6. Transfer is made between father and son, where there
Q: Which contracts are rescissible? are present some or any of the above circumstances;
and
A: 7. Failure of the vendee to take exclusive possession of
1. Entered into by persons exercising fiduciary capacity: the property. (Oria v. McMicking, 21 Phil. 243)
a. Entered into by guardians whenever the wards
whom they represent suffer lesion by more than Q: Distinguish resolution from rescission.
¼ of value of the property [Art. 1381(1)];
A:
Note: Contracts entered by a guardian over the RESOLUTION RESCISSION
property of his ward, without court approval is void, not (ART. 1191) (ARTICLE 1381)
merely rescissible regardless of the existence of lesion
Both presuppose contracts validly entered into and
subsisting and both require mutual restitution when proper
b. Agreed upon in representation of absentees, if
Nature
absentee suffers lesion by more than ¼ of value
Principal action. retaliatory
of property [Art. 1381(2)]; Subsidiary remedy
in character
c. Contracts where rescission is based on fraud
Grounds for Rescission
committed on creditor and cannot collect the
claim due (accion pauliana) [Art. 1381(3)]; 5 grounds under Art. 1381.
d. Objects of litigation; contract entered into by Only ground is non- (lesions or fraud of creditors)
defendant without knowledge or approval of performance of obligation Non-performance is not
litigants or judicial authority [Art. 1381(4)]; important
e. Payment by an insolvent – on debts which are not Applicability
yet due; prejudices claim of others; (Art. 1382) Applies only to reciprocal Applies to both unilateral
f. Provided for by law (Arts. 1526, 1534, 1538, 1539, obligations and reciprocal obligations
1542, 1556, 1560, 1567 & 1659) Person who can Initiate the Action
Even third persons
Only the injured party who is
2. Payments made in state of insolvency: prejudiced by the contract
a party to the contract
a. Plaintiff has no other means to maintain may bring the action
reparation; Fixing of Period by the Court
b. Plaintiff must be able to return whatever he may Court may fix a period or
be obliged to return due to rescission; grant extension of time for
c. The things must not have been passed to third the fulfillment of the Court cannot grant
persons in good faith; obligation when there is extension of time
d. It must be made within 4 yrs. sufficient reason to justify
such extension
Q: What are the requisites before a contract entered into Purpose
in fraud of creditors may be rescinded? Reparation for damage or
injury, allowing partial
A: rescission of contract
Cancellation of the contract
1. There must be credit existing prior to the celebration (Pineda, Obligations and
of the contract; Contracts, 2000 ed., pp. 514-
2. There must be fraud, or at least, the intent to commit 515)
fraud to the prejudice of the creditor seeking
rescission; Note: While Article 1191 uses the term “rescission,” the original
3. The creditor cannot in any legal manner collect his term which was used in the old Civil Code, from which the article
credit (subsidiary character of rescission); and was based, was “resolution.” (Ong v. CA, G.R. No. 97347, July 6,
1999)
4. The object of the contract must not be legally in
possession of a third person in good faith.
Q: What is the obligation created by the rescission of the
Q: What are the badges of fraud attending sales, as contract?
determined by the courts?
A: Mutual restitution of things which are the objects of the
contract and their fruits and of the price with interest.
A:
1. Consideration of the conveyance is inadequate or
Q: When is mutual restitution not applicable?
fictitious;
2. Transfer was made by a debtor after a suit has been
begun and while it is pending against him A:
1. Creditor did not receive anything from contract; or
3. Sale upon credit by an insolvent debtor;
4. The presence of evidence of large indebtedness or 2. Thing already in possession of third persons in good
faith; subject to indemnity only, if there are two or
complete insolvency of the debtor;
5. Transfer of all his property by a debtor when he is more alienations – liability of first infractor.
financially embarrassed or insolvent;

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Note: Rescission is possible only when the person demanding rescission creates the obligation to return the things which
rescission can return whatever he may be obliged to restore. A were the object of the contract together with their fruits
court of equity will not rescind a contract unless there is and interest. Therefore, by virtue of the extrajudicial
restitution, that is, the parties are restored to the status quo ante
rescission of the contract to sell by Goldenrod without
(Article 1385).
opposition from Barretto Realty, which in turn, sold the
property to other persons, Barretto Realty, had the
Q: Reyes (seller) and Lim (buyer) entered into a contract
obligation to return the earnest money which formed part
to sell a parcel of land. Harrison Lumber occupied the
of the purchase price plus legal interest from the date it
property as lessee. Reyes offered to return the P10 million
received notice of rescission. It would be most inequitable
downpayment to Lim because Reyes was having problems
if Barretto Realty would be allowed to retain the money at
in removing the lessee from the property. Lim rejected
the same time appropriate the proceeds of the second sale
Reyes’ offer. Lim learned that Reyes had already sold the
made to another. (Goldenrod, Inc. v. CA, G.R. No. 126812,
property to another.
Nov. 24, 1998)
Both Reyes and Lim are now seeking rescission of the
What is the prescriptive period of action for rescission?
contract to sell. However, Reyes does not want to deposit
the 10M to the court because according to him, he has the
A:
“right to use, possess and enjoy” of the money as its
1. Under Art. 1381, no.1 – within 4 years from the time
owner before the contract to sell is rescinded. Is Reyes’
the termination of the incapacity of the ward;
contention correct?
2. Under Art. 1381, no. 2- within 4 years from the time
the domicile of the absentee is known; or
A: No. There is also no plausible or justifiable reason for
3. Under Art. 1381, nos. 3 & 4 & Art. 1382 – within 4
Reyes to object to the deposit of the P10 million
years from the time of the discovery of fraud.
downpayment in court. The contract to sell can no longer
be enforced because Reyes himself subsequently sold the
VOIDABLE CONTRACTS
property. Both Lim and Reyes are seeking for rescission of
the contract. By seeking rescission, a seller necessarily
Q: What are voidable contracts?
offers to return what he has received from the buyer. Such
a seller may not take back his offer if the court deems it
A: Voidable contracts are those where consent is vitiated
equitable, to prevent unjust enrichment and ensure
either by the incapacity of one of the contracting parties or
restitution, to put the money in judicial deposit.
by mistake, violence, intimidation, undue influence or
Note: In this case, it was just, equitable and proper for the trial fraud. These contracts are binding, unless they are
court to order the deposit of the down payment to prevent unjust annulled by a proper action in court. It is susceptible of
enrichment by Reyes at the expense of Lim. Depositing the down ratification. (Art. 1390)
payment in court ensure its restitution to its rightful owner. Lim, on
the other hand, has nothing to refund, as he has not received Note: Annulment may be had even if there be no damage to the
anything under the contract to sell (Reyes v. Lim, Keng and contracting parties.
Harrison Lumber, Inc., G.R. No. 134241, Aug. 11, 2003).
Q: What are the two general classes of voidable contracts?
Q: Goldenrod offered to buy a mortgaged property owned
by Barreto Realty to which it paid an earnest money A:
amounting to P1 million. It was agreed upon that 1. Those where one of the parties is incapable of
Goldenrod would pay the outstanding obligations of giving consent; and
Barreto Realty with UCPB. However, Goldenrod did not
pay UCPB because of the banks denial of its request for Note: If both parties are incapacitated to give consent,
the extension to pay the obligation. Thereafter, the contract is unenforceable, not voidable
Goldenrod, through its brocker, informed Barreto Realty
that it could not go through with the purchase of the 2. Those where the consent is vitiated by mistake,
property and also demanded the refund of the earnest violence, intimidation, undue influence or fraud.
money it paid. In the absence of a specific stipulation, may (Art. 1390)
the seller of real estate unilaterally rescind the contract
and as a consequence keep the earnest money to answer Q: What are the characteristics of a voidable contract?
for damages in the event the sale fails due to the fault of
the prospective buyer? A:
1. Effective until set aside;
A: No. Goldenrod and Barretto Realty did not intend that 2. May be assailed or attacked only in an action for that
the earnest money or advance payment would be forfeited purpose;
when the buyer should fail to pay the balance of the price, 3. Can be confirmed; and
especially in the absence of a clear and express agreement 4. Can be assailed only by the party whose consent was
thereon. defective or his heirs or assigns.

Moreover, Goldenrod resorted to extrajudicial rescission of

its agreement with Barretto Realty. Under Article 1385,

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Q: What are the causes of extinction of action to annul? value of the thing at the time of the loss,
with interest from the same date (Art. 1400).
A:
1. Prescription – the action for annulment must be Q: What is the prescriptive period for an annulment of a
commenced within 4 years from the time the: voidable contract?
a. incapacity ends;
b. guardianship ceases; A: The action for annulment shall be brought within four
c. violence, intimidation or undue influence ends; or years.
d. mistake or fraud is discovered (Art. 1391)
This period shall begin:
Note: If the action has prescribed, the contract can no  In cases of intimidation, violence or undue
longer be set aside (Villanueva v. Villanueva, 91 Phil 43).
influence, from the time the defect of the consent
ceases.
2. Ratification–cleanses the contract of its defects from
 In case of mistake or fraud, from the time of the
the moment it was constituted (Art. 1396) It
discovery of the same.
extinguishes the action to annul a voidable contract
 And when the action refers to contracts entered
(Art. 1392).
into by minors or other incapacitated persons,
from the time the guardianship ceases. (Art.
3. By loss of the thing which is the object of the contract
1391)
through fraud or fault of the person who is entitled to
annul the contract (Art. 1401)
Q: What is confirmation?
Note: If the right of action is based upon the incapacity of any one
of the contracting parties, the loss of the thing shall not be an A: It is an act by which a voidable contract is cured of its
obstacle to the success of the action, unless it took place through vice or defect (Luna v. Linatoc, 74 Phil. 15)
the fraud or fault of the plaintiff (Art. 1401)
Q: What is recognition?
Q: Who may institute action for annulment?
A: It is an act whereby a defect of proof is cured such as
A: By all who are thereby obliged principally or subsidiarily. when an oral contract is put into writing or when a private
instrument is converted into a public instrument (Luna v.
Note: He who has capacity to contract may not invoke the Linatoc, 74 Phil. 15)
incapacity of the party with whom he has contracted nor can those
who exerted intimidation, violence or undue influence or
Q: What is ratification?
employed fraud or caused mistake base their action upon these
flaws of the contract.
A: It is the act or means by virtue of which efficacy is given
Q: What are the effects of annulment? to a contract which suffers from a vice of curable nullity
(Manresa)
A:
1. If contract not yet consummated – parties shall be Note: Ratification extinguishes the action to annul a
released from the obligations arising therefrom. voidable contract (Art. 1392)
2. If contract has already been consummated – rules
provided in Arts. 1398-1402, shall govern. Q: What are the requisites of ratification?
a. Restitution
A:
GR: Mutual restitution. – the contracting parties 1. It is a voidable contract;
shall restore to each other things which have 2. Person ratifying must know the reason for the contract
been the subject matter of the contract, with being voidable;
their fruits and the price with its interest except in 3. Cause must not exist or continue to exist anymore at
case provided by law. In an obligation to render the time of ratification;
services, the value thereof shall be the basis for 4. It must be made expressly or by an act implying a
damages. (Art. 1398) waiver of the action to annul; and
5. The person ratifying it must be the injured party.
XPN: No restitution. – the incapacity of one of
the parties, the incapacitated person is not Q: What are the kinds of ratification?
obliged to make any restitution except insofar
as he has been benefited by the thing or the A:
price received by him. (Art. 1399) 1. Express –the desire of the innocent party to
convalidate the contract, or his waiver or renunciation
b. Whenever the person obliged by the decree of his right to annul the contract is clearly manifested
of annulment to return the thing cannot do verbally or formally in writing (Pineda, Obligations and
so because it has been lost through his fault, Contracts, 2000 ed. p. 552)
he shall return the fruits received and the

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2. Implied (tacit) – it is the knowledge of the reason UNENFORCEABLE CONTRACTS
which renders the contract voidable and such reason
having ceased, the person who has a right to invoke it Q: What are unenforceable contracts?
should execute an act which necessarily implies an
intention to waive his right (Art. 1393). A: Those contracts which cannot be enforced by action or
complaint, unless they have been ratified by the party or
Q: Who may ask for ratification of contract entered into parties who did not give consent.
by the incapacitated person?
Q: What are the kinds of unenforceable contracts?
A: Ratification may be effected by the guardian of the
incapacitated person (Art. 1394) A: The following contracts are unenforceable unless they
are ratified:
Note: Art. 1394 does not refer to a rescissible contract entered into 1. Those entered into the name of another person
by the guardian in behalf of his ward. by one who has been given no authority or legal
representation or who acted beyond his powers;
Q: Does retroactivity apply in ratification of contracts?
Note: A contract of sale over a piece of land entered by
A: GR: Yes. Ratification cleanses the contract from all its an agent whose authority is not in writing, even if he
defects from the moment it was constituted. (Art. 1396) acted beyond teh scope of his authority is void, not
merely unenforceable (Art. 1874).
XPN: Rights of innocent third person must not be
prejudiced. 2. Those that do not comply with the Statute of
Frauds; and
Note: Ratification does not require the conformity of the 3. Those where both parties are incapable of giving
contracting party who has no right to bring the action for consent to a contract. (Art. 1403)
annulment.
Q: What are the characteristics of unenforceable contract?
Q: Distinguish voidable contract from rescissible contract.
A:
A: 1. It cannot be enforced by a proper action in court;
VOIDABLE RESCISSIBLE 2. It may be ratified;
Defect is intrinsic. Defect is external 3. it cannot be assailed by third person.
It consist damage or
prejudice suffered by Q: What is Statute of Frauds?
It vitiates consent. one of the contracting
parties or a third A: The term "Statute of Frauds" [Article 1403, (2)] is
person. descriptive of statutes which require certain classes of
No damage or contracts to be in writing. It requires certain contracts
Damage is immaterial. prejudice, contract enumerated therein to be evidenced by some note or
cannot be rescissible. memorandum subscribed by the party charged or by his
Annulability of the Rescissibility of the agent in order to be enforceable. The Statute does not
contract is based on contract is based on deprive the parties of the right to contract with respect to
law. equity. the matters therein involved, but merely regulates the
Public interest Private interest formalities of the contract necessary to render it
predominates. predominates. enforceable. Evidence of the agreement cannot be received
Susceptible of Not susceptible of without the writing or a secondary evidence of its contents
ratification. ratification. (Swedish Match, AB v. CA, G.R. No. 128120, Oct. 20, 2004).
It is not a sanction but
It is a sanction. Note: The Statute of Frauds applies only to executory contracts,
a remedy.
not to those that are partially or completely fulfilled. Where a
Third persons who are contract of sale is alleged to be consummated, it matters not that
Only parties to the
affected may file the neither the receipt for the consideration nor the sale itself was in
contract can assail it.
action writing. Oral evidence of the alleged consummated sale is not
It is a subsidiary action. forbidden by the Statute of Frauds and may not be excluded in
(Pineda, Obligations court (Victoriano v. CA, G.R. No. 87550, Feb. 11, 1991).
It is a principal action.
and Contracts, 2000
ed., p. 546) Q: Cenido, as an heir of Aparato and claiming to be the
owner of a house and lot, filed a complaint for ejectment
against spouses Apacionado. On the other hand, spouses
Apacionado allege that they are the owners which are
unregistered purchased by them from its previous owner,
Aparato. Their claim is anchored on a 1-page typewritten
document entitled "Pagpapatunay," executed by Aparato.

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Is the “Pagpapatunay” entered into by Bonifacio and Q: What is the purpose of the Statute of Frauds?
spouse Apacionado valid and enforceable?
A: It is to prevent fraud and perjury in the enforcement of
A: It is valid and enforceable. Generally, contracts are obligations depending for their evidence on the unassisted
obligatory, in whatever form such contracts may have been memory of witnesses, by requiring certain enumerated
entered into, provided all the essential requisites for their contracts and transactions to be evidenced by a writing
validity are present. When, however, the law requires that signed by the party to be charged (Swedish Match, AB v.
a contract be in some form for it to be valid or enforceable, CA, G.R. No. 128120, Oct. 20, 2004)
that requirement must be complied with.
Q: What are the fundamental principles governing Statute
The sale of real property should be in writing and of Frauds?
subscribed by the party charged for it to be enforceable.
The "Pagpapatunay" is in writing and subscribed by A:
Aparato, hence, it is enforceable under the Statute of 1. It only applies to executory contracts and not partially
Frauds. Not having been subscribed and sworn to before a or completely executed.
notary public, however, the "Pagpapatunay" is not a public 2. It cannot apply if the action is neither for damages
document, and therefore does not comply with par. 1, Art. because of violation of an agreement nor for the
1358. specific performance of said agreement.
3. It is exclusive as it applies only to the agreements or
Moreover, the requirement of a public document in Article contracts enumerated in Art. 1403.
1358 is not for the validity of the instrument but for its 4. The defense of Statute of Frauds may be waived
efficacy. Although a conveyance of land is not made in a 5. It is a personal defense, it cannot be assailed by third
public document, it does not affect the validity of such persons.
conveyance. The private conveyance of the house and lot is 6. Contracts infringing the Statute of Frauds are not void;
therefore valid between Aparato and the spouses. For they are merely unenforceable.
greater efficacy of the contract, convenience of the parties 7. It is a Rule of Exclusion as it excludes oral testimony.
and to bind third persons, respondent spouses have the 8. It does not determine the credibility or weight of
right to compel the vendor or his heirs to execute the evidence. It merely concerns itself with the
necessary document to properly convey the property admissibility.
(Cenidon v. Spouses Apacionado, G.R. No. 132474, Nov. 19, 9. It does not apply if the claim is that the contract does
1999) not express the true agreement of the parties. (Paras,
Civil Code of the Philippines Annotated, Vol. IV, 2008
Q: What are the contracts or agreements covered by the ed., pp.790-791)
Statute of Frauds?
Q: When is ratification of an unenforceable contract
A: available?
1. An agreement that by its terms is not to be performed
within a year from the making thereof; A:
2. A special promise to answer for the debt, default or 1. A contract entered into in the name of another by one
miscarriage of another; who has no authority or legal representation or who
3. An agreement made in consideration of marriage, acted beyond his powers shall be unenforceable,
other than a mutual promise to marry; unless it is ratified expressly or impliedly, by the
4. An agreement for the sale of goods, chattels or things person on whose behalf it has been executed, before it
in action, at a price not less than 500 pesos, unless the is revoked by the other contracting party. (Art. 1317)
buyer accepts and receives part of such goods and
chattels, or the evidences, or some of them, of such 2. Contracts infringing the Statute of Frauds are ratified:
things in action, or pay at the time some part of the a. by failure to object to the representation of
purchase money; but when a sale is made by an oral evidence to prove the same; or
auction and entry is made by the auctioneer in his b. by the acceptance of benefits under them.
sales book, at the time of the sale, of the amount and (Art. 1317)
kind of property sold, terms of sale, price, names of
the purchasers and person on whose account the sale 3. In a contract where both parties are incapable of
is made, it is a sufficient memorandum; giving consent, express or implied ratification by the
5. An agreement for the leasing for a longer period than parents or guardian, as the case may be, of one of the
one year, or for the sale of real property or of an contracting parties, or one of the contracting parties
interest therein; upon attaining capacity, shall give the contract the
6. A representation as to the credit of a third person. same effect as if only one of them is incapacitated.
(Art. 1403) Hence, the contract becomes voidable and the rules
on voidable contracts should govern.
Note: The enumeration is exclusive.
If the ratification is made by the parents or guardians
as the case may be, of both contracting parties, or
both of the contracting parties upon attaining

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capacity, the contract shall be validated from the 3. The action or defense for the declaration of the
inception. (Jurado, Comments and Jurisprudence on inexistence of a contract does not prescribe. (Art.
Obligations and Contracts. 2011 ed. p. 572) 1410)
4. The defense of illegality of contracts is not available to
Q: What are the two ways of ratifying contracts which third persons whose interests are not directly affected.
infringe the Statute of Frauds? (Art. 1421)
5. A contract which is the direct result of a previous
A: illegal contract is also void and inexistent. (Art. 1422)
1. Failure to object during the trial to the admissibility of 6. As a general rule, they produce no legal effect
parol evidence to support a contract covered by the whatsoever in accordance with the principle “quod
Statute of Frauds. nullum est nullum producit effectum”. (Jurado,
2. Acceptance of benefits – when the contract has been Comments and Jurisprudence on Obligations and
partly executed because estoppel sets in by accepting Contracts. 2011 ed. p. 579)
performance.
XPN: In case of pari delicto since it will refuse legal
VOID and INEXISTENT CONTRACTS remedy to either party to an illegal agreement and
leaves them to where they were. Hence, if a void
Q: What are void contracts? contract is already executed, neither of the parties can
recover from each other.
A: Void contracts are those which have no force and effect
from the beginning and which cannot be ratified or Q: Judie sold one-half of their lot to Guiang under a deed
validated by lapse of time (Pineda, Obligations and of transfer of rights without the consent and over the
Contracts, 2000 ed., p. 598) objection of his wife, Gilda and just after the latter left for
abroad. When Gilda returned home and found that only
Q: What are the kinds of void contracts? her son, Junie, was staying in their house. She then
gathered her other children, Joji and Harriet and went to
A: stay in their house. For staying in their alleged property,
1. Those lacking in essential elements: the spouses Guiang complained before the barangay
a. Those whose cause, object or purpose is authorities for trespassing.
contrary to law, morals, good customs,
public order or public policy: illicit Is the deed of transfer of rights executed by Judie Corpuz
cause, or object. and the spouses Guiang void or voidable?
b. Those which are absolutely simulated or
fictitious: no cause A: It is void. Gilda’s consent to the contract of sale of their
c. Those whose cause or object did not conjugal property was totally inexistent or absent. Thus,
exist at the time of the transaction: no said contract properly falls within the ambit of Article 124
cause or object of the FC.
d. Those whose object is outside the
commerce of man: no object The particular provision in the old Civil Code which provides
e. Those which contemplate an impossible a remedy for the wife within 10 years during the marriage
service: no object to annul the encumbrance made by the husband was not
f. Those where the intention of parties carried over to the Family Code. It is thus clear that any
relative to principal object of the alienation or encumbrance made after the Family Code
contract cannot be ascertained took effect by the husband of the conjugal partnership
2. Contracts prohibited by law property without the consent of the wife is null and void
a. Pactum commisorium – the creditor appropriates (Spouses Guiangv.CA, G.R. No. 125172, June 26, 1998).
to himself the things given by way of pledge or
mortgage to fulfill the debt Q: On July 6, 1976, Honorio and Vicente executed a deed
b. Pactum de non alienando – an agreement of exchange. Under this instrument, Vicente agreed to
prohibiting the owner from alienating the convey his 64.22-square-meter lot to Honorio, in exchange
mortgaged immovable for a 500-square-meter property. The contract was
c. Pactum leonina – a stipulation in a partnership entered into without the consent of Honorio’s wife. Is the
agreement which excludes one or more partners deed of exchange null and void?
from any share in the profits or losses
3. Illegal or illicit contracts(e.g. contract to sell marijuana) A: The deed is valid until and unless annulled. The deed was
entered into on July 6, 1976, while the Family Code took
Q: Cite some characteristics of void and inexistent effect only on August 3, 1998. Laws should be applied
contracts prospectively only, unless a legislative intent to give them
retroactive effect is expressly declared or is necessarily
A: implied from the language used. Hence, the provisions of
1. It cannot be ratified. (Art. 1409) the Civil Code, not the Family Code are applicable.
2. The right to set up the defense of illegality cannot be According to Article 166 of the Civil Code, the husband
waived. (Art. 1409) cannot alienate or encumber any real property of the

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conjugal partnership without the wife’s consent. This the contract itself either against one of
provision, however, must be read in conjunction with the parties or a third
Article 173 of the same Code. The latter states that an person
action to annul an alienation or encumbrance may be Based on equity and
instituted by the wife during the marriage and within ten Nullity is a matter of
matter of private
law and public interest
years from the transaction questioned. Hence, the lack of interest
consent on her part will not make the husband’s alienation No legal effects even if Produces legal effects
or encumbrance of real property of the conjugal no action is filed to set and remains valid if no
partnership void, but merely voidable. (Villarandav. it aside action is filed
Villaranda, G.R. No. 153447, Feb. 23, 2004) Action to rescind
prescribes within 4
Q: Distinguish void contract from inexistent contract Action to declare its
years (Art. 1389;
nullity does not
Pineda, Obligations
A: prescribe (Art. 1410)
and Contracts, 2000
VOID CONTRACT INEXISTENT CONTRACT ed, p. 605)
Those where all the
requisites of a contract are Q: Distinguish void contract from unenforceable contract.
present, but the cause,
Those where one or some
object or purpose is A:
of the requisites which are
contrary to law, morals, VOID UNENFORCEABLE
essential for validity are
good customs, public order There is contract but
absolutely lacking
or public policy or the No contract at all. which cannot be
contract itself is prohibited enforced.
or declared prohibited. It is not subject to It is subject to
Principle of in pari delicto is Principle of in pari delicto ratification. ratification.
applicable. Is not applicable. It can be easily assailed
It cannot be assailed by
by third persons whose
Q: Distinguish void contract from voidable contract third persons.
interests are directly
affected.
A:
VOID VOIDABLE EFFECT OF CONTRACTS
Consent is vitiated or
Absence of essential
there is incapacity to Q: Between whom do contracts take effect?
element/s of a contract
give consent
No effect even if not Valid contract until set A: Contracts take effect only between the parties, and their
set aside aside assigns and heirs, the latter being liable only to the extent
Cannot be ratified Can be ratified of the property received from the decedent. (Art. 1311)
Nullity can be set up
against any person Q: What are the instances when the heirs may be liable for
Nullity can be set up
asserting right arising the obligation contracted by the decedent?
only against a party
from it, and his
thereto
successors in interest A: When the rights and obligations arising from the
not protected by law contract are transmissible:
Action to annul 1. By their nature; or
contract prescribes in 4 2. By stipulation; or
Action to declare
years (Pineda, 3. By provision of law. (Art. 1311)
nullity does not
Obligations and
prescribe
Contracts, 2000 ed, p. Q: What are the requisites in order that a third person
606) may demand the fulfillment of the contract?
Defense may be Defense may be
availed of by anybody, invoked only by the A:
whether he is a party parties (those 1. The contracting parties must have clearly and
to the contract or not principally and deliberately conferred a favor upon the third person;
as long as his interest is subsidiarily liable) or 2. The third person’s interest or benefit in such
directly affected. (Art. their successors in fulfillment must not be merely incidental; and
1421) interest and privies 3. Such third person communicated his acceptance to the
obligor before the stipulations in his favor are revoke.
Q: Distinguish void contract from rescissible contract

A:
VOID RESCISSIBLE
Defect is inherent in Defect is in its effects,

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SALES Q: When is a sale absolute?

DEFINITION AND ESSENTIAL REQUISITES OF A CONTRACT A: A sale is absolute when no condition is imposed and
OF SALE ownership passes to the vendee upon delivery of the thing
subject of the sale.
Q: What is a contract of sale?
A: By the contract of sale, one of the contracting parties Q: When is a deed of sale considered absolute in nature?
obligates himself to transfer the ownership of and to
deliver a determinate thing, and the other to pay therefor a A: A deed of sale is considered absolute in nature where
price certain in money or its equivalent. (Art. 1458, NCC) there is neither a stipulation in the deed that title to the
property sold is reserved in the seller until the full payment
Note: Gross inadequacy of price does not affect a contract of sale, of the price, nor one giving the vendor the right to
except as it may indicate a defect in the consent, or that the parties unilaterally resolve the contract the moment the buyer fails
really intended a donation or some other act or contract (Art. to pay within a fixed period.
1470)
Q: When is a sale conditional?
Q: What are the different kinds of sales?
A: It is conditional where the sale contemplates a
A: As to:
contingency, and in general, where the contract is subject
1. Nature of the subject matter:
to certain conditions, usually in the case of the vendee, the
a. Sale of real property;
full payment of the agreed purchase price and in the case
b. Sale of personal property
of the vendor, the fulfillment of certain warranties. (De
2. Value of the things exchanged:
Leon, p. 15)
a. Commutative sale;
b. Aleatory sale
Q: Distinguish a conditional sale from an absolute sale
3. Whether the object is tangible or intangible:
a. Sale of property (tangible or corporeal);
A:
CONDITIONAL SALE ABSOLUTE SALE
Note: A tangible object is also called chose in
possession One where the title to the
One where the seller is
property is not reserved to
granted the right to
b. Sale of a right (assignment of a right, or a the seller or if the seller is
unilaterally rescind the
credit or other intangibles such as copyright, not granted the right to
contract predicated on the
trademark, or good will); rescind the contract based
fulfillment or non-
on the fulfillment or non-
fulfillment, as the case may
Note: An intangible object is a chose in action. fulfillment, as the case may
be, of the prescribed
be, of the prescribed
condition.
4. Validity or defect of the transaction: condition.
a. Valid
b. Rescissible Q: What is the effect of the non-performance of the
c. Voidable condition or if the condition did not take place?
d. Unenforceable
e. Void A: Where the obligation of either party to a contract of sale
5. Legality of the object: is subject to any condition which is not performed, such
a. Licit object party may refuse to proceed with the contract or he may
b. Illicit object waive performance of the condition. Unlike in a non-
6. Presence or absence of conditions: fulfillment of a warranty which would constitute a breach
a. Absolute of the contract, the non-happening of the condition,
b. Conditional although it may extinguish the obligation upon which it is
7. Wholesale or retail: based, generally does not amount to a breach of a contract
a. Wholesale of sale.
b. Retail
8. Proximate inducement for the sale: Q: When is a conditional sale considered an absolute sale?
a. Sale by description
b. Sale by sample A: A deed of sale is absolute in nature although
c. Sale by description and sample denominated a “conditional sale” absent such stipulations
9. When the price is tendered: reserving title to the vendor until full payment of the
a. Cash sale purchase price, nor any stipulation giving them the right to
b. Sale on installment plan unilaterally rescind the contract in case of non-payment.

Q: A contract of sale of a lot stipulates that the "payment

of the full consideration based on a survey shall be due
and payable in 5 years from the execution of a formal
deed of sale". Is this a conditional contract of sale?

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A: No, it is not. The stipulation is not a condition which car to D. B now comes to Court to ask for annulment of the
affects the efficacy of the contract of sale. It merely sale made by C to D on the principle of nemo dat quod non
provides the manner by which the full consideration is to habet. Since, A, the first seller was not able to transfer
be computed and the time within which the same is to be ownership to C because he was not the owner at the time
paid. But it does not affect in any manner the effectivity of of delivery, then C cannot also transfer ownership to D (Tsai
the contract (Heirs of San Andres v. Rodriguez, G.R. No. v. CA).
135634, May 31, 2000).
Q: Jose, as co-owner, sold the entire land in favor of his
Q: What are the elements of a contract of sale? minor daughter, Ida. Alleging that Jose had fraudulently
registered it in his name alone, his sisters, sued him for
A: ANE recovery of 2/3 share of the property. Ida did not pay for
1. Accidental elements – dependent on parties’ the land. Is the sale valid?
stipulations; Examples:
a. Conditions A: No. Jose did not have the right to transfer ownership of
b. Interest the entire property to petitioner since 2/3 thereof belonged
c. time & place of payment to his sisters. Also, Ida could not have given her consent to
d. penalty the contract, being a minor at the time. Consent of the
2. Natural elements – those that are inherent even contracting parties is among the essential requisites of a
in absence of contrary provision. contract, including one of sale, absent which there can be
E.g. warranties no valid contract. Moreover, Ida admittedly did not pay any
3. Essential elements – for validity: centavo for the property, which makes the sale void. Article
a. Consent 1471 of the Civil Code provides: If the price is simulated,
b. Determinate subject matter the sale is void, but the act may be shown to have been in
c. Consideration reality a donation, or some other act or contract (Labagala
v. Santiago, G.R. No. 132305, Dec. 4, 2001).
Q: What is the effect and/or consequence of the absence
of consent of the owner in a contract of sale of said Q: Is there a formal requirement for the validity of a
property? contract of sale?

A: GR: The contract of sale is void. One of the essential A: GR: None. A contract of sale may be made in writing, or
requirements of a valid contract of sale is the consent of by word of mouth, or partly in writing and partly by word of
the owner of the property. The buyer acquires no better mouth, or may be inferred from the conduct of the parties.
title to the goods than the seller had. He cannot give what (Art. 1483) Contracts shall be obligatory, in whatever form
he does not have— quod non habet. A stream cannot rise they have been entered into, provided all the essential
higher than its source. requisites for their validity are present.

Note: The principle of Nemo dat quod non habet pertains to XPNS:
the effect of delivery of the subject matter pursuant to a valid a) If the law requires a document or other special form,
contract of sale, which is at the consummation stage of the the contracting parties may compel each other to
contract. It does not pertain to the validity of the contract of
observe that form. (Art. 1357)
sale upon perfection (Villanueva, Law on Sales, 2004 edition,
pg. 104). b) Under Statute of Frauds, the following contracts must
be in writing; otherwise, they shall be unenforceable:
XPNS: 1. Sale of personal property at a price not less than
a) When the owner of the goods is, by his conduct, P500;
precluded from denying the seller’s authority to 2. Sale of a real property or an interest therein;
sell. (Art. 1505) 3. Sale of property not to be performed within a
b) year from the date thereof;
1) Factors’ acts, recording laws, or any other 4. When an applicable statute requires that the
provision of law enabling the apparent owner contract of sale be in a certain form. (Art. 1403,
of the goods to dispose them as if he were the par.2)
true owner;
2) Sales made under the order of a court of Q: Are there instances where the Statute of Frauds is not
competent jurisdiction; essential for the enforceability of a contract of sale?
3) Sales made pursuant to a special law;
4) Purchases made in a merchant’s store or fairs or A: Yes.
markets. (Art. 1505) 1. When there is a note or memorandum in writing
and subscribed to by the party or his agent
Example: A, the seller sold a car owned by B, to C, the (contains essential terms of the contract);
buyer. The contract of sale is valid since ownership at the 2. When there has been partial
time of perfection is not required. A was able to deliver the performance/execution (seller delivers with the
car in the absence of the knowledge of B. Later, C sold the intent to transfer title/receives price);

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3. When there has been failure to object to Q: What is the obligation of the seller in terms of the
presentation of evidence aliunde as to the nature of the subject matter of the sale?
existence of a contract without being in writing
and which is covered by the Statute of Frauds; A: When the subject matter of the sale is a determinate
4. When sales are effected through electronic thing, the seller must deliver the thing to the buyer when
commerce. (Villanueva, p. 192) compelled by the latter. When the subject matter is an
indeterminate or generic thing, the seller may be asked that
Note: Rules on forms, and of validity and enforceability of the obligation be complied with at his expense (Art. 1165,
contracts of sale, are strictly kept within the contractual NCC)
relationship of the seller and buyer pursuant to the characteristic
of relativity of every contract, and do not necessarily apply to third
Q: What is the seller’s obligation in case of delay or
parties whose rights may be affected by the terms of a sale.
promise to deliver the thing to two or more persons who
do not have the same interest?
Q: What are the obligations of the buyer?
A: The seller shall be responsible for any fortuitous event
A:
that may occur until he has delivered the thing (Art. 1165,
1. Payment of the price
NCC)
GR: Seller is not bound to deliver unless the purchase
price is paid
CHARACTERISTICS OF A CONTRACT OF SALE
XPN: A period of payment has been fixed
Q: What are the characteristics of a contract of sale?
2. Accept delivery of thing sold
A:
3. Pay for expenses of delivery
1. Consensual – a sale is perfected by mere consent,
Note: A grace period granted the buyer in case of failure to pay is a manifested by the meeting of the minds as to the offer
right not an obligation. Non-payment would still generally require and acceptance thereof on the subject matter, price
judicial or extrajudicial demand before default can arise. and terms of payment.
2. Bilateral – the seller will deliver and transfer a
Q: What are the other obligations of the buyer? determinate thing to the buyer and the latter will pay
an ascertained price (or equivalent) therefor.
A: 3. GR: Commutative – the thing sold is considered the
1. To take care of the goods without the obligation to equivalent of the price paid and the price paid is the
return, where the goods are delivered to the buyer equivalent of the thing sold.
and he rightfully refuses to accept;
XPN: Aleatory – the consideration is not equivalent of
Note: The goods in the buyer’s possession are at the seller’s what has been received like the purchase of a lotto
risk. ticket. If the ticket wins, the prize is much more than
the price of the ticket.
2. To be liable as a depositary if he voluntarily
constituted himself as such; 4. Principal – its existence does not depend upon the
3. To pay interest for the period between delivery of the existence and validity of another contract.
thing and the payment of the price in the following 5. Onerous – the thing sold is conveyed in consideration
cases: of the purchase price, and vice versa.
a. should it have been stipulated; 6. Nominate – it has a specific name given by law.
b. should the thing sold and delivered (Pineda, p. 4, 2010 ed)
produces fruits or income; or
c. should he be in default, from the time SALE IS A TITLE AND NOT A MODE
of judicial or extra-judicial demand for
the payment of the price. Q: Does sale by itself transfer ownership?

Q: What are the obligations of the seller? A: No. The most that sale do is to create the obligation to
transfer ownership. It is only a title and not a mode of
A: DDTWTP transferring ownership.
1. Deliver the thing sold;
2. Deliver fruits & accessions/accessories accruing Q: What then transfers ownership?
from perfection of sale;
3. Transfer the ownership; A: It is tradition or delivery, which is a consequence of the
4. Warranties; sale that transfers ownership.
5. Take care of the thing, pending delivery, with
proper diligence; Q: Differentiate mode and title.
6. Pay for the expenses of the deed of sale unless
there is a stipulation to the contrary A: Mode is the legal means by which dominion or
ownership is created, transferred, or destroyed; title only

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constitutes the legal basis by which to affect dominion or such as the full payment thereto. The second
ownership. (Villanueva, p. 15, 2009 ed.) of the purchase price, buyer of the property
cannot be deemed a who may have had
CONTRACT TO SELL buyer in bad actual or constructive
faith. There is no double knowledge of such
Q: What is a contract to sell? sale in such case. Title defect in the seller’s
A: A contract to sell may be defined as a bilateral contract to the property will title, or at least was
whereby the prospective seller, while expressly reserving transfer to the buyer charged with the
the ownership of the subject property despite delivery after registration obligation to discover
thereof to the prospective buyer, binds himself to sell the because there is no such defect, cannot be a
said property exclusively to the prospective buyer upon defect in the owner- registrant in good
fulfillment of the condition agreed upon, that is, full seller’s title per se, but faith. Such second
payment of the purchase price (Coronel v. Court of Appeals, the latter, of course, buyer cannot defeat the
G.R. No. 103577, October 7, 1996). may be sued for first buyer’s title. In
damages by the case a title is issued to
Q: What is the difference between a contract to sell and a intending buyer. the second buyer, the
conditional contract of sale? first buyer may seek
reconveyance of the
A: property subject of the
CONTRACT TO SELL CONDITIONAL sale.
CONTRACT OF SALE (Reyes v. Tuparan, G.R. No. 188064, June 1, 2011; Coronel v.
The prospective seller The first element of Court of Appeals, G.R. No. 103577, October 7, 1996).
does not as yet agree or consent is present,
consent to transfer although it is Q: Distinguish a contract of sale from a contract to sale
ownership of the conditioned upon the
property subject of the happening of a A:
contract to sell until the contingent event which CONTRACT OF SALE CONTRACT TO SELL
happening of an event, may or may not occur. As regards transfer of ownership
which may be the full Ownership is transferred to
Ownership is transferred
payment of the the buyer upon delivery of
upon full payment of the
purchase price. What the object to him.
purchase price.
the seller agrees or
obliges himself to do is Note: Vendor has lost and
Note: Prior to full payment,
to fulfill his promise to cannot recover ownership until
ownership is retained by the
sell the subject property and unless the contract is
seller.
when the entire amount resolved or rescinded
of the purchase price is As to numbers of contracts involved
delivered to him. There are two contracts:
Upon the fulfillment of If the suspensive 1. The contract to sell
the suspensive condition is fulfilled, the
condition which is the contract of sale is There is only one contract Note: Preparatory sale
full payment of the thereby perfected, such executed between the
purchase price, that if there had already seller and the buyer. 2. The deed of absolute sale
ownership will not been previous delivery
Note: The principal contract is
automatically transfer of the property subject
executed after full payment of
to the buyer although of the sale to the buyer, the purchase price.
the property may have ownership thereto Payment as a condition
been previously automatically transfers Full payment of the price is
delivered to him. The to the buyer by a positive suspensive
Non-payment of the price is
prospective seller still operation of law condition.
a resolutory condition.
has to convey title to without any further act
Vendor loses ownership
the prospective buyer having to be performed Note: Failure to fully pay the
over the property and
by entering into a by the seller. price is not a breach but an
cannot recover it until and
contract of absolute event that prevents the
unless the contract is
sale. obligation of the vendor to
resolved or rescinded. convey title from becoming
There being no previous Upon the fulfillment of effective.
sale of the property, a the suspensive Remedies available
third person buying condition, the sale 1. SpecifichPerformance
1. Resolution
such property despite becomes absolute and 2. Rescission
2. Damages
the fulfillment of the this will definitely affect 3. Damages
suspensive condition the seller’s title

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Q: Having agreed to sell property which they inherited PMRDC. Is Keppel bank bound by the contract to sell
from their father, which was then still in their father’s between PMRDC and Adao?
name, the Coronels executed a document entitled
"Receipt of Down Payment" in favor of Alcaraz for the A: No. Adao’s lone affidavit is self-serving, and cannot be
purchase of their house and lot, with the condition that considered as substantial evidence. As a general rule, one
Ramona will make a down payment upon execution of the who pleads payment has the burden of proving it. Even
document. The Coronels would then cause the transfer of where the petitioner alleged non-payment, the general rule
the property in the name of Ramona and will execute a is that the burden rests on the respondent to prove
deed of absolute sale in favor of Ramona. Ramona paid payment, rather than on the petitioner to prove non-
the downpayment as agreed. Is there a perfected contract payment (Kepel Bank Phils. Inc., v. Adao, G.R. No. 158227,
of sale or a mere contract to sell? Oct. 19, 2005).

A: The agreement could not have been a contract to sell Q: Ursal and Spouses Monesets entered into a “Contract
because the sellers herein made no express reservation of to Sell” of a house and lot. A downpayment was to be paid
ownership or title to the subject parcel of land. The by Ursal and subsequently the balance of the price is to be
Coronels had already agreed to sell the house and lot they paid every month until it is fully paid. After 6 months, the
inherited from their father, completely willing to transfer monthly installments were stopped because the spouses
full ownership of the subject house and lot to the buyer if did not give Ursal the transfer of certificate title.
the documents were then in order. However, the TCT was Subsequently, the Spouses Monesets sold the property to
then still in the name of their father, that is why they Dr. Canora. The same property was also mortgaged by the
caused the issuance of a new TCT in their names upon spouses to a rural bank. When the spouses failed to pay
receipt of the down payment. As soon as the new TCT is the rural bank, the bank moved to foreclose the mortgage.
issued in their names, they were committed to immediately Does Ursal have vested ownership over the property?
execute the deed of absolute sale. Only then will the
obligation of the buyer to pay the remainder of the A: No. In such contract, the prospective seller expressly
purchase price arise. This suspensive condition was reserves the transfer of title to the prospective buyer, until
fulfilled. Thus, the conditional contract of sale became the happening of an event, which in this case is the full
obligatory, the only act required for the consummation payment of the purchase price. In this case, the parties not
thereof being the delivery of the property by means of the only titled their contract as “Contract to Sell Lot and House”
execution of the deed of absolute sale in a public but specified in their agreement that the vendor shall only
instrument, which they unequivocally committed execute a deed of absolute sale on the date of the final
themselves to do as evidenced by the "Receipt of Down payment by the vendee. Since the contract in this case is
Payment." (Coronel, et al. v. CA, G.R. No. 103577, Oct. 7, a contract to sell, the ownership of the property remained
1996) with the Monesets even after petitioner has paid the down
payment and took possession of the property. In other
Q: Instead of executing a deed of Absolute Sale in favor of words, petitioner did not acquire ownership over the
Ramona, the Coronels sold the property to Catalina and subject property as she did not pay in full the equal price of
unilaterally and extrajudicially rescinded the contract with the contract to sell (Ursal v. Court of Appeals, et. al, G.R.
Ramona. Ramona then filed a complaint for specific No. 142411, Oct. 14, 2005).
performance. Will Ramona’s action prosper?
Q: Caguiat offered to buy Spouses Herrera’s lot and
A: Yes. Under Article 1187, the rights and obligations of the subsequently gave the spouses a partial payment. In turn,
parties with respect to the perfected contract of sale the spouses gave Caguiat the corresponding receipt
became mutually due and demandable as of the time of stating that respondent promised to pay the balance of
fulfillment or occurrence of the suspensive condition. the purchase price on or before a fixed date. Caguiat’s
Hence, petitioner-sellers' act of unilaterally and counsel wrote the spouses informing them of his
extrajudicially rescinding the contract of sale cannot be readiness to pay the balance of the price and requesting
justified, there being no express stipulation authorizing the them to prepare the final deed of sale. However, the
sellers to extrajudicially rescind the contract of sale. spouses’ counsel sent a letter to Caguiat stating that the
(Coronel, et al. v. CA, G.R. No. 103577, Oct. 7, 1996) wife is leaving for abroad and that they are cancelling the
transaction. The spouses allowed Caguiat to recover the
Q: Project Movers Realty and Development Corporation partial payment he paid them. Is the transaction a
(PMRDC) was indebted to Keppel Bank for P200M. To pay contract of sale?
the debt, PMRDC conveyed to the bank 25 properties.
Adao occupies one of the properties conveyed. The bank
A: No. In this case, the "Receipt for Partial Payment" shows
demanded Adao to vacate the property but he refused.
that the true agreement between the parties is a contract
Hence, an ejectment case was filed against Adao. In his
to sell. First, ownership over the property was retained by
defense, Adao assailed that he had a Contract to Sell
petitioners and was not to pass to respondent until full
entered between PMRDC and Adao. To prove full payment
payment of the purchase price. In effect, petitioners have
of the property, he presented an affidavit. The lower court
the right to rescind unilaterally the contract the moment
ordered that Keppel banks should respect the contract to
respondent fails to pay within the fixed period. Second, the
sell because when the bank acquired the properties by
agreement between the parties was not embodied in a
way of dacion en pago, it merely stepped into the shoes of

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deed of sale. The absence of a formal deed of conveyance is authority given

a strong indication that the parties did not intend
immediate transfer of ownership, but only a transfer after Not unilaterally May be revoked unilaterally
full payment of the purchase price. Third, petitioners revocable even w/o ground
retained possession of the certificate of title of the lot. This
is an additional indication that the agreement did not Seller receives profit Agent not allowed to profit
transfer to respondent, either by actual or constructive
delivery, ownership of the property (Spouses Herrera v. Real contract Personal contract
Caguiat, G.R. No. 139173, Feb. 28, 2007)

Q: What are the instances when a contract to sell may be 4. Dacion en Pago
resorted to? DACION EN PAGO
SALE

A: Contract where property is alienated

No pre-existing to extinguish pre-existing
1. Where subject matter is indeterminate credit
2. Sale of future goods except future inheritance credit/debt
3. Stipulation that deed of sale & corresponding
Buyer-seller Novates creditor-debtor relationship
certificate of sale would be issued only after full
relationship into seller-buyer
payment

DISTINCTIONS OF THE CONTRACT OF SALE WITH OTHER

5. Lease
CONTRACTS
SALE LEASE
Q: Distinguish Sale from the following: Use of thing is for
Obligation to absolutely
specified period only
transfer ownership of thing
1. Donation. with obligation to return
Consideration is the
SALE DONATION Consideration is the price
rental
Onerous Gratuitous/onerous Seller needs to be owner of
Consensual Formal contract thing to transfer ownership.
Law on Sales Law on Donation Lessor need not be
Note: Lease with option to buy – owner
really a contract of sale but
2. Barter
designated as lease in name.
SALE BARTER
6. Contract for piece-of-work
Consideration is giving of Consideration is giving of
SALE CONTRACT FOR PIECE-
money as payment a thing
OF-WORK
If consideration consists partly in money & partly by thing–
Manufacturing in the Manufacturing upon special
look at manifest intention
ordinary course of order of a customer
If intention is not clear, If intention is not clear, and business
and the value of thing is the value of thing is more
For the general market Not for the general market,
equal or less than amount than amount of money =
but specially for the customer
of money = Sale Barter

Both are governed by law on sales

PARTIES TO A CONTRACT OF SALE

Q: Who are the parties to a contract of sale?

3. Agency to Sell
SALE AGENCY TO SELL
A:
1. Seller – one who sells and transfers the thing and
Agent not obliged to pay for
Buyer pays for price of ownership to the buyer
price; must account for
object 2. Buyer – one who buys the thing upon payment of the
the proceeds of the sale.
consideration agreed upon
Principal remains the owner
Buyer becomes owner of
even if the object
thing
delivered to agent

Seller warrants Agent assumes no personal

liability as long as within

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CAPACITY OF THE PARTIES RELATIVE INCAPACITY

Q: Who may enter into a contract of sale? Q: Who are those relatively incapacitated to enter into a
contract of sale?
A: GR: Any person who has capacity to contract or enter
into obligations, may enter into a contract of sale, A:
whether as party-seller or as party-buyer. 1. Spouses (Art. 1490, NCC)
2. Agents, Guardians, Executors and Administrators,
XPNs: Public Officers and Employees, Court Officers and
1. Minors, insane and demented persons and deaf- Employees, and others specially disqualified by law.
mutes who do not know how to write (Art. 1491, NCC)
2. Persons under a state of drunkenness or during
hypnotic spell Q : What is the status of the following contracts of sale?
3. Husband and wife - sale by and between spouses
A:
Note: Rationale for the prohibition: 1. That entered into by minors:
a) To prevent a spouse from defrauding his creditors a. Merely voidable, subject to annulment or
by transferring his properties to the other spouse ratification
b) To avoid a situation where the dominant spouse
b. Action for annulment cannot be instituted by the
would unduly take advantage of the weaker spouse
c) To avoid an indirect violation of the prohibition person who is capacitated since he is disqualified
against donations between spouses under Article from alleging the incapacity of the person with
133 of the Civil Code (Medina v. Collector of Internal whom he contracts (with partial restitution in so
Revenue, 1 SCRA 302) far as the minor is benefited) where necessaries
are sold and delivered to a minor or other person
XPN to XPN: without capacity to act, he must pay a reasonable
1. Where necessaries are sold and delivered to a price (Art. 1489)
minor or other person without capacity to act, he
must pay a reasonable price therefor. 2. Sale by & between spouses (Art. 1490):
2. In case of sale between spouses: a. Status of prohibited sales between spouses:
a. when separation of property was agreed upon GR: Null and void
in the marriage settlements; or
b. when there has been a judicial separation of XPN: In case of sale between spouses:
property agreed upon between them
i. When a separation of property was agreed
ABSOLUTE INCAPACITY upon in the marriage settlements; or
ii. When there has been a judicial separation of
Q: Who are those absolutely incapacitated to enter into a property agreed upon between them
contract of sale?
rd
b. Contract of sale with 3 parties:
A:
1. Unemancipated minors (Art. 1327, NCC); GR: Under the law on sales, it would seem that a
2. Insane or demented persons, and deaf-mutes who do spouse may, without the consent of the other spouse,
not know how to write (Art. 1327, NCC) enter into sales transactions in the regular or normal
pursuit of their profession, vocation or trade. (in
Q: May a capacitated person file an action for annulment relation with Art. 73, Family Code)
using as basis the incapacity of the incapacitated party?
XPN: Even when the property regime prevailing was
A: No. He is disqualified from alleging the incapacity of the the conjugal partnership of gains, the Supreme Court
person whom he contracts (Art. 1397, NCC); held the sale by the husband of a conjugal property
without the consent of the wife is void, not merely
Q: In a defective contract, where such defect consists in voidable under Art. 124 of the Family Code since the
the incapacity of a party, does the incapacitated party resulting contract lack one of the essential elements of
have an obligation to make restitution? full consent. (Guiang v. CA, G.R. No. 125172, June 26,
1998)
A: GR: The incapacitated person is not obliged to make any
restitution. 3. Between Common Law Spouses - also null and void.

XPN: insofar as he has been benefited by the thing or In Calimlim-Canullas v. Fortun, the Court decided that
price received by him. (Art. 1399, NCC) sale between common law spouses is null and void
because Art. 1490 prohibits sales between spouses to
prevent the exercise of undue influence by one spouse
over the other, as well as to protect the institution of
marriage. The prohibition applies to a couple living as

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husband and wife without the benefit of marriage,

otherwise, the condition of those incurred guilt
would turn out to be better than those in legal union.
(Calimlim-Canullas v. Fortun, et. al., G.R. No. L-57499,
June 22, 1984)

But when the registered property has been conveyed

subsequently to a third-party buyer in good faith and
for value, then reconveyance is no longer available to
common-law spouse-seller, since under the Torrens
system every buyer has a right to rely upon the title of
his immediate seller (Cruz v. CA, G.R. No. 120122, Nov.
6, 1997)

Q: Who has the right to assail the validity of the

transaction between spouses?

A: The following are the only persons who can question the
sale between spouses:
1. The heirs of either of the spouses who have been
prejudiced;
2. Prior creditors; and
3. The State when it comes to the payment of the
proper taxes due on the transactions

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Q: Who are the persons with relative incapacity to be the vendee in a contract of sale?

A: AGE-COP
RELATIVELY INCAPACITATED
PROPERTIES INVOLVED STATUS OF SALE RATIFICATION
TO BUY
Property entrusted to them for Can be ratified after the
Agents administration or sale inhibition has ceased
XPN: When principal gave his consent
Property of the ward during period of Reason: the only wrong that
Guardian
guardianship subsists is the private wrong to
the ward, principal or estate;
and can be condoned by the
private parties themselves
Voidable Note: Contracts entered by
guardian in behalf of ward are
Property of the estate under rescissible if ward suffers lesion
Executors and administrators
administration by more than ¼ of the value of
property. Sale by guardian of
property belonging to a ward
without Court approval is void
regardless of the lesion, hence,
cannot be ratified.
Property and rights in litigation or
Court officers and employees levied upon on execution before the Cannot be ratified
court under their jurisdiction
Void
Others specially disqualified
Reason: It is not only a private
by law
wrong, but also a public wrong.
Property of the State entrusted to (Villanueva, Law on Sales, p. 58)
Pubic officers and employees
them for administration

Note: Prohibitions are applicable to sales in legal redemption, compromises and renunciations.

EFFECT OF SALE IN VIOLATION OF THE PROHIBITION: 1) With respect to guardians, agents, executors/administrators, the sale shall only be
voidable because in such cases only private interests are affected – defect can be cured by ratification; 2) with respect to Public
officers/employees, justices, judges, lawyers, clerks of courts, and those specially disqualified by law, the sale shall be null and void since public
interest being involve therein (De Leon, Comments and Cases on Sales and Lease, 7th edition, pg 168)

Q: Atty. Leon G. Maquera acquired his client’s property as litigation by the lawyer provided for in the Civil Code since
payment for his legal services, then sold it and as a the prohibition applies only to a sale or assignment to the
consequence obtained an unreasonable high fee for lawyer by his client during the pendency of the litigation.
handling his client’s case. Did he validly acquire his client’s The transfer actually takes effect after the finality of the
property? judgment and not during the pendency of the case. As such
it is valid stipulation between the lawyer and client.
A: No. Article 1491 (5) of the New Civil Code prohibits
lawyer’s acquisition by assignment of the client’s property SPECIAL DISQUALIFICATIONS
which is the subject of the litigation handled by the lawyer.
Also, under Article 1492, the prohibition extends to sales in Q: Who are those persons specially disqualified by law to
legal redemption. (In Re: Suspension from the Practice of enter into contracts of sale?
Law in the territory of Guam of Atty. Leon G. Maquera, B.M.
No. 793, July 30, 2004) A: ALIEN-UnOS
1. ALIENs who are disqualified to purchase private
Q: The stipulation between the lawyer and counsel is as agricultural lands (Art. XII Secs. 3 & 7)
follows, “the attorney’s fees of the Atty. X will be ½ of 2. Unpaid seller having a right of lien or having
whatever the client might recover from his share in the stopped the goods in transitu, is prohibited from
property subject of the litigation.” Is the stipulation valid? buying the goods either directly or indirectly in
the resale of the same at public/private sale which
A: Yes. The stipulation made is one of a contingent fee he may make (Art. 1533 [5]; Art. 1476 [4])
which is allowed by the CPE and the CPR. It does not violate
the prohibition of acquisition of property subject of the

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3. The Officer holding the execution or deputy GR: Must be transmissible.

cannot become a purchaser or be interested Example: right of redemption, right of usufruct,
directly or indirectly on any purchase at an sale of credit, right to inheritance already
execution. (Sec. 21 Rule 39, Rules of Court) assigned, etc.
4. In Sale by auction, seller cannot bid unless notice
has been given that such sale is subject to a right XPN:
to bid in behalf of the seller (Art. 1476). a. Future inheritance – cannot be the subject of
sale
SALE BY A PERON HAVING A VOIDABLE TITLE b. Service – cannot be the object of sale. They are
not determinate things and no transfer of
Q: What is the effect of a sale made by the seller with ownership is available but it can be the object
voidable title over the object? of certain contracts such as contract for a piece
of work. (Pineda, p. 19, 2010 ed)
A:
1. Perfection stage: valid – buyer acquires title of goods Q: When may a thing be considered as determinate?
2. Consummation stage: valid – If the title has not yet
been avoided at the time of sale and the buyer must A: A thing is determinate when it is particularly designated
buy the goods under the following conditions: or physically segregated from all others of the same class.
a. In good faith The requisite that a thing be determinate is satisfied if at
b. For value the time the contract is entered into, the thing is capable of
c. Without notice of seller’s defect of title being made determinate without the necessity of a new or
further agreement between the parties.
EMPTIO REI SPERATAE EMPTIO SPEI
Sale of thing having Sale of mere hope or Q: Rodriguez first purchased a portion of a Lot A consisting
potential existence expectancy of 345 square meters located in the middle of Lot B, which
Uncertainty is w/ regard to Uncertainty is w/ regard to has a total area of 854 square meters, from Juan. He then
quantity & quality existence of thing purchased another portion of said lot. As shown in the
Contract deals w/ present receipt, the late Juan received P500.00 from Rodriguez as
Contract deals w/ future "advance payment for the residential lot adjoining his
thing – hope or
thing previously paid lot on three sides excepting on the
expectancy
Sale is valid even though frontage. Juan’s heirs now contests the validity of the
expected thing does not subsequent sale, alleging that the object is not
Sale is valid only if the determinate or determinable. Decide.
come into existence as
expected thing will exist.
long as the hope itself
validly existed. (eg. lotto) A: Their contention is without merit. There is no dispute
that Rodriguez purchased a portion of Lot A consisting of
Note: The presumption is Emptio Rei Speratae 345 square meters. This portion is located in the middle of
B, which has a total area of 854 square meters, and is
Q: What is the effect if a buyer in good faith purchased clearly what was referred to in the receipt as the
from a public sale a personal property belonging to "previously paid lot." Since the lot subsequently sold to
another who has lost or has been deprived thereof? Rodriguez is said to adjoin the "previously paid lot" on
three sides thereof, the subject lot is capable of being
A: The owner of the personal property cannot demand its determined without the need of any new contract. The fact
return without reimbursing the price paid by the buyer in that the exact area of these adjoining residential lots is
good faith. (Art. 559) subject to the result of a survey does not detract from the
fact that they are determinate or determinable.
SUBJECT MATTER Concomitantly, the object of the sale is certain and
determinate. (Heirs of San Andres v. Rodriguez, G.R. No.
Q: What are the requisites of a proper objects of sale? 135634, May 31, 2000)

A: Note: Where land is sold for a lump sum and not so much per unit
1. Things of measure or number, the boundaries of the land stated in the
contract determine the effects and scope of the sale, not the area
a. Determinate or determinable
thereof. The vendors are obligated to deliver all the land included
b. Lawful (licit), otherwise contract is void within the boundaries, regardless of whether the real area should
c. Should not be impossible (within the be greater or smaller than that recited in the deed. This is
commerce of men) particularly true where the area is described as "humigit
kumulang," that is, more or less. (Semira v. CA, G.R. No. 76031,
Note: From the viewpoint of risk or loss, not until the object Mar. 2, 1994)
has really been made determinate can we say that the object
has been lost, because “genus never perishes.” Q: Lino entered into a contract to sell with Ramon,
undertaking to convey to the latter one of the five lots he
2. Rights owns, without specifying which lot it was, for the price of

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P1 million. Later, the parties could not agree which of five contract provided it is possible to determine the
lots he owned Lino undertook to sell to Ramon. What is same, without need of a new contract (Art. 1349)
the standing of the contract? (2011 Bar Question)
OBLIGATION OF THE SELLER
A: It is a void contract since the particular lot sold cannot be TO TRANSFER OWNERSHIP
determined.
Q: Should the seller be the owner at the time of perfection
Q: Can rights be the objects of sale? of the contract?

A: Yes, if they are transmissible. (Art. 1347) A: GR: No. Seller must have the right to transfer ownership
at the time of delivery or consummation stage. He need not
Q: When is a thing determinate? be the owner at the time of perfection of the contract.

A: When it is particularly designated or physically XPN: Foreclosure sale wherein the mortgagor should be
segregated from all others of the same class. (Art. 1460, the absolute owner.
NCC)
Q: When is ownership transferred by the seller to the
Q: When is a thing determinable? buyer?

A: When the thing is capable of being made determinate A: GR: The ownership of the thing sold is acquired by the
without the necessity of a new or further agreement vendee from the moment it is delivered to him in any ways
between the parties. (Art. 1460, NCC) specified in articles 1497 to 1501. This is the case when the
sale is absolute.
PARTICULAR KINDS
XPN: Any other manner signifying an agreement that the
Q: What may be objects of sale? possession is transferred from vendor to vendee. The sale
in this exception is a conditional one.
A:
1. Existing Goods – owned/ possessed by seller at the Q: EJ was subjected to a buy-bust operation where police
time of perfection officers posed to buy 500 pesos worth of “S”. She was
2. Future Goods – goods to be manufactured, raised, then charged with a violation of the Dangerous Drugs Act
acquired by seller after perfection of the contract or for trafficking drugs. EJ uses as defense her lack of
whose acquisition by seller depends upon a possession of the object of the sale. Would her contention
contingency (Art. 1462) free her from liability?
3. Sale of Undivided Interest or Share
a. Sole owner may sell an undivided interest. (Art. A: No. Though she was not in possession of the object of
1463) Ex. A fraction or percentage of such sale, Article 1459 merely requires that the vendor must
property have the right to transfer ownership of the object sold at
b. Sale of an undivided share in a specific mass of the time of delivery. In the case at bar, though Beth is not
fungible goods makes the buyer a co-owner of the owner, she had the right to dispose of the prohibited
the entire mass in proportion to the amount he drug. Ownership was thereafter acquired upon her delivery
bought. (Art. 1464) to the men in the alley after her payment of the price.
c. A co-owner cannot sell more than his share (People v. Ganguso, G.R. No. 115430, Nov. 23, 1995)
(Yturralde v. CA)
4. Sale of Things in Litigation Q: Spouses De Leon alleged that they are the owners of a
a. Sale of things under litigation is rescissible if parcel of land which was inherited by the husband from
entered into by the defendant , without the his father. They engaged the services of Atty. Juan to take
approval of the litigants or the court (Art. 1381) care of the documents of the properties of his parents.
The lawyer let them sign voluminous documents. After the
Note: If the property involved belongs to a ward and death of Atty. Juan, some documents surfaced and
the guardian enters into a contract involving such revealed that their properties had been conveyed by sale
property without court approval, the contract is void, or quitclaim to the husband's brothers and sisters and to
not merely rescissible.
Atty. Juan and his sisters, when in truth and in fact, no
such conveyances were ever intended by them. His
b. No rescission is allowed where the thing is legally
rd signature in the deed was forged. The land in question
in the possession of a 3 person who did not
was subsequently sold to Alcantara by Rodolfo De Leon,
acted in bad faith.
one of the brothers. The spouses demanded annulment of
5. Things subject to Resolutory Condition. Ex. Things
the document and reconveyance but it was refused.
acquired under legal or conventional right of
Likewise, Alcantara averred that she bought the land in
redemption, or subject to reserva troncal. (Art. 1465)
question in good faith and for value. Was there a right to
6. Indeterminate Quantity of Subject Matter
transfer ownership of the land?
a. The fact that the quantity is not determinate shall
not be an obstacle to the existence of the

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A: None. It is during the delivery that the law requires the 5. When a person who is not the owner sells and
seller to have the right to transfer ownership of the thing delivers a thing, and subsequently acquired title
sold. In general, a perfected contract of sale cannot be thereto
challenged on the ground of the seller’s non-ownership of 6. When the seller has a voidable title which has not
the thing sold at the time of the perfection of the contract. been avoided at the time of the sale
Undisputed is the fact that at the time of the sale, Rodolfo 7. Sale by co-owner of the whole property or a
de Leon was not the owner of the land he delivered to definite portion thereof
petitioner. Thus, the consummation of the contract and the 8. Special rights of unpaid seller
consequent transfer of ownership would depend on
whether he subsequently acquired ownership of the land. A Q: What are the instances when the Civil Code recognizes
comparison of the genuine signatures of Hermoso de Leon sale of things not actually or already owned by the seller
with his purported signature on the Deed of Extrajudicial at the time of sale?
Partition with Quitclaim will readily reveal that the latter is
a forgery. (Alcantara-Daus v. Spouses De Leon, G.R. No. A:
149750, June 16, 2003) 1. Sale of a thing having potential existence (Art.1461,
NCC)
SALE BY A PERSON WHO DOES NOT OWN THE THING 2. Sale of future goods (Art. 1462, NCC)
SOLD 3. Contract for the delivery at a certain price of an article,
which the seller in the ordinary course of business
Q: Is the sale of a good made by a person who does not manufactures/ procures for the general market,
own it valid? whether the same is on hand at the time or not (Art.
1467, NCC)
A: In the case of sale of property, ownership is not required
at the time of perfection in order for the sale to be valid. PRICE
Ownership is material only at the time of delivery but only
for the purpose of transferring ownership and does not Q: What is a price?
affect the validity of the contract of sale. This is because
validity is determined not at the time of performance but at A: Price signifies the sum stipulated as the equivalent of the
the time of perfection. If the seller is still not the owner of thing sold and also every incident taken into consideration
the thing subject of the sale at the time of delivery, then for the fixing of the price put to the debit of the buyer and
the contract of sale does not become void. It is still valid. agreed to by him. (Villanueva, p. 52)
The remedy of the buyer is rescission under Art. 1191 and
damages. Note: A definite agreement on the manner of payment of the price
is an essential element in the formation of a binding and
Note: What the law requires is that the seller has the right to enforceable contract of sale. (Co v. CA, G.R. No. 123908, Feb. 9,
transfer ownership at the time the thing sold is delivered. 1998)
Perfection per se does not transfer ownership which occurs upon
the constructive delivery of the thing sold. A perfected contract of Q: What are the requisites of price?
sale cannot be challenged on the ground of non-ownership on the
part of the seller at the time of its perfection (Quijada v. CA, 299 A: Must be:
SCRA 69) 1. Real
2. In money or its equivalent
Note: Future inheritance cannot be the subject of sale.
3. Certain or ascertainable at the time of the
perfection of the contract
Q: What is the legal effect of sale by a non-owner?
Q: When is price certain?
A: GR: The buyer acquires no better title to the goods than
the seller had; caveat emptor (buyer beware).
A:
1. If there is a stipulation
XPNs:
2. If it be with reference to another thing certain
1. Estoppel – when the owner of the goods is by his
3. If the determination of the price is left to the judgment
conduct precluded from denying the seller’s
of specified person(s)
authority to sell
4. By reference to certain fact(s) as referred to in Art.
2. When the contrary is provided for in recording
1472 (Art. 1469)
laws
3. When the sale is made under statutory power of Note: If the price is based on estimates, it is uncertain.
sale or under the order of a court of competent
jurisdiction
4. When the sale is made in a merchant’s store in
accordance with the Code of Commerce and
special laws

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Q: When is the price of securities, grains, liquids and may be annulled. On the other hand, respondent's defense
things considered certain? for the declaration of the inexistence of the contract does
not prescribe. (Catindig v. Vda. de Meneses, Roxas v. Court
A: of Appeals, G.R.No. 165851 & G.R. No. 165851 , Feb. 2,
1. When the price fixed is that which the thing would 2011)
have on a definite day, or in a particular exchange or
market Q: What is considered reasonable price?
2. When the amount is fixed above or below the price of
such day, or in such exchange or market, provided said A: Generally the market price at the time and place fixed by
amount be certain (Art. 1472, NCC) the contract or by law for the delivery of the goods.

Q: Can the fixing of the price be left to the discretion of Q: When is the time to determine the adequacy or
one of the contracting parties? inadequacy of price?

A: GR: No. The price cannot be fixed unilaterally by one of A: In determining the adequacy or inadequacy of the price,
the contracting parties. the price obtaining at the time of the execution of the
contract shall be considered, and not the price obtaining
XPN: If the other party agreed or consented. (Art. thereafter (Pineda, p. 47, 2010 ed.)
1473, NCC)
Q: How is inadequacy of price proved?
Q: What is the effect when the price in unilaterally fixed
by one of the contracting parties without consent of the A: Allegation of inadequacy of price must be proved by
other party? sufficient evidence. Without being substantiated with
evidence, it is a mere speculation. (Pineda, p. 47, 2010 ed.)
A: There is no meeting of the minds. The sale is
inefficacious (Pineda, p. 54, 2010 ed.) Q: What is the effect on the contract of sale in case of a
breach in the agreed manner of payment?
Q: What is the effect of gross inadequacy of price?
A: None. It is not the act of payment of price that
A: GR: It does not affect the validity of the sale if it is fixed determines the validity of a contract of sale. Payment of the
in good faith and without fraud price has nothing to do with the perfection of the contract,
as it goes into the performance of the contract. Failure to
XPN: CoRDS pay the consideration is different from lack of
1. If Consent is vitiated (may be annulled or consideration. Failure to pay such results in a right to
presumed to be equitable mortgage) demand the fulfillment or cancellation of the obligation
2. If the parties intended a Donation or some other under an existing valid contract. On the other hand, lack of
act/ contract consideration prevents the existence of a valid contract.
3. If the price is so low as to be “Shocking to the (Sps. Bernardo Buenaventura and Consolacion Joaqui v. CA,
conscience” GR No. 126376, Nov. 20, 2003)
4. If in the event of Resale, a better price can be
obtained WHEN NO PRICE IS AGREED UPON BY THE PARTIES

Q: What is the effect if the price is simulated? Q: What is the effect of failure to determine the price?

A: GR: Contract of sale is void. A:

1. Where contract is executory – ineffective
XPN: The act may be shown to have been in reality a 2. Where the thing has been delivered to and
donation or some other act or contract. appropriated by the buyer – the buyer must pay a
reasonable price therefore
Q: Is annulment of sale the remedy in a simulated sale?
Note: The fixing of the price cannot be left to the discretion of one
A: No. It is a well-entrenched rule that where the deed of of the parties. However, if the price fixed by one of the parties is
sale states that the purchase price has been paid but in fact accepted by the other, the sale is perfected.
has never been paid, the deed of sale is null and void ab
initio for lack of consideration. Moreover, Article 1471 of Q: What is the effect when a thing or a part thereof is
the Civil Code, provides that “if the price is simulated, the delivered to the buyer although the contract is
sale is void,” which applies to the instant case, since the inefficacious and the latter appropriated the same?
price purportedly paid as indicated in the contract of sale
was simulated for no payment was actually made. Since it A: The buyer must pay the reasonable price for the thing
was well established that the Deed of Sale is simulated and, received (Art. 1474, NCC)
therefore void, petitioners’ claim that respondent's cause
of action is one for annulment of contract, which already
prescribed, is unavailing, because only voidable contracts

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Q: How is reasonable price determined? Q: When is payment considered option money?

A: Reasonableness of price is a question of fact. Its A: Payment is considered option money when it is given as
determination is dependent upon the circumstances of a separate and distinct consideration from the purchase
each particular case. The market value is a good standard in price. Consideration in an option contract may be anything
determining the reasonable price. (Pineda, p. 55) or undertaking of value.

Q: What is market value? Note: An option is not itself a purchase, but merely secures the
privilege to buy. It is not a sale of property but a sale of right to
A: It is that reasonable sum which a property would purchase. He does not sell his land; he does not then agree to sell
it; but he does sell something, i.e., the right or privilege to buy at
command in a fair sale by a man willing but not obliged to
the election or option of the other party. Its distinguishing
sell to another who is willing but not obliged to buy. characteristic is that it imposes no binding obligation on the person
holding the option, aside from the consideration for the offer
Q: In an action for specific performance with damages, X (Limson v. CA, G.R. No. 135929, 2001).
alleged that there was an agreement to purchase the lot
of Y. As regards the manner of payment, however, Y’s Q: What is an earnest money or “arras”?
receipts contradicted the testimony of X. The receipts
failed to state the total purchase price or prove that full A: This is the money given to the seller by the prospective
payment was made. For this reason, it was contended that buyer to show that the latter is truly interested in buying
there was no meeting of their minds and there was no the property, and its aim is to bind the bargain. (Pineda, p.
perfected contract of sale. Decide. 75)

A: The question to be determined should not be whether Q: What is the effect of giving an earnest money?
there was an agreed price, but what that agreed price was.
The sellers could not render invalid a perfected contract of A: It is statutory rule that whenever earnest money is given
sale by merely contradicting the buyer’s obligation in a contract of sale, it shall be considered as part of the
regarding the price, and subsequently raising the lack of price and as proof of the perfection of the contract. It
agreement as to the price. (David v. Tiongson, G.R. No. constitutes an advance payment and must, therefore be
108169, Aug. 25, 1999) deducted from the total price. (Adelfa Properties, Inc. v. CA,
240 SCRA 265)
Q: Distinguish the failure to pay the consideration from
lack of consideration. Note: Option money may become earnest money if the parties so
agree.
A:
FAILURE TO PAY LACK OF Q: What is the effect of rescission on earnest money
CONSIDERATION CONSIDERATION received?
As to validity of contract of sale
Contract is valid because it is the A: When the seller seeks to rescind the sale, he is obliged to
existence of the price and not return the thing which was the object of the contract along
the act of payment of price that with fruits and interest. (Art. 1385, NCC)
determines the validity of a Lack of consideration
contract of sale. Q: Distinguish option money from earnest money.
prevents the existence
of a valid contract.
Note: Payment of the price has A:
nothing to do with the perfection of OPTION MONEY EARNEST MONEY
the contract, but merely goes into Money given as distinct
the performance of the contract. Forms part of the purchase
consideration for an
As to resultant right price
option contract
Failure to pay the consideration Applies to a sale not Given only when there is
The contract of sale is
results in a right to demand the yet perfected already a sale
null and void and
fulfillment or cancellation of the Prospective buyer is not When given, the buyer is
produces no effect
obligation under an existing required to buy. bound to pay the balance.
whatsoever
valid contract. If sale did not materialize, it
If buyer does not decide
must be returned.
OPTION MONEY VIS-A-VIS EARNEST MONEY to buy, it cannot be
(Villanueva, p. 87, Pineda,
recovered.
p.77)
Q: What is option money?
Q: Bert offers to buy Simeon's property under the
A: The distinct consideration in case of an option contract. following terms and conditions: P1 million purchase price,
It does not form part of the purchase price hence, it cannot 10% option money, the balance payable in cash upon the
be recovered if the buyer did not continue with the sale. clearance of the property of all illegal occupants. The
option money is promptly paid and Simeon clears the

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property of all illegal occupants in no time at all. However, Article 1482 of the Civil Code, provides that whenever
when Bert tenders payment of the balance and asks for earnest money is given in a contract of sale, it shall be
the deed of absolute sale, Simeon suddenly has a change considered as part of the price and proof of the perfection
of heart, claiming that the deal is disadvantageous to him of the contract. Although the presumption is not
as he has found out that the property can fetch three conclusive, as the parties may treat the earnest money
times the agreed purchase price. Bert seeks specific differently, there is nothing alleged in the present case that
performance but Simeon contends that he has merely would give rise to a contrary presumption. In cases where
given Bert an option to buy and nothing more and offers the Court reached a conclusion contrary to the
to return the option money which Bert refuses to accept. presumption declared in Article 1482, we found that the
1. Will Bert's action for specific performance money initially paid was given to guarantee that the buyer
prosper? Explain. would not back out from the sale, considering that the
2. May Simeon justify his refusal to proceed with parties to the sale have yet to arrive at a definite
the sale by the fact that the deal is financially agreement as to its terms – that is, a situation where the
disadvantageous to him? Explain. (2002 Bar contract has not yet been perfected. These situations do
Question) not obtain in the present case, as neither of the parties
claimed that the P20,000.00 was given merely as guarantee
A: by the respondents, as vendees, that they would not back
1. Bert's action for specific performance will prosper out from the sale (Heirs of Pangan v. Spouses Perreras, G.R.
because there was a binding agreement of sale, not No. 157374, Aug. 27, 2009).
just an option contract. The sale was perfected upon
acceptance by Simeon of 10% of the agreed price. This FORMATION OF CONTRACT OF SALE
amount is in reality an earnest money because the
agreement states that the balance was to be paid after Q: What are the 3 stages involved in the formation of a
fulfilling the condition. Under Art. 1482, it "shall be contract of sale?
considered as part of the price and as proof of the
perfection of the contract." (Topacio v. CA, G.R. No. A:
102606, July 3, 1992; Villongco Realty v. Bormaheco, 1. Negotiation/Preparatory offer/Policitation
G.R. No. L-26872, July 25, 1975). 2. Perfection
3. Consummation
2. Simeon cannot justify his refusal to proceed with the
sale by the fact that the deal is financially Q: What is policitation?
disadvantageous to him. Having made a bad bargain is
not a legal ground for pulling out of a binding contract A: Policitation is defined as an unaccepted unilateral
of sale, in the absence of some actionable wrong by promise to buy or sell. This produces no judicial effect and
the other party (Vales v. Villa, G.R. No. 10028, Dec. 16, creates no legal bond. This is a mere offer, and has not yet
1916), and no such wrong has been committed by been converted into a contract. It covers the period from
Bert. the time the prospective contracting parties indicate
interest in the contract to the time the contract is
Q: Spouses Pangan owned a lot and a two-door apartment. perfected. (Villanueva, p. 6).
The wife, Consuelo Pangan agreed to sell the properties to
spouses Perreras. Consuelo received P20,000 from the Q: What are usually included in a policitation?
respondents as earnest money with a receipt that also
contained the terms of agreement. Later on, the parties A: Legal matters arising prior to the perfection of the sale,
agreed to increase the price from P540,000 to P580,000. dealing with concepts of invitation to make offer, offer,
Spouses Perreras issued two checks in compliance to the acceptance, right of first refusal option contract, supply
new agreement amounting to P200,000 and P250,000. agreement, mutual promises to buy and sell or contracts to
Consuelo, however, refused to accept the checks. She sell, and even agency to sell or agency to buy. (Villanueva,
justified her refusal by saying that her children, co-owners p. 135, 2009 ed.)
of the subject properties, did not agree to sell the
properties. Consuelo offered to return the P20,000 earnest Q: What makes an offer certain?
money to the spouses buyers but the latter rejected it.
Hence, Consuelo filed a complaint for consignation. A: An offer is “certain” only where there is an offer to sell
Spouses Perreras insisted on enforcing the agreement, or an offer to buy a subject matter and for a price having all
hence they filed an action for specific performance. In the essential requisites mandated by law.
Consuelo’s answer, she claimed that the contract became
ineffective for lack of the requisite consent from the co- Q: How is an offer accepted?
owners, her children. Decide.
A: The acceptance must be absolute and must not qualify
A: The presence of Consuelo’s consent and, corollarily, the the terms of the offer—it must be plain, unequivocal,
existence of a perfected contract between the parties are unconditional and without variance of any sort from the
further evidenced by the payment and receipt proposal.
of P20,000.00, an earnest money by the contracting
parties’ common usage. The law on sales, specifically

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Q: What are the rules in the conception stage about the Q: What is the effect of a separate consideration in an
offer? option contract?

A: A:
RULE 1. With separate consideration:
a. Contract is valid
Offer is Prior to acceptance, may be withdrawn at b. Offeror cannot withdraw offer until after
floated will by offeror but no authority to modify it expiration of the option
Must be accepted within the period, c. Is subject to rescission and damages but not
otherwise, extinguished at the end of specific performance
With a 2. Without separate consideration:
period and may be withdrawn at will by
period a. the option contract is not deemed perfected
offeror but must not be arbitrary,
otherwise, liable for damages b. offer may be withdrawn at any time prior to
acceptance
With a Extinguished by happening/ non-happening
condition of condition Note: However, even though the option was not supported by a
consideration, the moment it was accepted, contract of sale is
without perfected (Art. 1324).
Continues to be valid depending upon
period/
circumstances of time, place and person
condition Q: What are the obligations of the offeror?
With a
counter- Original offer is extinguished A:
offer 1) Not to offer to any third party the sale of the object of
the option during the option period;
2) Not to withdraw the offer or option during the option
Q: What is an option contract? period;
3) To hold the subject matter for sale to the offeree in
A: An option contract is a contract by which the owner of the event that the latter exercises his option during
the property agrees with another person that he shall have the option period.
the right to buy his property at a fixed price within a certain
time. It is binding upon the promisor if the promise is Q: What is the effect of acceptance and withdrawal of the
supported by a consideration distinct from the price. An offer?
option contract is likewise a separate and distinct contract
from a contract of sale. A: If the offer had already been accepted and such
acceptance has been communicated before the withdrawal
Q: What is the nature of an option contract? is communicated, the acceptance creates a perfected
contract, even if no consideration was as yet paid for the
A: It is a preparatory contract in which one party grants to option. In which case, if the offeror does not perform his
another, for a fixed period and at a determined price, the obligations under the perfected contract, he shall be liable
privilege to buy or sell, or to decide whether or not to enter for all consequences arising from the breach thereof based
into a principal contract. It binds the party who has given on any of the available remedies such as specific
the option not to enter into the principal contract with any performance, or rescission with damages in both cases.
other person during the period designated, and within that
period, to enter into such contract with the one whom the Q: What is the right of first refusal?
option was granted, if the latter should decide to use the
option. It is a separate and distinct contract. A: A right of first refusal is a contractual grant, not of the
sale of a property, but of the first priority to buy the
Note: If the option is perfected, it does not result in the perfection property in the event the owner sells the same.
or consummation of the sale. (Diaz, p.7)
Note: Where a time is stated in an offer for its acceptance, the
Q: What is the period within which to exercise the option? offer is terminated at the expiration of the time given for its
acceptance (Pineda, p. 76, 2010 ed.)
A:
1. Within the term stipulated Q: When can the owner offer the sale of the property to a
2. If there is no stipulation, the court may fix the term third person?

Q: How is an option exercised? A: Only after the grantee fails to exercise its right under the
same terms and within the period contemplated can the
A: A notice of acceptance must be communicated to offeror owner validly offer to sell the property to a third person,
even without actual payment as long as payment is again under the same terms as offered to the grantee.
delivered in the consummation stage.

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Q: NDC and Firestone entered into a contract of lease third party. Iris filed an action to rescind the sale and to
wherein it is stipulated that Firestone has the right of first compel Andres to sell the property to her at the same
refusal to purchase the leased property "should lessor price. Alternatively, she asked the court to extend the
NDC decide to sell the same”. After the rumor that NDC lease for another two years on the same terms. Can Iris
will transfer the lot to PUP, Firestone instituted an action seek rescission of the sale of the property to
for specific performance to compel NDC to sell the Andres’mother? (2008 Bar Question)
property in its favor. PUP moved to intervene arguing that
the Memorandum issued by then President Aquino A: Iris can seek rescission because pursuant to Equatorial
ordered the transfer of the whole NDC compound to the Realty Co. v. Mayfair Theater rescission is a relief allowed
Government, which in turn would convey it in favor of for the protection of one of the contracting parties and
PUP. Can Firestone exercise its right of first refusal? even third persons from all injury and damage the contract
of sale may cause or the protection of some incompatible
A: Yes. It is a settled principle in civil law that when a lease and preferred right.
contract contains a right of first refusal, the lessor is under
a legal duty to the lessee not to sell to anybody at any price Q: Will the alternative prayer for extension of the lease
until after he has made an offer to sell to the latter at a prosper? (2008 Bar Question)
certain price and the lessee has failed to accept it. The
lessee has a right that the lessor's first offer shall be in his A: No, the extension of the lease should be upon the
favor (PUP v. CA, G.R. No. 143513, Nov. 14, 2001). mutual agreement of the parties.

Q: In a 20-year lease contract over a building, the lessee is Q: Differentiate an option contract from a right of first
expressly granted a right of first refusal should the lessor refusal
decide to sell both the land and building. However, the
lessor sold the property to a third person who knew about A: An option contract is a preparatory contract in which one
the lease and in fact agreed to respect it. Consequently, party grants to another, for a fixed period and at a
the lessee brings an action against both the lessor-seller determined price, the privilege to buy or sell, or to decide
and the buyer (a) to rescind the sale and (b) to compel whether or not to enter into a principal contract.
specific performance of his right of first refusal in the
sense that the lessor should be ordered to execute a deed In a right of first refusal, while the object may be
of absolute sale in favor of the lessee at the same price. determinate, the exercise of the right would be dependent
The defendants contend that the plaintiff can neither seek not only on the grantor’s eventual intention to enter into a
rescission of the sale nor compel specific performance of a binding juridical relation with another but also on terms,
"mere" right of first refusal. Decide the case. (1998 Bar including the price, that are yet to be firmed up. (Diaz, p.
Question) 54)

A: The action filed by the lessee, for both rescission of the OPTION CONTRACT RIGHT OF FIRST REFUSAL
offending sale and specific performance of the right of first Principal contract; stands Accessory; cannot stand on
refusal which was violated, should prosper. If the right of on its own its own
first refusal was violated and the property wa sold to a Needs separate Does not need separate
buyer who was aware of the existence of such right, the consideration consideration
resulting contract is rescissible by the person in whose There must be subject
Subject matter and price
favour the right of first refusal was given and although no matter but price not
must be valid
particular price was stated in the covenant granting the important
right of first refusal, the same price by which the third-party Not conditional Conditional
buyer bought the property shall be deemed to be the price There is no offer to sell, but There is an offer to sell
by which the righ of first refusal shall therefore be only an opportunity for
exercisable (Equitorial Realty Development, Inc. v. Mayfair the buyer to enter into a
Theater, Inc., 264 SCRA 483) contract of sale
Not subject to specific Subject to specific
Note: The offer of the person in whose favor the right of first refusal performance performance
was given must conform with the same terms and conditions as
those given to the offeree.
Q: Is it necessary that the right of first refusal be
embodied in a written contract?
Q: Andres leased his house to Iris for a period of 2 years,
at the rate of P25, 000 monthly, payable annually in
A: Yes, the grant of such right must be clear and express.
advance. The contract stipulated that it may be renewed
for another 2-year period upon mutual agreement of the
Note: It is applicable only to executory contracts and not to
parties. The contract also granted Iris the right of first contracts which are totally or partially performed.
refusal to purchase the property at any time during the
lease, if Andres decides to sell the property at the same If a particular form is required under the Statute of Frauds: sale is
price that the property is offered for sale to a third party. valid & binding between the parties but not to 3rd persons.
Twenty-three months after execution of the lease
contract, Andres sold the house to his mother who is not a

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Q: Pozzolanic entered a long-term contract with the by virtue of law or stipulation.

National Power Corporation (NPC) for the purchase of all
fly ash to be produced by the latter’s future power plants. Q: What is the form of acceptance required?
In the contract, NPC granted Pozzolanic a right of first
refusal to purchase the fly ash that may be generated in A: It may be express or implied. Acceptance may be
the future. When NPC’s two new power plants started evidenced by some act, or conduct, communicated to the
operation, it published an invitation to interested buyers offeror, either in a formal or an informal manner, that
for the purchase of the fly ash. Pozzolanic sent letters to clearly manifest the intention or determination to accept
NPC reminding its right of first refusal. NPC deferred its the offer to buy or sell (Villanueva, p. 177, 2009 ed.).
public bidding with the first power plant’s fly ash but it
nevertheless continued with the bidding of the second Q: How is acceptance made?
power plant’s fly ash. Pozzolanic filed a complaint, but
during the pendency of the case NPC decided to likewise A: It is made at the time and place stipulated in the
dispose the fly ash from the first power plant without contract. If there is no stipulation, it shall be made at the
allowing Pozzolanic to exercise its right of first refusal. Can time and place of the delivery of the thing. (Art. 1582, NCC)
Pozzolanic exercise its right of first refusal?
Q: When is it deemed that the buyer has accepted the
A: No. The right of first refusal granted in favour of goods?
Pozazolanic is invalid for being contrary to public policy as
the same violates the requirement of competitive public A:
bidding in the award of government contracts. In this 1. When he intimates to the seller that he has accepted
jurisdiction, public bidding is the established procedure in them
the grant of government contracts. Thus, respondent’s right 2. When the goods have been delivered and he does any
of first refusal cannot take precedence over the dictates of act inconsistent with the ownership of the seller
public policy. The right of first refusal of respondent being 3. When, after the lapse of reasonable time, he retains
invalid, it follows that it has no binding effect. It does not the goods without intimating to the seller that he
create an obligation on the part of petitioner to rejected them (Art. 1585, NCC)
acknowledge the same. (PSALM Corp., vs. Pozzolanic, G.R.
No. 183789, Aug. 24, 2011) Q: What is the rule on refusal to accept the goods by the
buyer?
Q: May the right of first refusal be waived?
A: The buyer is not bound to return the goods to the seller
A: Yes. Like other rights, the right of first refusal may be and it is sufficient that he notifies the seller of his refusal in
waived or when a party entered into a compromise the absence of a contrary stipulation. (Art. 1587, NCC)
agreement. (Diaz, p. 55)
Note: If the refusal is without just cause, the title passes to the
Q: Can a sublessee avail of the right of first refusal of the buyer from the moment the goods are placed at his disposal. (Art.
1588, NCC)
lessee?

A: GR: No. The sublessee is a stranger to the lessor who is Q: What is the rule on the inspection of goods?
bound to respect the right of first refusal in favor of the
lessee only. A: GR: If the goods have not yet been previously examined,
the buyer is not deemed to have accepted them unless and
XPN: When the contract of lease granted the lessee until he has had reasonable to examine them (Art. 1584,
the right to assign the lease, the assignee would be NCC)
entitled to exercise such right as he steps into the
shoes of the original assignee (Villanueva, p. 164, 2009 XPNS:
ed.). 1. The buyer had reasonable time to inspect the
goods but he failed to do so
PERFECTION 2. Stipulation to the contrary
3. C.O.D. sales
Q: When is a contract of sale deemed perfected?
Q: What is the effect and/or consequence of a qualified
A: GR: It is deemed perfected at the moment there is acceptance?
meeting of minds upon the thing which is the object of the
contract and upon the price. (Art.1475, par.1) A: It constitutes merely a counter-offer which must in turn
be accepted to give rise to a valid and binding contract
Note: The acceptance of the offer must be absolute. It must be (Villanueva, p. 171, 2009 ed.).
plain, unequivocal, unconditional and without variance of any sort
from the proposal.

XPN: When the sale is subject to a suspensive condition

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Q: When is a contract of sale perfected through a letter or A: No. When Msgr. Cirilos affixed his signature on that
a telegram? letter, he expressed his conformity to the terms of Licup’s
offer appearing on it. There was meeting of the minds as to
A: It is perfected only when the offeror has received or has the object and consideration of the contract. But when
knowledge of the acceptance made by the offeree. Even if Licup ordered a stop-payment on his deposit and proposed
the buyer has accepted, the seller may still withdraw if he in his April 26, 1988 letter to Msgr. Cirilos that the property
does not know yet of the buyer’s acceptance (Pineda, p. 59, be instead transferred to SSE, a subjective novation took
2010 ed.). place. The proposed substitution of Licup by SSE opened
the negotiation stage for a new contract of sale as between
Q: What is the effect of the parties’ failure to appear SSE and the owners (Starbright Sales v. Phil. Realty Corp.,
before the notary public who notarized the deed? et. al, G.R. No. 177936, Jan. 18, 2012).

A: None. The non-appearance of the parties before the Q: Petitioners are the co-owners of undivided shares of
notary public who notarized the deed does not necessarily two parcels of land. Respondent Paraiso Development
nullify nor render the parties' transaction void ab initio. Corporation purchased from them their respective shares
Article 1358, NCC on the necessity of a public document is except for two shares. A Contract to Sell was then
only for convenience, not for validity or enforceability. established, where the petitioner affixed their signatures
Where a contract is not in the form prescribed by law, the thereon. However, the petitioners decided to withdraw
parties can merely compel each other to observe that form, from the said agreement and along with it the request for
once the contract has been perfected. the rescission of the contract which they said they never
signed. They allege there is inability to understand the
Note: Contracts are obligatory in whatever form they may have consequences of the contract. Was the contract perfected
been entered into, provided all essential requisites are present. between the parties?
(Penalosa v. Santos, G.R. No. 133749, Aug. 23, 2001)
A: It is well-settled that contracts are perfected by mere
Q: DBP sought to consolidate its ownership with Paragon consent, upon the acceptance by the offeree of the offer
Paper Industries, Inc. Medrano, President and General made by the offeror. From that moment, the parties are
Manager of Paragon, was instructed to contact all bound not only to the fulfillment of what has been
minority stockholders to convince them to sell their shares expressly stipulated but also to all the consequences which,
to DBP at the price of 65% of the par value. He was able to according to their nature, may be in keeping with good
contact all except for one who was in Singapore. Medrano faith, usage and law. To produce a contract, the acceptance
testified that all have agreed to sell their shares to DBP. must not qualify the terms of the offer. However, the
Paragon made proposals to DBP and the sale was acceptance may be express or implied. For a contract to
approved by a DBP resolution subject to terms and arise, the acceptance must be made known to the offeror.
conditions. However, the required number of shares Accordingly, the acceptance can be withdrawn or revoked
contained in the conditions was not delivered by before it is made known to the offeror. In the case at bar,
Medrano. Is the sale perfected? the Contract to Sell was perfected when the petitioners
consented to the sale to the respondent of their shares in
A: No. DBP imposed several conditions to its acceptance the subject parcels of land by affixing their signatures on
and it is clear that Medrano indeed tried in good faith to the said contract. Such signatures show their acceptance of
comply with the conditions given by DBP but unfortunately what has been stipulated in the Contract to Sell and such
failed to do so. Hence, there was no birth of a perfected acceptance was made known to respondent corporation
contract of sale between the parties (DBP v. Medrano and when the duplicate copy of the Contract to Sell was
PMO, G.R. No. 167004. Feb. 7, 2011). returned to the latter bearing petitioners' signatures
(Rizalino, substituted by his heirs, vs. Paraiso Development
Q: Licup, through a letter, offered to buy parcels of land to Corporation, G.R. No. 157493, February 5, 2007).
The Holy See and Philippine Realty Corporation (PRC). He
enclosed a check for P100,000.00 to “close the Q: When is an auction sale perfected?
transaction” and accepted the responsibility of removing
informal settlers. Msgr. Cirilos, representative of the Holy A: A sale by auction is perfected when the auctioneer
See and PRC signed the conforme portion of the letter and announces its perfection by the fall of the hammer, or in
accepted the check. A stop-payment order was issued by other customary manner. (Art. 1476, par.2)
Licup and the latter requested that the titles to the land
instead be given to SSE. Msgr. Cirilos wrote SSE requesting Q: Does the seller have the right to bid in an auction sale?
to remove the informal settlers, otherwise, the
P100,000.00 would be returned. SSE replied with an A: Yes. The seller has the right to bid provided that such
“updated proposal” that they will comply provided that right was reserved and notice was given to that effect
the purchase price is lowered. The proposal was rejected. (Pineda, p. 53)
The parcel of land was sold to another third person. Is
there a perfected contract of sale between the two
parties?

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CONSUMMATION Requisites:
a. The seller must have control over the thing
Q: How does the consummation stage in a contract of sale b. The buyer must be put under control
take place? c. There must be intention to deliver the thing for
purposes of ownership
A: It takes place by the delivery of the thing together with
the payment of the price. i. Tradicion Symbolica – delivery of certain
symbols representing the thing
Note: The ownership of the thing is acquired by the buyer in any of ii. Tradicion Instrumental – delivery of the
the ways specified by law or in any manner agreed upon by the instrument of conveyance
parties.
iii. Traditio Longa Manu – Delivery of thing
by mere agreement; when seller points
Q: A and PDS Development Corp. executed a contract to
to the property without need of actually
sell a parcel of land. A died without having completed the
delivering
installment on the property. His heirs then took over the
iv. Tradicion Brevi Manu – the buyer, being
contract to sell and assumed his obligations by paying the
already in possession of the thing sold
selling price of the lot from their own funds, and
due to some other cause, merely
completed the payment. To whom should the final Deed
remains in possession after the sale is
of Absolute Sale be executed by PDS?
effected, but now in concept of owner.
E.g.From lessee to becoming an owner
A: Having stepped into the shoes of the deceased with
v. Constitutum Possessorium – the seller
respect to the said contract, and being the ones who
remains in possession of the property in
continued to pay the installments from their own funds, A’s
a different capacity. E.g. From owner to
heirs became the lawful owners of the said lot in whose
lessee
favor the deed of absolute sale should have been executed
by vendor PDS (Dawson v. Register of Deeds of Quezon City,
3. Quasi-tradition – delivery of rights, credits or
G.R. No. 120600 Sept. 22, 1998).
incorporeal property, made by:
a. Placing titles of ownership in the hands of the
TRANSFER OF OWNERSHIP
buyer;
b. Allowing buyer to make use of rights
Q: When is ownership deemed transferred?
4. Tradition by operation of law – Execution of a public
instrument is equivalent to delivery. But to be
A: The thing shall be understood as delivered, when it is
effective, it is necessary that the seller have such
placed in the control and possession of the vendee.
control over the thing sold that, at the moment of sale,
its material delivery could have been made.
Note: The most that sale do is to create the obligation to transfer
ownership. It is only the title while the mode of transferring
ownership is delivery. GR: There is presumption of delivery

Q: What is the effect of delivery? XPN:

a. Contrary stipulation;
A: GR: Title /ownership is transferred b. When at the time of execution, subject
matter was not subject to the control of
XPN: Contrary is stipulated as in the case of: seller;
1. Pactum reservatii in domini – agreement that c. Seller has no capacity to deliver at time of
ownership will remain with seller until full execution;
payment of price (Contract to sell) d. Such capacity should subsist for a reasonable
2. Sale on acceptance/approval time after execution of instrument.
3. Sale on return
4. There is implied reservation of ownership Q: When can there be an effective delivery?

Note: Seller bears expenses of delivery. A: Delivery should be coupled with intention of delivering
the thing, and acceptance on the part of the buyer to give
Q: What are the different kinds of delivery? legal effect of the act. Without such intention, there is no
such tradition.
A:
1. Actual – thing sold is placed under the control and Q: How is incorporeal property delivered?
possession of buyer/agent;
2. Constructive – does not confer physical possession of A:
the thing, but by construction of law, is equivalent to 1. When sale is made through a public instrument (Art.
acts of real delivery. 1498, NCC)
2. By placing the titles of ownership in the possession of
the buyer

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3. When buyer uses and enjoys the rights pertaining to possession of the property. Is there a constructive delivery
the incorporeal property with the consent of the seller of the subject properties?
(Art. 1501, NCC).
A: None. As a general rule, when the sale is made through a
Q: Lagrimas Boy borrowed P15,000 from spouses Ramos. public instrument, the execution thereof shall be equivalent
Thereafter, Boy executed a Deed of Absolute Sale with the to the delivery of the thing which is the object of the
Ramoses involving a house and lot. The price agreed upon contract, if from the deed the contrary does not appear or
was P31,000. It was alleged that Boy’s debt is to be cannot clearly be inferred. And with regard to movable
deducted, so the spouses needed only to pay P16,000. property, its delivery may also be made by the delivery of
Because the Ramoses were not yet in immediate need of the keys of the place or depository where it is stored or
the properties, Lagrimas stayed therein. Later on, kept. In order for the execution of a public instrument to
Lagrimas went to the wife, Erlinda, asking that they effect tradition, the purchaser must be placed in control of
execute a Kasunduan. In the Kasunduan, it states that the the thing sold. However, the execution of a public
spouses still had a remaining balance of P16,000 and that instrument only gives rise to a prima facie presumption of
interest is to be deducted in favor of the spouses so that delivery. Such presumption is destroyed when the delivery
would leave a balance of P8,500. The Kasunduan was is not effected because of a legal impediment. It is
notarized, however Erlinda changed her mind upon necessary that the vendor shall have control over the thing
signing. According to her, she realized that they already sold that, at the moment of sale, its material delivery could
paid P31,000 to Lagrimas when the Deed of Sale was have been made. Thus, a person who does not have actual
executed. When the spouses Ramos already needed to possession of the thing sold cannot transfer constructive
occupy the land, Lagrimas refused to vacate. She invoked possession by the execution and delivery of a public
the Kasunduan. Decide. instrument. In this case, there was no constructive
delivery of the machinery and equipment upon the
A: Under Article 1477 of the Civil Code, the ownership of execution of the deed of absolute sale or upon the issuance
the thing sold shall be transferred to the vendee upon the of the gate pass since it was not petitioner but Creative
actual or constructive delivery thereof. In addition, Article Lines which had actual possession of the property. The
1498 of the Civil Code provides that when the sale is made presumption of constructive delivery is not applicable as it
through a public instrument, as in this case, the execution has to yield to the reality that the purchaser was not placed
thereof shall be equivalent to the delivery of the thing in possession and control of the property. (Asset
which is the object of the contract, if from the deed the Privatization Trust v. T.J. Enterprises, G.R. No. 167195, May
contrary does not appear or cannot clearly be inferred. In 8, 2009)
this case, the Deed of Absolute Sale does not contain any
stipulation against the constructive delivery of the property Q: Given that actual possession, control and enjoyment is
to private respondents. In the absence of stipulation to the a main attribute of ownership, is symbolic delivery by
contrary, the ownership of the property sold passes to the mere execution of the deed of conveyance sufficient to
vendee upon the actual or constructive delivery thereof. convey ownership over property?
The Deed of Absolute Sale, therefore, supports private
respondents’ right of material possession over the subject A: Yes, possession is also transferred along with ownership
property (Boy v. Court of Appeals, et. al, G.R. No. 125088, thereof by virtue of the deed of conveyance. The mere
April 14, 2004). execution of the deed of conveyance in a public document
is equivalent to the delivery of the property, prior physical
Q: Asset Privatization (petitioner) entered into an delivery or possession is not legally required. The deed
absolute deed of sale over certain machinery and operates as a formal or symbolic delivery of the property
refrigeration equipment with T.J. Enterprises (respondent) sold and authorizes the buyer or transferee to use the
on an as-is-where-is basis. Respondent paid the full document as proof of ownership. Nothing more is required
amount of P84,000.00 as evidenced by a receipt. After two (Sps. Sabio v. International Corporate Bank, Inc. et. at. G.R.
days, respondent demanded the delivery of the No. 132709, Sept. 4, 2001).
machinery. The subject properties were located in a
compound under the possession of Creative Lines, Inc. Q: Spouses Bernal purchased a jeepney from Union Motor
Some time after, respondent was able to pull out from the to be paid in installments. They then executed a
petitioner’s compound the subject by means of a gate promissory note and a deed of chattel mortgage in favor
pass issued by the petitioner. However, during the hauling of Union Motor which in turn assigned the same with
of the second lot, only nine items were pulled out instead Jardine Finance. To effectuate the sale as well as the
of sixteen because Creative Lines’ employees prevented assignment of the promissory note and chattel mortgage,
respondent from hauling the remaining machinery and the spouses were required to sign documents, one of
equipment. Respondent filed a complaint for specific which was a sales invoice. Although the Spouses have not
performance and damages against petitioner and Creative yet physically possessed the vehicle, Union Motor’s agent
Lines. Petitioner argued that upon the execution of the required them to sign the receipt as a condition for the
deed of sale it had complied with its obligation to deliver delivery of the vehicle. It was discovered that the said
the object of the sale since there was no stipulation to the agent stole the vehicle even prior to its delivery to the
contrary. It further argued that being a sale on an as-is- spouses. Was there a transfer of ownership of the subject
where-is basis, it was the duty of respondent to take vehicle?

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A: No. The issuance of a sales invoice does not prove Q: When should the object be delivered?
transfer of ownership of the thing sold to the buyer; an
invoice is nothing more than a detailed statement of the A:
nature, quantity and cost of the thing sold and has been 1. Stipulated time
considered not a bill of sale. 2. If there is none, at a reasonable hour.

The registration certificate signed by the spouses does not Q: Where is the place of delivery?
conclusively prove that constructive delivery was made nor
that ownership has been transferred to the respondent A:
spouses. Like the receipt and the invoice, the signing of the 1. That agreed upon
said documents was qualified by the fact that it was a 2. Place determined by usage of trade
requirement of Union Motor for the sale and financing 3. Seller’s place of business
contract to be approved. In all forms of delivery, it is 4. Seller’s residence
necessary that the act of delivery, whether constructive or 5. In case of specific goods, where they can be found
actual, should be coupled with the intention of delivering
the thing. The act, without the intention, is insufficient. Q: What are the effects of a sale of goods on installment?
Inasmuch as there was neither physical nor constructive
delivery of a determinate thing, (in this case, the subject A:
motor vehicle) the thing sold remained at the seller’s risk. 1. Goods must be delivered in full except when stipulated
The Union Motor should therefore bear the loss of the 2. When not examined by the buyer – it is not accepted
subject motor vehicle after its agent allegedly stole the until examined or at least had reasonable time to
same (Union Motor Corp. v. CA, G.R. No. 117187, July 20, examine
2001).
Q: When is the seller not bound to deliver the thing sold?
Q: Can delivery be effected through a carrier?
A:
A: GR: Yes, if the seller is authorized. Delivery to carrier is 1. If the buyer has not paid the price;
delivery to the buyer. 2. No period for payment has been fixed in the contract;
XPN: 3. A period for payment has been fixed in the contract
1. A contrary intention appears but the buyer has lost the right to make use of the
2. Implied reservation of ownership under Art. 1503, time.
pars 1, 2, 3.
Q: When may the buyer suspend payment of the price?
Q: What are the kinds of delivery to carrier?
A: GR:
A: 1. If he is disturbed in the possession or ownership
1. FAS (Free Along Side) – when goods are delivered of the thing bought
alongside the ship, there is already delivery to the 2. If he has well-grounded fear that his possession
buyer or ownership would be disturbed by a vindicatory
2. FOB (Free On Board) – when goods are delivered at the action or foreclosure of mortgage.
point of shipment, delivery to carrier by placing the
goods on vessel is delivery to buyer XPN:
3. CIF (Cost, Insurance, Freight) – 1. Seller gives security for the return of the price in a
a. When buyer pays for services of carrier, delivery proper case;
to carrier is delivery to buyer, carrier as agent of 2. A stipulation that notwithstanding any such
buyer; contingency, the buyer must make payment;
b. When buyer pays seller the price – from the 3. Disturbance or danger is caused by the seller;
moment the vessel is at the port of destination, 4. If the disturbance is a mere act of trespass;
there is already delivery to buyer 5. Upon full payment of the price.
4. COD (Collect On Delivery) – the carrier acts for the
seller in collecting the purchase price, which the buyer Q: Is payment of the purchase price essential to transfer
must pay to obtain possession of the goods. ownership?

Q: What are the seller’s duties after delivery to the A: Unless the contract contains a stipulation that ownership
carrier? of the thing sold shall not pass to the purchaser until he has
fully paid the price, ownership of the thing sold shall be
A: transferred to the vendee upon the actual or constructive
1. To enter on behalf of the buyer into such contract delivery thereof (Diaz, p. 48).
reasonable under the circumstances;
2. To give notice to the buyer regarding necessity of
insuring the goods.

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Q: How may the buyer accept the delivery of the thing XPN: Third person acknowledges to the buyer that he
sold? holds the goods in behalf of the buyer (Art. 1521, NCC)

A: 7. On sale or return – The ownership passes to buyer

1. Express – he intimates to seller that he has accepted upon delivery, but he may revest ownership in the
2. Implied seller by returning or tendering the goods within the
a. Buyer does not act inconsistent with ownership of time fixed in the contract or within reasonable time.
seller after delivery (Art. 1502, NCC)
b. Retains without intimating to seller that he has
rejected Q: What is sale on trial, approval or satisfaction?

Q: What is the effect if the buyer refuses to accept despite A: It is a contract in the nature of an option to purchase if
delivery of the object of the sale? the goods prove to be satisfactory, the approval of the
buyer being a condition precedent.
A: Delivery is completed. Since delivery of the subject
matter of the sale is an obligation on the part of the seller, Q: In this kind of sale, when is ownership deemed
the acceptance thereof by the buyer is not a condition for transferred?
the completeness of the delivery (Villanueva, p. 117)
A:
Note: Thus, even with such refusal of acceptance, delivery 1. When buyer signifies approval or acceptance to the
(actual/constructive), will produce its legal effects. (e.g. seller or does any act adopting the transaction
transferring the risk of loss of the subject matter to the buyer who 2. If buyer did not signify approval or acceptance, but
has become the owner thereof) (Villanueva, p. 117)
retains the goods without giving notice of rejection
Under Art. 1588, when the buyer’s refusal to accept the goods is after the expiration of the period fixed or of
without just cause, the title thereto passes to him from the reasonable time (Art. 1502, NCC)
moment they are placed at his disposal. (Villanueva, p. 117)
Q: What are the rules in case of sale on trial, approval or
WHEN DELIVERY DOES NOT TRANSFER TITLE satisfaction?

Q: When does delivery does not transfer title? A:

Title Who bears the loss
A: GR: Borne by seller
1. Sale on Trial, Approval, or Satisfaction XPN:
2. When there is an EXPRESS RESERVATION Risk of Loss 1. Buyer is at fault
a. If it was stipulated that ownership shall not pass 2. Buyer agreed to bear
to the purchaser until he has fully paid the price the loss
(Art. 1478) GR: Buyer must give goods a
3. When there is an IMPLIED RESERVATION trial
a. When goods are shipped, but the bill of lading As to trial XPN: Buyer need not do so if
states that goods are deliverable to the seller or it is evident that it cannot
his agent, or to the order of the seller or his agent perform the work.
b. When the bill of lading is retained by the seller or
his agent When period within It runs only when all the parts
c. when the seller of the goods draws on the buyer which buyer must signify essential for the operation of
for the price and transmits the bill of exchange his acceptance runs the object has been delivered
and the bill of lading to the buyer , and the latter
does not honor the bill of exchange by returning Validity of stipulation that rd
rd Valid, provided the 3 person
the bill of lading to the seller a 3 person must satisfy
is in good faith
4. When sale is not VALID approval or satisfaction
5. When the seller is not the owner of the goods
If the sale is made to a
Generally, it cannot be
XPNs: buyer who is an expert on
considered a sale on approval
a. Estoppel: when the owner is precluded from the object purchased
denying the sellers authority to sell
b. Registered land bought in good faith: Ratio: Buyer DOUBLE SALE
need not go beyond the Torrens title
c. Order of Courts in a Statutory Sale Q: When is there a double sale?
d. When the goods are purchased in a Merchant’s
store, Fair or Market (Art. 1505) A: There is double sale when the same object of the sale is
sold to different vendees.
6. When goods are held by a third party
Note: Requisites:
1. Same subject matter

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2. Same immediate seller 4. If the marriage has been legally dissolved, when and
3. Two or more different buyers how the marriage relation terminated
4. Both sales are valid 5. Full names and addresses of all occupants of the land
and those of the adjoining owners, if known, and, if
Q: What is the rule on double sale? not known, it shall state the extent of the search made
to find them.
A: First in time, priority in right
Q: Suppose the applicant is a non-resident of the
Note: Rule on Double Sale regarding immovables: Philippines, what are the requirements?
GR: Apply Art.1544
XPN: Sale of registered lands – apply Torrens System A: He shall file with his application an instrument in due
form appointing an agent or representative residing in the
Q: What are the rules according to Article 1544 of the Civil Philippines, giving his full name and postal address, and
Code? shall therein agree that the service of any legal process in
the proceedings under or growing out of the application
A: made upon his agent or representative shall be of the same
1. Movable – Owner who is first to possess in good faith legal effect as if made upon the applicant within the
2. Immovable – Philippines.
a. First to register in good faith
b. No inscription, first to possess in good faith Q: In the registration of a voluntary instrument, is a
c. No inscription & no possession in good faith – duplicate of certificate of title required?
Person who presents oldest title in good faith
A: GR: Yes. No voluntary instrument shall be registered by
Q: Does prior registration by the second buyer of a the Register of Deeds, unless the owner's duplicate
property subject of a double sale confer ownership or certificate is presented with such instrument.
preferred right in his favor over that of the first buyer? XPN: In cases expressly provided for in the decree or
upon order of the court, for cause shown.
A: Prior registration of the disputed property by the second
buyer does not by itself confer ownership or a better right Q: What is the effect of the production of a duplicate
over the property. Article 1544 requires that such certificate of title?
registration must be coupled with good faith.
A: It shall be conclusive authority from the registered
Knowledge gained by the first buyer of the second sale owner to the Register of Deeds to enter a new certificate or
cannot defeat the first buyer's rights except where the to make a memorandum of registration in accordance with
second buyer registers in good faith the second sale ahead such instrument, and the new certificate or memorandum
of the first, as provided by the Civil Code. shall be binding upon the registered owner and upon all
persons claiming under him, in favor of every purchaser for
Knowledge gained by the second buyer of the first sale value and in good faith.
defeats his rights even if he is first to register the second
sale, since such knowledge taints his prior registration with Q: What are the other payments to be made by the seller
bad faith (Art. 1544) (Uraca, et. al v. CA, G.R. No. 115158, in the registration of property?
Sept. 5, 1997)
A: The seller should pay capital gains tax and documentary
PROPERTY REGISTRATION DECREE registration fees. The rate of capital gains tax is 6% of
capital gains based on purchase price, fair market value or
Q: What are the rules in the application for land zonal value, whichever is higher.
registration?
Q: Spouses Guimba are the registered owners of a parcel
A:
of land. The wife entrusted her copy of the Owner’s
1. The application for land registration shall be in writing
and signed by the applicant or the person duly Duplicate Certificate of Title to De La Cruz as collateral for
authorized in his behalf. It shall be sworn in the place a loan. Later on, De La Cruz received a phone call from the
where it was signed. wife, informing her that she had changed her mind and
2. If there is more than one applicant, the application will no longer obtain the loan, consequently asking for her
shall be signed and sworn to by and in behalf of each. TCT back. However, the certificate had been deposited in
a bank. When she inquired at the bank, they told her that
Q: What shall be contained in the application? the certificate was not there. The wife received a telegram
from Abad reminding her of the maturity of her mortgage.
A: The spouses were not aware of any actual mortgage
1. Description of the land
involving their property until the receipt of such telegram.
2. Citizenship and civil status of the applicant
Hence, the spouses filed an adverse claim. Abad, in his
3. If married, the name of the wife or husband
answer, alleged that spouses Guimba made a connivance

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with De La Cruz to defraud him. Is Abad an innocent 3. In sheriff’s sales (Art. 1570)
holder for value? 4. Tax sales (Art. 1547, last paragraph)

A: The main purpose of land registration, covered by PD Note: In the above sales, there is no warranty of title or quality on
the part of the seller. The purchaser who buys without checking
1529, is to facilitate transactions relative to real estate by the title of the vendor is assuming all risks of eviction.
giving the public the right to rely upon the face of the
Torrens certificate of title. Therefore, as a rule, the In sheriff’s sales, the sheriff does not guarantee the title to real
purchaser is not required to explore further than what the property and it is not incumbent upon him to place the buyer in
Certificate indicates on its face. This rule however possession of such property (Pineda sales, p. 275).
applies only to innocent purchasers for value and in good
faith; it excludes a purchaser who has knowledge of a Q: Is caveat emptor applicable in sales of registered land?
defect in the title of the vendor, or of facts sufficient to
induce a reasonably prudent man to inquire into the status A: No. The purchaser of a registered land under the Torrens
of the property. Under Section 32 of PD 1529, an innocent system is merely charged with notice of the burdens and
purchaser for value is deemed to include an innocent claims on the property which are inscribed on the face of
mortgagee for value. By insisting on the application of PD certificate of title. (Pineda sales, p. 275)
1529 in his favor, petitioner begs the question. He invokes
Sections 52 and 53 of the law, which Q: Does caveat emptor apply in judicial sales?
protects innocent mortgagees for value, but which the RTC
has already determined he was not. As already discussed, A: Yes. The purchaser in a judicial sale acquires no higher or
such factual determination by the trial court is conclusive, better title or right than that of the judgment debtor. If it
because he did not question it in the proper forum. The happens that the judgment debtor has no right, interest, or
logical consequence, therefore, is the inapplicability of the lien on and to the property sold, the purchaser acquires
said law to his factual situation. Preliminarily, we should none (Pineda sales, p. 280).
stress that the remedy of appeal by certiorari under Rule 45
of the Rules of Court contemplates only questions of law, Q: Juliet offered to sell her house and lot, together with all
not of fact. Therefore, a party who files a Rule 45 petition the furniture and appliances therein, to Dehlma. Before
waives the opportunity to inquire into the findings of fact of agreeing to purchase the property, Dehlma went to the
the lower court. Coming to the present case, the Register of Deeds to verify Juliet’s title. She discovered
paramount question regarding the good faith of petitioner that while the property was registered in Juliet’s name
is obviously one of fact. (Abad v. Spouses Guimba, G.R. No. under the Land Registration Act, as amended by the
157002, July 29, 2005) Property Registration Decree, it was mortgaged to Elaine
to secure a debt of P80, 000. Wanting to buy the property,
Q: Explain the principle of prius tempore, potior jure. Dehlma told Juliet to redeem the property from Elaine,
and gave her an advance payment to be used for purposes
A: Knowledge by the first buyer of the second sale cannot of releasing the mortgage on the property. When the
defeat the first buyer’s rights except when the second mortgage was released, Juliet executed a Deed of
buyer first registers in good faith the second sale. Absolute Sale over the property which was duly registered
Conversely, knowledge gained by the second buyer of the with the Registry of Deeds, and a new TCT was issued in
first sale defeats his rights even if he is first to register, Dehlma’s name. Dehlma immediately took possession
since such knowledge taints his registration with bad faith over the house and lot and the movables therein.
nd
to merit the protection of Art. 1544 (2 par.), the second Thereafter, Dehlma went to the Assessor’s Office to get a
realty buyer must act in good faith in registering his deed of new tax declaration under her name. She was surprised to
sale (Diaz, p. 125). find out that the property was already declared for tax
purposes in the name of XYZ Bank which had foreclosed
Note: Where one sale is absolute and the other is a pacto de retro the mortgage on the property before it was sold to her.
transaction where the period to redeem has not yet expired, Art. XYZ Bank was also the purchaser in the foreclosure sale of
1544 will not apply (Pineda, p. 223). the property. At that time, the property was still
unregistered but XYZ Bank registered the Sheriff’s Deed of
Q: What does the principle of caveat emptor mean? Conveyance in the day book of the Register of Deeds
under Act 3344 and obtained a tax declaration in its name.
A: It literally means, ‘Let the buyer beware’. The rule Was Dehlma a purchaser in good faith? (2008 Bar
requires the purchaser to be aware of the supposed title of Question)
the vendor and one who buys without checking the
vendor’s title takes all the risks and losses consequent to A: Yes, Dehlma is a purchaser in good faith. She learned
such failure (Agcaoili, p. 184) about the XYZ tax declaration and foreclosure sale only
after the sale to her was registered. She relied on the
Q: In what particular sale transactions does caveat emptor certificate of title of her predecessor-in-interest. Under the
apply? Torrens System, a buyer of registered lands is not required
by law to inquire further than what the Torrens certificate
A: indicates on its face. If a person proceeds to but it relying
1. Sales of animals (Art. 1574) on the title, that person is considered a buyer in good faith.
2. Double sales (Art. 1544)

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The “priority in time” rule could not be invoked by XYZ Bank Q: What is the effect suppose the buyer chooses to
because the foreclosure sale of the land in favour of the continue with the sale of the remaining goods?
bank was recorded under Act 3344, the law governing
transactions affecting unregistered land, and thus, does not A: The remaining goods shall pass in ownership to the
bind the land. buyer but subject to proportionate reduction of the price.
But this is applicable only if the goods are divisible or
Q: Who as between Dehlma and XYZ Bank has a better capable of being divided (Pineda, p. 122, 2010 ed.). If
right to the house and lot? indivisible, the only option available is the avoidance of the
sale.
A: Between Dehlma and the bank, the former has a better
right to the house and lot. Q: Who bears the risk of loss or deterioration?

Q: Who owns the movables inside the house? A:

BEFORE Res perit domino – Seller is the owner so
A: Unless there is a contrary stipulation in the absolute PERFECTION seller bears risk of loss
deed of sale, Dehlma owns the movables covered by the
Deed of Sale and her ownership is perfected by the Res perit domino
execution and delivery of public document of sale. The
delivery of the absolute deed of sale is a symbolical delivery AT Contract shall be without any effect – the
of the house and lot, including the contents of the house. PERFECTION seller bears the loss since the buyer is
This is an obligation to deliver a specific thing, which relieved of his obligation under the
includes the delivery of the specific thing itself and all of its contract
accessions and accessories even though they may not have AFTER
been mentioned (Art. 1166, CC). PERFECTION Seller;
BUT Deterioration & fruits – Buyer bears loss
RISK OF LOSS BEFORE (Tolentino)
DELIVERY
Q: When is a thing considered lost? Buyer becomes the owner so buyer bears
risk of loss
A: It is understood that the thing is lost when it: AFTER
1. perishes, or DELIVERY Delivery extinguish ownership vis-a-vis
2. goes out of commerce, or the seller & creates a new one in favor of
3. disappears in such a way that its existence is the buyer
nd
unknown or cannot be recovered. (Art. 1189, 2
par.) DOCUMENTS OF TITLE

XPN: In an obligation to deliver a generic thing, the loss Q: What is a Document of Title?
or destruction of anything of the same kind does not
extinguish the obligation (Art. 1263, NCC) A: A document used in the ordinary course of business in
the sale or transfer of goods , as proof of the possession or
Q: What is the effect when the loss occurred at the time of control of the goods , or authorizing or purporting to
perfection of the contract of sale? authorize the possessor of the document to transfer or
receive, either by endorsement or by delivery, goods
A: GR: When the object of the contract is entirely lost, the represented by such document (Art. 1636).
contract shall be without effect.
Q: What may be considered as a document of title?
XPN: In case of partial loss, the buyer may choose
between withdrawing from the contract and A: A document of title of goods includes any bill of lading,
demanding the remaining part. If he chooses the dock warrant, quedan, or warehouse receipt or order
latter, he shall pay the remaining part’s corresponding (Villanueva, p. 301, 2009 ed.)
price in proportion to the total sum agreed upon. (Art.
1493, NCC) Q: What is the purpose of the Documents of Title?

Q: In the total or partial loss or deterioration of a mass of A:

specific goods without the knowledge of the seller, what 1. Evidence of possession or control of goods described
are the options of the buyer with regard to the sale? therein
2. Medium of transferring title and possession over the
A: goods described therein without having to effect
1. He may treat the sale as avoided or cancelled actual delivery (Villanueva, 2009 ed.)
2. He may continue with the sale with respect to the 3. The custody of a negotiable warehouse receipts issued
available or remaining goods. (Art. 1494, NCC) to the order of the owner, or to bearer, is a
representation of title upon which bona fide

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purchasers for value are entitled to rely , despite hold possession of the goods for him according to
breaches of trust or violations of agreement on the the terms of the document.
part of the apparent owner (Siy Cong Bieng v. HSBC, 56
Phil 598) Q: How may the transferor’s creditor defeat the
aforementioned rights of the transferee?
Q: What is the rationale behind a document of title?
A: Prior to the notification to such bailee by the transferor
A: Merchants are able to transact with goods and or transferee of a non-negotiable document of title, the
merchandise without having to physically carry them title of the transferee to the goods and the right to acquire
around, and that buyers should be assured that they may the obligation of such bailee may be defeated by the
deal with the evidence thereof with the same effect as transferor’s creditor by the levy of an attachment or
though they could feel the merchandise themselves execution upon the goods. (Art. 1514, NCC)
(Villanueva, p. 303, 2009 ed.)
Q: If the goods are delivered to a bailee by the owner or
Q: What is a Negotiable Document of Title? by a person whose act in conveying the title to them to a
purchaser in good faith for value and a negotiable
A: A document of title which states that the goods referred instrument was issued for them, can the said goods be
therein will be delivered to the bearer, or to the order of attached, garnished or levied upon?
any person named in such document (Art. 1509, NCC).
A: GR: No, the goods cannot be attached, garnished or
Q: Who may negotiate a Negotiable Document of Title? levied upon while they are in the bailee’s possession.

A: XPN:
1. Owner 1. When the document is first surrendered; or
2. Person to whom the possession or custody of the 2. When its negotiation is enjoined.
document has been entrusted by the owner
a. If bailee undertakes to deliver the goods to such Note: The bailee shall in no case be compelled to deliver the
person actual possession of the goods until the document is:
b. If document is in such form that it may be 1. Surrendered to him; or
2. Impounded by the court.
negotiated by delivery.
(Art. 1519, NCC)

Q: What are Non-negotiable documents of title?

Q: What is the reason behind this prohibition?
A:
A: This is to protect the bailee from liability as the
1. They are delivered only to a specified person
document may have been negotiated by the holder to
2. Carrier will not deliver the goods to any holder of the
subsequent transferees for value and in good faith. He may
document or to whom such document may have been
be liable for damages if he cannot produce and deliver the
endorsed by the consignee
goods later (Pineda, p. 181, 2010 ed).
3. Must present the deed of sale or donation in his favor
Q: What are the rights of a creditor whose debtor is the
Q: What are the warranties of seller of documents of title?
owner of a negotiable document of title?
A:
A: He is entitled to such aid from courts of appropriate
1. Genuineness of the Document
jurisdiction by:
2. Legal right to negotiate or transfer
1. injunction;
3. No knowledge of fact which would impair the validity
2. attaching such document;
or worth of the document
3. as regards property which cannot be readily
4. Right to transfer Title to the goods and merchantability
attached or levied upon by ordinary legal process
or fitness for a particular purpose, whenever such
- satisfying the claim by means allowed by law or
warranties would have been implied had the contract
equity. (Art. 1520, NCC)
transfer the goods without a document.
REMEDIES OF AN UNPAID SELLER
Q: What does a person to whom a non-negotiable
instrument has been transferred but not negotiated,
Q: Who is an unpaid seller?
acquire as against the transferor?
A: The seller of goods is deemed to be an unpaid seller
A: He acquires:
either:
1. Title to the goods, subject to the terms of any
1. when the whole of the price has not been paid or
agreement with the transferor;
tendered;
2. Right to notify the bailee who issued the
2. when a bill of exchange or other negotiable
document of the transfer thereof, and thereby to
instrument has been received as conditional
acquire the direct obligation of such bailee to
payment, and the condition on which it was

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received has been broken by reason of the 3. Special Right to Resell the Goods
dishonor of the instrument, the insolvency of the Exercised when:
buyer, or otherwise. a. Goods are perishable,
b. Stipulated the right of resale in case of
Note: The mere delivery of a negotiable instrument default, or
does not ipso facto extinguish the obligation of the c. Buyer in default for unreasonable time
buyer to pay because the instrument which has been
delivered may be dishonoured. In which case, the seller
4. Special Right to Rescind
is still an unpaid seller. (US v. Bedoya, 14 Phil. 398)
Requisites:
Note: It includes an agent of the seller to whom the bill of lading a. Expressly stipulated OR buyer is in default
has been indorsed, or consignor or agent who has himself paid, or for unreasonable time
is directly responsible for the price, or any other person who is in b. Notice needed to be given by seller to buyer
the position of a seller (Pineda, p. 197, 2010 ed)
Q: What are the instances when possessory lien is lost?
Q: When may the seller still be considered as unpaid even
though the title to the goods has passed to the buyer? A:
1. Seller delivers without reserving ownership in goods or
A: Whenever the seller was only paid partially, he remains right to possess them
an unpaid seller (Pineda, p. 197, 2010 ed.) 2. Buyer or agent lawfully obtains possession of goods
3. Waiver
Q: What are the remedies of an Unpaid Seller?
Note: Seller loses lien when he parts with goods (but still, stoppage
A: in transitu can be exercised)
I. Ordinary
1. Action for Price Q: What is the right of stoppage in transitu?
Exercised when:
a. ownership has passed to buyer; A: The seller may resume possession of the goods at any
b. price is payable on a day certain time while they are in transit, and he will then become
c. goods cannot readily be resold for entitled to the same rights in regard to the goods as he
reasonable price and Art. 1596 is would have had if he had never parted with the possession.
inapplicable (Art. 1530, NCC)
2. Action for Damages – In case of wrongful neglect
or refusal by the buyer to accept or pay for the Q: When are goods considered to be in transit?
thing sold
II. Special A:
1. Possessory Lien – Seller not bound to deliver if 1. After delivery to a carrier or other bailee and before
buyer has not paid him the price. This remedy the buyer or his agent takes delivery of them; and
presupposes that the sale is on credit. It is 2. If the goods are rejected by the buyer, and the carrier
exercisable only in following circumstances: or other bailee continues in possession of them. (Art.
a. goods sold without stipulation as to credit 1531, par. 1)
b. goods sold on credit but term of credit has
expired Q: When are goods deemed to be no longer in transit?
c. buyer becomes insolvent
A:
Note: When part of goods delivered, may still exercise 1. After delivery to the buyer or his agent
right on goods undelivered 2. If the buyer/agent obtains possession of the goods at a
point before the destination originally fixed;
2. Stoppage in Transitu 3. If the carrier or the bailee acknowledges that he holds
the goods in behalf of the buyer/ his agent;
Requisites: I-CSENT-U 4. If the carrier or bailee wrongfully refuses to deliver the
a. Insolvent buyer goods to the buyer or his agent. (Villanueva, p. 181)
b. The sale of goods must be on credit
c. Seller must Surrender the negotiable Q: How is stoppage in transit carried out?
document of title, if any
d. Seller must bear the Expenses of delivery of A: The seller may:
the goods after the exercise of the right. a. Take actual possession of the goods
e. Seller must either actually take possession of b. Give notice of his claim to the carrier or other
the goods sold or give Notice of his claim to bailee who is in possession of the goods
the carrier or other person in possession
f. Goods must be in Transit
g. Unpaid seller

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Q: What is the effect of the exercise of this right? Note: Art. 1484 of the NCC incorporates the provisions of Act No.
4122 passed by the Philippine Legislature on Dec. 9, 1939, known
A: Thereafter the seller becomes entitled to the same rights as the "Installment Sales Law" or the "Recto Law," which then
amended Art. 1454 of the Civil Code of 1889.
to the goods as if he had never parted with the possession
of the goods (Pineda, p. 205, 2010 ed)
Q: To what does the Recto Law apply?
Q: What if the seller knew of the insolvency of the buyer
A: This law covers contracts of sale of personal property by
beforehand?
installments (Act No. 4122). It is also applied to contracts
purporting to be leases of personal property with option to
A: Then he cannot exercise the right to stoppage in transit
buy, when the lessor has deprived the lessee of the
because he is under estoppel. He assumed the risk.
possession or enjoyment of the thing. (PCI Leasing and
Finance Inc. v. Giraffe- X Creative Imaging, Inc., G.R. No.
Q: What is the rationale behind the right of stoppage in
142618, July 12, 2007)
transitu?
Q: What are the alternative remedies in case of sale of
A: To prevent injustice of allowing the buyer to acquire
personal property in installments?
ownership and possession of the goods when owing to his
insolvency, he cannot pay the price. (Pineda, p. 206, 2010
A:
ed)
1. Specific Performance: Exact fulfillment should the
buyer fail to pay
Q: What is the effect of exercising the special right of
resale?
GR: If availed of, the unpaid seller cannot anymore
choose other remedies;
A: The unpaid seller shall not be liable to the original buyer
upon the sale or for any profit made by such resale, but
XPN: if after choosing, it has become impossible,
may recover from the buyer damages for any loss
rescission may be pursued
occasioned by the breach of the sale. (Art. 1533, NCC)
2. Rescission: Cancel the sale if buyer fails to pay 2 or
Q: Is notice to the defaulting buyer required in the resale
more installments. Deemed chosen when:
of goods?
a. Notice of rescission is sent
b. Takes possession of subject matter of sale
A: GR: No.
c. Files action for rescission
3. Foreclosure: Foreclose on chattel mortgage if buyer
XPN: Where the right to resell is not based on the
fails to pay 2 or more instalments. He shall have no
perishable nature of the goods or upon an express
further action against the purchaser to recover any
provision of the sale.
unpaid balance of the price. Any agreement to the
Note: Notice of time and place of resale is not essential to the contrary shall be void.
validity of such resale. (Art. 1433, NCC)
GR: Actual foreclosure is necessary to bar recovery of
Q: What is the effect of exercising the special right to balance
rescind?
XPN: Mortgagor refuses to deliver property to effect
A: The unpaid seller shall not be liable to the buyer upon foreclosure; expenses incurred in attorneys fees,
the sale, but may recover from the buyer damages for any etc.
loss occasioned by the breach of the sale. (Art. 1534, NCC)
Note: The remedies are alternative not cumulative. Availment of
one is a bar to the other remedies
Q: When is a buyer deemed insolvent?
Q: What is the rationale of Recto Law?
A: One is deemed insolvent when he either ceased to pay
his debts in the ordinary course of business or cannot pay
A: To remedy the abuses committed in connection with the
his debts as they become due, whether insolvency
foreclosure of chattel mortgages and to prevent
proceedings have been commenced or not. (Villanueva, p.
mortgagees from seizing the mortgaged property, buying it
369, 2009 ed.)
at a foreclosure sale for a low price and then bringing suit
against the mortgagor for a deficiency judgment
Q: What is the Installment Sales Law?
(Villanueva, p. 278, 2009 ed.)
A: Commonly known as the Recto Law. It is embodied in
Q: A, sold and delivered a car to B which was to be paid on
Art. 1484 of the NCC which provides for the remedies of a
a monthly basis. After a series of payments, B
seller in the contracts of sale of personal property by
subsequently defaulted. A then filed an action against B
installments.
for specific performance.However, the amount collected
was not sufficient to cover the amount of the car. The

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court then issued a writ of execution and the sheriff levied Q: What is the rule when the seller delivers goods which
the subject car. B contends that this is a violation of the are mixed with other goods of different description not
Recto law because having elected specific performance, A included in the contract?
can no longer foreclose the subject car. Is this correct?
A: The buyer may accept the goods which are in accordance
A: No. A evidently chose the remedy of specific with the contract and reject the rest. (Art. 1522, NCC)
performance. The sheriff levied upon the car by virtue of
an execution and not as an incident of a foreclosure Q: What if the subject matter is indivisible?
proceeding. The rule is that in installment sales, if the
action instituted is for specific performance and the A: The buyer may reject the whole of the goods. (Art. 1522,
mortgaged property is subsequently attached and sold, the NCC)
sale thereof does not amount to a foreclosure of the
mortgage. Hence, the seller-creditor is entitled to a Q: What is the duty of the seller with regard to accessions
deficiency judgment (Industrial Finance Corporation v and accessories?
Ramirez, G.R. No. L-43821 May 26, 1977)
A: The seller has the duty to preserve the thing and its
Q: A mortgaged a diamond ring to M as a security for a accessions and accessories from the time of the perfection
loan which was to be paid 2 years thereafter. Since A of the contract of sale. (Art. 1537, NCC)
failed to pay M, she then foreclosed the mortgaged
property. However, it turned out that the proceeds of the Note: In case of loss or deterioration, the seller is liable for
damages or the buyer may seek rescission with damages. However,
sale were insufficient, thus, M filed an action for specific
if loss or deterioration is due to a fortuitous event, the seller is not
performance. A contends that this is a violation of the liable. (Art. 1538, NCC)
Recto law since the foreclosure of the chattel bars
subsequent recovery. Is this correct? Q: What is the rule when the sale of immovable is by unit
of measure or number?
A: No. A is not correct in invoking the Recto law since it is
only applicable in case of sale of personal property through A: GR: The seller must deliver all that may have been stated
installment. In the given case, the amount being claimed by in the contract.
A was to be paid 2 years thereafter as a lump sum, not
through installments. Moreover, the transaction is a loan XPN: If impossible to deliver all, the buyer may choose
not a sale. between:
1. proportional reduction of the price
Q: Does Recto Law cover a contract to sell movables? 2. rescission of the contract, provided the deficiency is
at least 1/10 of the area stated in the contract (Art.
A: No. Because when the suspensive condition upon which 1539, NCC)
the contract is based fails to materialize, it would extinguish
the contract, and consequently there is no contract to Q: What is the prescription period for the action of
rescind (Villanueva, p. 381, 2009 ed.). rescission of contract?

PERFORMANCE OF CONTRACT A: 6 months from the day of delivery. (Art. 1543, NCC)

Q: What is the rule when the seller delivers goods lesser Q: How is payment made by the buyer?
than what he has contracted to sell?
A: Price is paid at the time and place stipulated in the
A: contract. It is made to the person in whose favor the
1. The buyer may reject the goods delivered and he shall obligation has been constituted or his successor in interest,
have no liability or any person authorized to receive. (Villanueva, p. 297,
2. The buyer may accept the goods delivered, but he will 2009 ed.)
pay the contract price, if he has knowledge that the
seller is not going to deliver all the goods contracted Q: When is interest required to be paid?
for (Art. 1522, NCC)
A: SFD
Q: What is the rule when the seller delivers goods greater 1. When it is Stipulated
than what he has contracted to sell? 2. When the object delivered produced Fruits or
income
A: 3. When the buyer is in Default from the time of
1. The buyer may accept only the goods which were demand (Villanueva, p. 297, 2009 ed.)
included in the contract and reject the excess.
2. The buyer may accept the entire goods delivered and Q: What is the Realty Installment Buyer Act?
he shall pay for them at the contract rate. (Art. 1522,
NCC) A: Commonly known as the “957 Law.” It is embodied in
R.A. 6552 which provides for certain protection to

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particular buyers of real estate payable on installments. The Q: What are the other rights granted to a buyer under the
law declares as "public policy to protect buyers of real Maceda Law?
estate on installment payments against onerous and
oppressive conditions. A:
1. Sell or assign rights to another
Note: The purpose of the law is to protect buyers in installment 2. Reinstate contract by updating within 30 days before
against oppressive conditions. and cancellation
3. Deed of Sale to be done by notarial act
Q: What are the transactions/sale covered by the Maceda 4. Pay full installment in advance the balance of price
Law? anytime w/o interest
5. Have full payment annotated in certificate of title
A: The law involves the sale of immovables on installment
(Maceda Law, R.A. 6552). Note: Applies to contracts even before the law was enacted.
1. Coverage: Residential Real Estate (Villanueva, p. Stipulation to the contrary is void
431)
2. Exclude: Q: Bernie bought on installment a residential subdivision
a. Industrial lots lot from DEVLAND. After having faithfully paid the
b. Commercial buildings (and commercial lots installments for 48 months, Bernie discovered that
by implication) DEVLAND had failed to develop the subdivision in
c. Sale to tenants under agrarian laws accordance with the approved plans and specifications
within the time frame in the plan. He thus wrote a letter
Note: The list is not exclusive. (Villanueva, p. 416, NCC) to DEVLAND informing it that he was stopping payment.
Consequently, DEVLAND cancelled the sale and wrote
Q: What are the so-called “Maceda” and “Recto” laws in Bernie, informing him that his payments are forfeited in
connection with sales on installments? Give the most its favor.
important features on each law. (1999 Bar Question) 1. Was the action of DEVLAND proper? Explain.
2. Discuss the rights of Bernie under the
A: The Maceda Law (R.A. 6552) is applicable to sales of circumstances.
immovable property on installments. The most important 3. Supposing DEVLAND had fully developed the
features are: subdivision but Bernie failed to pay further
installments after 4 years due to business
1. After having paid installments for at least two years, reverses. Discuss the rights and obligations of
the buyer is entitled to a mandatory grace period of the parties. (2005 Bar Question)
one month for every year of installment payments
made, to pay the unpaid installments without A:
interest. 1. Assuming that the land is a residential subdivision
project under P.D. No. 957 (The Subdivision and
If the contract is cancelled, the seller shall refund to Condominium Buyers Protective Decree), DEVLAND's
the buyer the cash surrender value equivalent to action is not proper because under Section 23 of said
fifty percent (50%) of the total payments made, and Decree, no installment payment shall be forfeited to
after five years of installments, an additional five the owner or developer when the buyer, after due
percent (5%) every year but not to exceed ninety notice, desists from further payment due to the failure
percent (90%) of the total payments made. of the owner-developer to develop the subdivision
according to the approved plans and within the time
2. In case the installments paid were less than 2 years, limit for complying with the same.
the seller shall give the buyer a grace period of not
less than 60 days. If the buyer fails to pay the 2. Under the same Section of the Decree, Bernie may, at
installments due at the expiration of the grace his option, be reimbursed the total amount paid
period, the seller may cancel the contract after 30 including amortization interests but excluding
days from receipt by the buyer of the notice of delinquency interests at the legal rate. He may also ask
cancellation or demand for rescission by notarial the Housing and Land Use Regulatory Board to apply
act. (Rillo v. CA, G.R. No. 125347 June 19, 1997) penal sanctions against DEVLAND consisting of
payment of administrative fine of not more than
The Recto Law (Art.1484) refers to sale of movables payable P20.000.00 and/or imprisonment for not more than 20
in installments and limiting the right of seller, in case of years.
default by the buyer, to one of three remedies:
1. Exact fulfillment; 3. Under R.A. No. 6552 (Maceda Law), DEVLAND has the
2. Cancel the sale of two or more installments have right to cancel the contract but it has to refund Bernie
not been paid; the cash surrender value of the payments on the
3. Foreclose the chattel mortgage on the things sold, property equivalent to 50% of the total payments
also in case of default of two or more installments, made.
with no further action against the purchaser.

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WARRANTIES a. Final Judgment

b. Buyer is Evicted in whole or in part from the
Q: What is a warranty? subject matter of sale
c. Basis of eviction is a right Prior to sale or act
A: A statement or representation made by the seller of imputable to seller
goods, as part of the contract of sale, having reference to d. Seller has been Summoned in the suit for
the character, quality, or title, of the goods, and by which eviction at the instance of buyer; or made
he promises or undertakes to insure that certain facts are 3rd party defendant through 3rd party
or shall be as he then represents. complaint brought by buyer
e. No waiver on the part of the buyer
Note: May either be express or implied.
Note: For eviction – disturbance in law is required and
Q: What is the effect of a breach of warranty? not just trespass in fact.

A: Buyer may: 3. Warranty against encumbrances (non-

1. Refuse to proceed with the contract; or apparent)
2. Proceed with the contract and waive the
condition. Requisites:
a. immovable sold is encumbered with non-
Note: If the condition is in the nature that it should happen, the apparent burden or servitude not mentioned
non-performance may be treated as a breach of warranty. in the agreement
b. nature of non-apparent servitude or burden
Q: What are the kinds of warranties? is such that it must be presumed that the
buyer would not have acquired it had he
A: Warranties could either be express or implied been aware thereof

Q: What are express warranties? XPN: warranty not applicable when non-apparent
burden or servitude is recorded in the Registry of
A: Any affirmation of fact or any promise by the seller Property – unless there is expressed warranty
relating to the thing if the natural tendency of such that the thing is free from all burdens and
affirmation or promise is to induce the buyer to purchase encumbrances
the same, and if the buyer purchases the thing relying
thereon. (Art. 1546) 4. Warranty against Hidden Defects

Q: What are the requisites of express warranties? Requisites: HENNAS

a. Defect is important or Serious
A: AIR i. The thing sold is unfit for the use which
1. It must be an Affirmation of fact relating to it is intended
the subject matter of sale ii. Diminishes its fitness for such use or to
2. Natural tendency is to Induce buyer to such an extent that the buyer would not
purchase subject matter have acquired it had he been aware
3. Buyer purchases the subject matter Relying thereof
thereon b. Defect is Hidden
c. Defect Exists at the time of the sale
Q: What is the liability of the seller for breach of express d. Buyer gives Notice of the defect to the seller
warranties? within reasonable time
e. Action for rescission or reduction of the price
A: The seller is liable for damages (Villanueva, p. 249). is brought within the proper period
i. 6 months – from delivery of the thing
Q: What are implied warranties? sold
ii. Within 40 days – from the delivery in
A: Warranties deemed included in all contracts of sale by case of animals
operation of law (Art. 1547). f. There must be No waiver of warranty on the
part of the buyer.
1. Warranty that seller has right to sell –
refers to consummation stage. Not Q: When is implied warranty not applicable?
applicable to sheriff, auctioneer,
mortgagee, pledgee A: ASAP
1. “As is and where is” sale
2. Warranty against eviction 2. Sale of second hand articles
3. Sale by virtue of authority in fact or law
Requisites: JPENS 4. Sale at public auction for tax delinquency

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Q: Petitioner De Guzman purchased from Rspondent Q: What is the effect of a breach of warranty against
Toyota Cubao a white Toyota Hi-Lux 2.4 SS double cab eviction?
motor vehicle, 1996 model, for a price of P508,000. He
paid a downpayment of P152,400, leaving a balance of A: The buyer shall have the right to demand the seller:
P355,600. Later on, he demanded that the engine of the 1. The return of the value which the thing sold had
vehicle be replaced for it had a crack after travelling along at the time of the eviction, be it greater or lesser
Marcos Highway while raining hard. Petitioner claims the than the price of the sale
replacement is based on an implied warranty. On the 2. The income or fruits, if he has been ordered to
other hand, respondent answered that the said damage deliver them to the party who won the suit
was not covered by a warranty. Decide. against him
3. The costs of suit which caused the eviction, and,
A: In the absence of an existing express warranty on the in a proper case, those of suit brought against the
part of the respondent, as in this case, the allegations in vendor for the waranty
petitioner's complaint for damages were clearly anchored 4. The expenses of contract if buyer has paid them
on the enforcement of an implied warranty against hidden 5. The damages and interests and ornamental
defects, i.e., that the engine of the vehicle which expenses if sale was made in bad faith.
respondent had sold to him was not defective. By filing this
case, petitioner wants to hold respondent responsible for Note: Vendor is liable for any hidden defect even if he is not aware.
breach of implied warranty for having sold a vehicle with (Caveat Venditor)
defective engine. Such being the case, petitioner should
have exercised this right within six months from the Purchaser must be aware of the title of the vendor. (Caveat
Emptor)
delivery of the thing sold. Since petitioner filed the
complaint on April 20, 1999, or more than nineteen months
Q: What are the rights of buyer in case of partial eviction?
counted from November 29, 1997 (the date of the delivery
of the motor vehicle), his cause of action had become time-
A:
barred (De Guzman v. Toyota Cubao, G.R. No. 141480,
1. Restitution (with obligation to return the thing w/o
November 29, 2006).
other encumbrances than those which it had when he
Q: What are the effects of waiver of an implied warranty? acquired it)
2. Enforcement of warranty against eviction (Paras, p.
A: 153 and Art. 1556)
1. Seller in bad faith and there is waiver against eviction –
void WARRANTY AGAINST HIDDEN DEFECT
2. When buyer without knowledge of a particular risk,
made general renunciation of warranty – is not a Q: What is a hidden defect?
waiver but merely limits liability of seller in case of
eviction A: A hidden defect is one which is unknown or could not
3. When buyer with knowledge of risk of eviction have been known to the buyer. (Diaz, p. 145)
assumed its consequences and made a waiver – seller
Note: Seller does not warrant patent defect; Caveat emptor (buyer
not liable (applicable only to waiver of warranty
beware)
against eviction)
Q: What is a redhibitory defect?
WARRANTY AGAINST EVICTION
A: It is a defect in the article sold against which defect the
Q: What is a warranty against eviction? seller is bound to warrant. The vice must constitute an
imperfection, a defect in its nature, of certain importance;
A: In a contract of sale, unless a contrary intention appears, and a minor defect does not give rise to redhibition (De
there is an implied warranty on the part of the seller that Leon, Comments and Cases on Sales and Lease, 2005 ed, p.
when the ownership is to pass, and that the buyer shall 318).
from that time have and enjoy the legal and peaceful
st
possession of the thing (Art. 1547, 1 paragraph). Q: What is a redhibitory defect on animals?
Q: What is covered by a warranty against eviction? A: If the hidden defect of animals, even in case a
professional inspection has been made, should be of such a
A: It covers eviction by a final judgment based on a right nature that expert knowledge is not sufficient to discover it,
prior to the sale or an act imputable to the vendor, the the defect shall be considered as redhibitory.
vendee is deprived of the whole or of a part of the thing
purchased. Q: When is the sale of animal void?
The vendor shall answer for the eviction even though A: The sale is void if animal is:
nothing has been said in the contract on the subject. (Art. 1. Suffering from contagious diseases;
1548, NCC)

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2. Unfit for the use or service for which they were Q: Is there a waiver of warranty against hidden defects
purchased as indicated in the contract when the lessee inspected the premises and pushed
through with the contract?
Q: When is a vendor responsible for hidden defects?
A: Yes. Under Arts. 1561 and 1653 of the Civil Code, the
A: If the hidden defects which the thing sold may have: lessor is responsible for warranty against hidden defects,
1. Render it unfit for the use for which it is intended, but he is not answerable for patent defects or those, which
or are visible, and which can be seen upon inspection (Jon and
2. Diminish its fitness for such use to such an extent Marissa De Ysasi v. Arturo and Estela Arceo, G.R. No.
that, had the vendee been aware thereof, he 136586, Nov. 22, 2001).
would not have acquired it or would have given a
lower price for it (Art. 1561). Q: What are the specific implied warranties in sale of
goods?
Q: Up to what extent does the seller warrant against
hidden defects? A:
1. Warranty of fitness
A: The seller is responsible to the vendee for any hidden
faults or defects in the thing sold, even though he was not GR: No implied warranty
aware thereof.
XPN:
Q: When is the seller not answerable for the defects of the a. Buyer manifests to the seller the particular
thing sold? purpose for which the goods are required; and
b. Buyer relies upon the seller’s skill or judgment
A: 2. Warranty of merchantability – That goods are
1. For patent defects or those which are visible reasonably fit for the general purpose for which they
2. Even for those which are not visible if the buyer is an are sold.
expert who, by reason of his trade or profession,
should have known them (Art. 1561) REMEDIES IN CASE OF BREACH OF WARRANTY
3. If the contrary has been stipulated, and the vendor
was not aware of the hidden faults or defects in the Q: What are the remedies of the buyer in case of breach of
thing sold (Art. 1566) warranty?

Q: What is the effect of a breach of warranty against A:

hidden defects? 1. Accept goods and set up breach of warranty by way of
recoupment in diminution or extinction or the price.
A: It would depend on whether the seller had knowledge of 2. Accept goods and maintain action against seller for
such defect and whether there has been a waiver of the damages
warranty. 3. Refuse to accept goods and maintain action against
1. If the thing should be lost in consequence of the seller for damages
hidden faults, and seller was aware of them – he 4. Rescind contract of sale and refuse to receive
shall: goods/return them when already received.
a. bear the loss,
b. return the price and Q: Are the remedies of the buyer in case of breach of
c. refund the expenses of the contract with warranty absolute?
damages
A: No. The vendee's remedies against a vendor with respect
2. If the thing is lost and seller was not aware of the to the warranties against hidden defects of or
hidden faults – he shall: encumbrances upon the thing sold are not limited to those
a. return the price and interest prescribed in Article 1567 where the vendee, in the case of
b. reimburse the expenses of the contract Arts. 1561, 1562, 1564, 1565 and 1566, may elect either to
which the buyer might have paid, but not for withdraw from the contract or demand a proportionate
damages. (Villanueva, Law on Sales,2004 ed, reduction of the price, with damages in either case.
pp. 548-549)
The vendee may also ask for the annulment of the contract
Q: What are the remedies of the buyer in case of sale of upon proof of error or fraud, in which case the ordinary rule
things with hidden defects? on obligations shall be applicable. Under the law on
obligations, responsibility arising from fraud is demandable
A: The vendee may elect between: in all obligations and any waiver of an action for future
1. Withdrawing from the contract, or fraud is void. Responsibility arising from negligence is also
2. Demanding a proportionate reduction of the demandable in any obligation, but such liability may be
price, with damages in either case. regulated by the courts, according to the circumstances.

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The vendor could likewise be liable for quasi-delict under Q: What is the difference between a condition and a
Article 2176 of the Civil Code, and an action based thereon warranty?
may be brought by the vendee. While it may be true that
the pre-existing contract between the parties may, as a A:
general rule, bar the applicability of the law on quasi-delict, CONDITION WARRANTY
the liability may itself be deemed to arise from quasi-delict, Purports to the existence of Purports to the
i.e., the acts which breaks the contract may also be a quasi- obligation performance of obligation
delict. (Coca-Cola Bottlers Philippines, Inc. v. CA, G.R. No. Need not be stipulated;
110295, Oct. 18, 1993) Must be stipulated to form
may form part of obligation
part of the obligation
by provision of law
Q: What are the instances when the buyer cannot rescind Relates to the subject
the sale in case there is a breach of warranty? May attach itself to
matter itself or to
obligation of seller to
obligation of the seller as to
A: deliver possession and
the subject matter of the
1. If he knew of the breach of warranty transfer
sale
2. If he fails to return or offer to return goods to seller in
substantially as good condition as they were at time BREACH OF CONTRACT
ownership was transferred
3. If he fails to notify the seller within a reasonable time REMEDIES OF THE SELLER
of his election to rescind
Note: see Recto and Maceda Law (Performance of Contract) pp.
Q: Goodyear Philippines sold a car to Anthony Sy. Later 240.
on, Sy sold the car to Jose Lee. When Lee tried to register
the car in his name, he failed to have it registered because REMEDIES OF THE BUYER
it turned out that the car was stolen before and was only
subsequently recovered by Goodyear. However, PNP did Q: What are the remedies of the buyer?
not lift the alert alarm over the said car. Due to this, the
car was impounded and Lee was sued by PNP. This A:
problem was relayed by Lee to Sy. It led to Sy filing a case I. Immovables in general
against Goodyear for breach of warranty. It is Sy’s 1. Disturbed in possession or with reasonable
argument that it is Goodyear’s duty to convey the vehicle grounds to fear disturbance – Suspend payment
to Sy free from all liens, encumbrances and legal 2. In case of subdivision or condominium projects –
impediments. Was there a breach of warranty by If real estate developer fails to comply with
Goodyear? obligation according to approved plan:
a. Rescind
A: No. Upon the execution of the Deed of Sale, petitioner b. Suspend payment until seller complies
did transfer ownership of and deliver the vehicle to II. Movables
Respondent Sy. The impoundment of the vehicle and the 1. Failure of seller to deliver – Action for specific
failure to register it were clearly acts that were not performance without giving the seller the option
deliberately caused by petitioner, but that resulted solely of retaining the goods on payments of damages
from the failure of the PNP to lift the latter’s own alarm 2. Breach of seller’s warranty – The buyer may, at his
over the vehicle. Hence, the former did not breach its election, avail of the following remedies:
obligation as a vendor to Respondent Sy; neither did it a. Accept goods & set up breach of warranty by
violate his right for which he could maintain an action for way of recoupment in diminution or
the recovery of damages. (Goodyear Philippines, Inc. v. Sy extinction or the price.
and Lee, G.R. No. 154554, Nov. 9, 2005) b. Accept goods & maintain action against
seller for damages
CONDITION VIS-À-VIS WARRANTY c. Refuse to Accept goods & maintain action
against seller for damages
Q: What is the effect of non-fulfillment of a condition? d. Rescind contract of sale & refuse to receive
goods/return them when already received.
A: If imposed on the perfection of contract – prevents the
juridical relation itself from coming into existence 3. Disturbed in possession or with reasonable
The other party may: grounds to fear disturbance – Suspend payment
1. Refuse to proceed with the contract
2. Proceed w/ contract, waiving the performance of Note: When the buyer has claimed and been granted a
the condition remedy in any of these ways, no other remedy can thereafter
be granted, without prejudice to the buyer’s right to rescind,
even if previously he has chosen specific performance when
fulfillment has become impossible. (Villanueva, p. 389 in
relation with Art. 1191, NCC)

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EXTINGUISHMENT OF THE SALE Q: Can any other person exercise the right to repurchase?

Q: What are the causes for extinguishment of sale? A: Yes. By any person to whom the right of repurchase may
be transfereed, or in case of legl redemption, by the person
A: A contract of sale is extinguished by: so entitled by law. (Villanueva, p. 517, 2009 ed.)
1. Same causes as all other obligations, namely:
a. Payment or performance Note: Right to repurchase must be reserved at the time of
b. Loss of the thing due perfection of sale. (Pineda, p. 333)
c. Condonation or remission of the debt
d. Confusion or merger of the rights of creditor Q: How is the right to repurchase reserved?
and debtor
e. Compensation A: By a stipulation to that effect in the contract of sale.
f. Novation Because it is not a right granted to the vendor by the
g. Annulment vendee, but is a right reserved by the vendor.
h. Rescission
i. Fulfillment of resolutory condition Q: Can the reservation be made in a separate instrument
j. Prescription apart from the contract of sale?
2. Conventional Redemption
3. Legal redemption A: No. Once the instrument of absolute sale is executed,
and any right thereafter granted the vendor in a separate
Q: What is redemption? instrument cannot be a right of repurchase but some other
right like the option to buy in the instant case. (Villanueva,
A: It is a mode of extinguishment wherein the seller has the p. 517, 2009 ed.)
right to redeem or repurchase the thing sold upon return of
the price paid. Q: What happens in case the contract of sale is void?

Q: What are the kinds of redemption? A: Since the underlying contract of sale was inoperative
and consequently void, then the right of repurchase
A: reserved would also be void. (Villanueva, p. 518, 2009 ed.)
1. Legal
2. Conventional EQUITABLE MORTGAGE

Q: Should the right to redeem be incorporated in every Q: What is an equitable mortgage?

contract of sale?
A: One which lacks the proper formalities, form or words or
A: The right of the vendor to redeem/repurchase must other requisites prescribed by law for a mortgage, but
appear in the same instrument. However, parties may shows the intention of the parties to make the property
stipulate on the right of repurchase in a separate document subject of the contract as security for a debt and contains
but in this case, it is valid only between the parties and not nothing impossible or contrary to law
against third persons (Pineda, p. 333)
Q: What are the essential requisites of equitable
Q: What is the difference between pre-emption and mortgage?
redemption?
A:
A: 1. Parties entered into a contract of sale
PRE-EMPTION REDEMPTION 2. Their intention was to secure an existing debt by way
Arises before sale Arises after sale of a mortgage.
There can be rescission of
Rescission inapplicable Q: What is the rule on the presumption of an equitable
original sale
Action is directed against Action is directed against mortgage?
prospective seller buyer
A: A sale with conventional redemption is deemed to be an
equitable mortgage in any of the following cases: (Art.
CONVENTIONAL REDEMPTION
1602) AIR-STAR
1. Price of the sale with right to repurchase is
Q: What is conventional redemption?
unusually Inadequate
2. Seller Remains in possession as lessee or
A: Seller reserved the right to repurchase thing sold
otherwise
coupled with obligation to return price of the sale,
3. Upon or after the expiration of the right to
expenses of contract & other legitimate payments and the
repurchase Another instrument extending the
necessary & useful expenses made on the thing sold
period of redemption or granting a new period is
executed

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4. Purchaser Retains for himself a part of the commissorium. Jurisprudence has consistently declared
purchase price that the presence of even just one of the circumstances set
5. Seller binds himself to pay the Taxes on the thing forth in the foregoing Civil Code provision suffices to
sold convert a contract to an equitable mortgage. Article 1602
6. In any other case where the real intention of the specifically states that the equitable presumption applies
parties is that the transaction shall Secure the to any of the cases therein enumerated. In the present
payment of a debt or the performance of any factual milieu, the vendor retained possession of the
other obligation. property allegedly sold. Petitioner and her children
7. Art. 1602 shall also apply to a contract purporting continued to use it as their residence, even after Jonas
to be an Absolute sale. (Art. 1604) Ramos had abandoned them. In fact, it remained as her
address for the service of court orders and copies of
Note: In case of doubt in determining whether it is equitable Respondent Sarao’s pleadings (Ramos v. Sarao, G.R. No.
mortgage or sale a retro (with right of repurchase); it shall be 149756, Feb. 11, 2005).
construed as equitable mortgage. The remedy is reformation.
Q: Respondent Dizon mortgaged to Monte de Piedad a
An equitable mortgage is one which although lacking in some parcel of land including the two-storey apartment built
formality, or form or words, or other requisites demanded by a thereon to secure a loan. Respondent failed to settle the
statute, nevertheless reveals the intention of the parties to charge
loan, drawing Monte de Piedad to foreclose the mortgage,
real property as security for a debt, and contains nothing
impossible or contrary to law.
consolidate its ownership of the property, and register it
in its name. Monte de Piedad nevertheless gave
Q: Does inadequacy of price constitute proof sufficient to respondent until May 28, 1987 to purchase back the
declare a contract as one of equitable mortgage? property. On the day of the expiration itself, one of the
petitioners on behalf of respondent paid for the property.
A: Mere inadequacy of the price is not sufficient. The price Monte de Piedad thereupon executed a deed of sale in
must be grossly inadequate, or purely shocking to the favor of respondent who, the following day, executed a
conscience. (Diaz, p. 186) deed of sale in favor of petitioners. Also, respondent and
petitioners executed an agreement giving respondent
Q: Spouses Ramos executed a Deed Of Sale under Pacto repurchase within three months from the date of this
De Retro over their conjugal house and lot in favor of agreement. Failure to repurchase shall result to
Susana Sarao. The contract granted the Ramos spouses respondent vacating the premises and turn over
the option to repurchase the property within six months possession thereof to petitioners. Three months passed
plus an interest of 4.5 percent a month. It was further without respondent repurchasing the property.
agreed that should the spouses fail to pay the monthly Petitioners registered the Deed of Sale executed by Monte
interest or to exercise the right to repurchase within the de Piedad in favor of respondent, as well as the Deed of
stipulated period, the conveyance would be deemed an Sale of the property executed by respondent in favor of
absolute sale. In the succeeding months, the wife Myrna petitioners. Notwithstanding this, respondent failed to
Ramos tendered to Sarao payment in the form of two vacate the property. An ejectment case was filed against
manager’s checks, which the latter refused to accept for respondent. Is the agreement a contract of sale or an
being allegedly insufficient. Myrna filed a complaint for equitable mortgage?
the redemption of the property. She deposited with the
RTC two checks that Sarao refused to accept. Is the A: It is a contract of sale. The presumption of equitable
contract a Pacto De Retro sale or an equitable mortgage? mortgage created in Article 1602 of the Civil Code is not
Decide. conclusive. It may be rebutted by competent and
satisfactory proof of the contrary. In the case at bar, ample
A: The contract shall be presumed to be an equitable evidence supports petitioners’ claim that the transaction
mortgage, in any of the following cases: (1) When the price between them and respondent was one of sale with option
of a sale with right to repurchase is unusually inadequate; to repurchase. While after the sale of the property
(2) When the vendor remains in possession as lessee or respondent remained therein, her stay was not in the
otherwise; (3) When upon or after the expiration of the concept of an owner. Contrary to respondent’s claim that
right to repurchase another instrument extending the after the sale of the property in 1987, the tax declarations
period of redemption or granting a new period is executed; remained in her name and she continued to pay realty
(4) When the purchaser retains for himself a part of the taxes thereon, the record shows that the 1987 tax
purchase price; (5) When the vendor binds himself to pay declarations were in the names of Monte de Piedad and
the taxes on the thing sold; (6) In any other case where it petitioners. (Spouses Cristobal, et. al v. Dizon, G.R. No.
may be fairly inferred that the real intention of the parties 172771, Jan. 31, 2008)
is that the transaction shall secure the payment of a debt or
the performance of any other obligation. (Article 1602, New Q: Ceballos was able to borrow from Mercado certain sum
Civil Code) Furthermore, a contract purporting to be a pacto of money and as security, she executed a Deed of Real
de retro is construed as an equitable mortgage when the Estate Mortgage over the subject property. The said
terms of the document and the surrounding circumstances mortgage was not registered. Ceballos defaulted.
so require. The law discourages the use of a pacto de Thereafter, a Deed of Absolute Sale was executed by
retro, because this scheme is frequently used to circumvent Ceballos and her husband whereby the mortgaged
a contract known as a pactum property was sold to Mercado for the price of P16, 500.00.

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Ceballos offered to redeem the property from Mercado May exist prior to or after
for the price of P30, 000.00 but the latter's wife refused The right must be imbedded in the perfection of the sale,
since the same was already transferred in their names by a contract of sale upon its or be imbedded in
virtue of the Deed of Absolute Sale. As a consequence, perfection another contract upon
Ceballos filed the case contending that the Contract perfection
should be declared as an equitable mortgage. Is the Does not need a separate Separate consideration is
contention of Ceballos correct? consideration to be valid and needed for it to be valid
effective and effective
A: No. The instances when a contract, regardless of its Redemption period cannot Period for an option right
nomenclature, may be presumed to be an equitable exceed 10 years may exceed 10 years
mortgage are enumerated in Art. 1602 of the Civil Code. Notice is required for its
Here, none of those circumstances were present. The exercise accompanied with
original transaction was a loan. Ceballos failed to pay the Only notice is required
tender of
loan; consequently, the parties entered into another payment/consignment
agreement — the assailed, duly notarized Deed of Absolute Its exercise results into
Sale, which superseded the loan document. Ceballos had Its exercise extinguishes a
the perfection of a
the burden of proving that she did not intend to sell the existing contract of sale
contract of sale
property and that Mercado did not intend to buy it; and (Villanueva, pp. 519-520, 2009 ed.)
that the new agreement did not embody the true intention
of the parties. (Ceballos v. Intestate Estate of the Late Q: On May 19, 1951, the spouses-sellers executed a public
Emigdio Mercado, G.R. No. 155856, May 28, 2004) instrument of absolute sale in favor of the buyer for a
consideration which is sufficiently adequate. A few days
Q: Eulalia was engaged in the business of buying and thereafter, the buyers executed in favor of the sellers an
selling large cattle. In order to secure the financial capital option to buy within one year, the property subject of the
she advanced for her employees (biyaheros) she required absolute sale, which option was extended for a month.
them to surrender TCT of their properties and to execute Prior to the expiration of said one-year period, the buyer
the corresponding Deeds of Sale in her favor. Domeng sold said property to a third person.
Bandong was not required to post any security but when
Eulalia discovered that he incurred shortage in cattle If the spouses-sellers would file an action for reformation
procurement operation, he was required to execute a of instrument where they seek reformation of the
deed of sale over a parcel of land in favor of Eulalia. She absolute sale into one of equitable mortgage, will said
sold the property to her grandniece Jocelyn who action prosper?
thereafter instituted an action for ejectment against the
Spouses Bandong. To assert their right, Spouses Bandong A: No, it will not prosper. If a seller has been granted
filed an action for annulment of sale against Eulalia and merely an option to buy (not a right to repurchase) within a
Jocelyn alleging that there was no sale intended but only certain period, and the price paid by the buyer is adequate,
equitable mortgage for the purpose of securing the the sale is absolute and cannot be construed nor presumed
shortage incurred by Domeng in the amount of P70, to be one of equitable mortgage, even if the period within
000.00 while employed as “biyahero” by Eulalia. Was the which to exercise the option has been extended. (Villarica,
deed of sale between Domeng and Eulalia a contract of et. al. v. CA, G.R. L-19196, Nov. 29, 1968)
sale or an equitable mortgage?
Note: SC held that in this case, there was no sale a retro and that
A: It is an equitable mortgage. In executing the said deed of the right of repurchase is not a right granted the seller by the buyer
sale, Domeng and Eulalia never intended the transfer of in a separate instrument. Such right is reserved by the vendor in
ownership of the subject property but to burden the same the same instrument of the sale as one of the stipulations in the
with an encumbrance to secure the indebtedness incurred contract.
by Domeng on the occasion of his employment with Eulalia.
Also, once the instrument of absolute sale is executed, the seller
The agreement between Dominador and Eulalia was not
can no longer reserve the right of repurchase and any right
avoided in its entirety so as to prevent it from producing thereafter granted the seller by the buyer cannot be a right of
any legal effect at all. Instead, the said transaction is an repurchase but some other rights, like that of an option to buy.
equitable mortgage, thereby merely altering the
relationship of the parties from seller and buyer, to PERIOD OF REDEMPTION
mortgagor and mortgagee, while the subject property is not
transferred but subjected to a lien in favor of the latter Q: What is the period of redemption?
(Sps. Raymundo, et al. v. Sps. Bandong, G.R. No. 171250,
Jul. 4, 2007). A:
1. No period agreed upon – 4 years from date of contract
DISTINGUISHED FROM OPTION TO BUY 2. When there is agreement – should not exceed 10
years; but if it exceeded, valid only for the first 10
REDEMPTION OPTION TO BUY years.
Forms part of the contract of Principal and preparatory 3. When period to redeem has expired & there has been
sale contract a previous suit on the nature of the contract – seller

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still has 30 days from final judgment on the basis that of the fixed and definite period within which to exercise the
contract was a sale with pacto de retro: right of legal redemption.

Rationale: no redemption due to erroneous belief that Note: Art. 1623 does not prescribe any distinctive method for
it is equitable mortgage which can be extinguished by notifying the redemptioner.
paying the loan.
Q: Is tender of payment necessary for redemption to take
4. When period has expired & seller allowed the period effect?
of redemption to expire – seller is at fault for not
having exercised his rights so should not be granted a A: Tender of payment is not necessary; offer to redeem is
new period enough.

Note: Tender of payment is sufficient but it is not in itself a Q: What is the effect of failure to redeem?
payment that relieves the seller from his liability to pay the
redemption price. A: There must be judicial order before ownership of real
property is consolidated to the buyer a retro.
Q: When does period of redemption begin to run?
Q: Can the vendor a retro be compelled to redeem?
A:
1. Right of legal pre-emption or redemption shall be A: No. There is no obligation on the part of the vendor a
exercised within 30 days from written notice by the retro to repurchase. He may or may not exercise the right
buyer – deed of sale not to be recorded in Registry of to repurchase (Pineda, p. 402, 2010 ed).
Property unless accompanied by affidavit that buyer
has given notice to redemptioners Q: What is a trust de son tort?
2. When there is actual knowledge, no need to give
written notice; period of redemption begins to run A: It is a trust created by the purchase or redemption of
from actual knowledge property by one other than the person lawfully entitled to
do so and in fraud of the other.
Q: Can there an extension of the time to redeem?
Q: Do constructive trusts arise only out of fraud or duress?
A: Yes. Parties may extend the period to redeem as long as
the total period shall not exceed ten years. However, such A: No. A constructive trust, otherwise known as a trust ex
extension can only be granted when the original period has maleficio, a trust ex delicto, a trust de son tort, an
not yet expired. Otherwise, there exists only a promise to involuntary trust, or an implied trust, is a trust by operation
sell on the buyer’s part (Pineda, pp. 381-382, 2010 ed.). of law which arises contrary to intention and in invitum,
against one who, by fraud, actual or constructive, by duress
EXERCISE OF THE RIGHT TO REDEEM or abuse of confidence, by commission of wrong, or by any
form of unconscionable conduct, artifice, concealment, or
Q: What are the obligations the vendor a retro if he questionable means, or who in any way against equity and
desires to redeem? good conscience, either has obtained or holds the legal
right to property which he ought not, in equity and good
A: The vendor a retro must pay or reimburse the vendee a conscience, hold and enjoy. It has been broadly ruled that a
retro the following: breach of confidence, although in business or social
1. Price of the sale relations, rendering an acquisition or retention of property
2. Expenses of the contract by one person unconscionable against another, raises a
3. Other legitimate expenses constructive trust. It is raised by equity in respect of
4. Necessary and useful expenses (Pineda, pp. 397- property, which has been acquired by fraud, or where,
398, 2010 ed.) although acquired originally without fraud, it is against
equity that it should be retained by the person holding it.
Q: Is written notice mandatory for the right of redemption (Arlegui v. CA G.R. No. 126437, Mar. 6, 2002)
to commence?
Note: "A constructive trust is substantially an appropriate remedy
A: Yes, the notice must be in writing stating the execution against unjust enrichment. It is raised by equity in respect of
of the sale and its particulars. It may be made in a private or property, which has been acquired by fraud, or where, although
public document. (Pineda, p. 400) acquired originally without fraud, it is against equity that it should
be retained by the person holding it." (76 Am. Jur. 2d, Sec. 222, p.
447 cited in Arlegui v. CA G.R. No. 126437, Mar. 6, 2002)
Q: Is there a prescribed form for an offer to redeem?
LEGAL REDEMPTION
A: There is no prescribed form for an offer to redeem to be
properly effected. Hence, it can either be through a formal
Q: What is legal redemption?
tender with consignation of the redemption price within
the prescribed period. What is paramount is the availment
A: Also referred to as “retracto legal”, it is the right to be
subrogated upon the same terms and conditions stipulated

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249 FACULTY OF CIVIL LAW
 CIVIL LAW

in the contract, in the place of one who acquires the thing Note: Failure of the owner or developer to comply with the
by purchase or by dation in payment or by other obligations under this and the preceding provisions shall constitute
transaction whereby ownership is transmitted by onerous a violation punishable under Sections 38 and 39 of the Decree.
title.
Q: How is “sale” or “sell” defined under the Decree?
Q: What are the instances of legal redemption?
A: Shall include:
1. Every disposition, or attempt to dispose, for a
A:
valuable consideration, of a subdivision lot,
1. Sale of a co-owner of his share to a stranger (Art.
including the building and other improvements
1620)
thereof, if any, in a subdivision project or a
2. When a credit or other incorporeal right in litigation is
condominium unit in a condominium project;
sold (Art. 1634)
2. contract to sell;
3. Sale of an heir of his hereditary rights to a stranger
3. contract of purchase and sale;
(Art. 1088)
4. exchange;
4. Sale of adjacent rural lands not exceeding 1 hectare
5. attempt to sell;
(Art. 1621)
6. option of sale or purchase;
5. Sale of adjacent small urban lands bought merely for
7. solicitation of a sale;
speculation (Art. 1622)
8. offer to sell, directly or by an agent, or by a
circular, letter, advertisement or otherwise; and
Q: Are there other instances when the right of legal
9. a. privilege given to a member of a cooperative,
redemption is also granted?
corporation, partnership, or any association
and/or
A:
b. the issuance of a certificate or receipt
1. Redemption of homesteads
evidencing or giving the right of participation in,
2. Redemption in tax sales
or right to, any land in consideration of payment
3. Redemption by judgment debtor
of the membership fee or dues. (Deemed sale)
4. Redemption in extrajudicial foreclosure
5. Redemption in judicial foreclosure of mortgage
Q: How are the terms “buy” and “purchase” defined under
the Decree?
Q: What is the basis of legal redemption?
A: Shall include any contract to buy, purchase, or otherwise
A: It is created partly for reason of public policy and partly
acquire for a valuable consideration a subdivision lot,
for the benefit and convenience of the redemptioner to
including the building and other improvements, if any, in a
afford him a way out of what might be a disagreeable or
subdivision project or a condominium unit in a
inconvenient association into which he has been in trust. It
condominium project.
is intended to minimize co-ownership. (Pineda, p. 407, 2010
ed.) Q: What is a subdivision project?
Q: When does legal redemption period begin to run? A: A tract or a parcel of land registered under Act No. 496
which is partitioned primarily for residential purposes into
A: The right of legal redemption shall not be exercised individual lots with or without improvements thereon, and
except within 30 days from the notice in writing by the offered to the public for sale, in cash or in installment
prospective seller, or seller, as the case may be. The deed terms.
of sale shall not be recorded in the Registry of Property
unless accompanied by an affidavit of the seller that he has Note: It shall include all residential, commercial, industrial and
given written notice thereof to all possible redemptioners. recreational areas as well as open spaces and other community
(Art. 1623, NCC) and public areas in the project.

THE SUBDIVISION AND CONDOMINIUM BUYER’S Q: What is a subdivision lot?

PROTECTIVE DECREE (P.D. 957)
A: Any of the lots, whether residential, commercial,
Q: Are sales or dispositions of subdivision lots or industrial, or recreational, in a subdivision project.
condominium units prior to the effectivity of the decree
exempt from compliance with the requirements stated Q: What is a complex subdivision plan?
therein?
A: A subdivision plan of a registered land wherein a street,
A: No. It shall be incumbent upon the owner or developer passageway or open space is delineated on the plan.
of the subdivision or condominium project to complete
compliance with his or its obligations as provided in the
decree within two years from the date of effectivity of the
Decree, unless otherwise extended by the Authority or
unless an adequate performance bond is filed.

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2013 GOLDEN NOTES