340 SALES

Chapter 5

OBLIGATIONS OF THE VENDEE

ART. 1582. The vendee is bound to accept deliv-

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

Principal obligations of vendee.

The principal obligations of the vendee are:
(1) to accept delivery; of the thing sold; and
(2) to pay the price1 of the thing sold at the time and place
stipulated in the contract; and
(3) to bear the expenses for the execution and registration of
the sale and putting the goods in a deliverable state, if such is the
stipulation. (Arts. 1488, 1521, last par.)
A grace period granted the vendee in case of failure to pay
the amount/s due is a right, not an obligation. When uncondi-

1
The vendor and the vendee are legally free to stipulate for the payment of either
the cash price of the thing sold or its installment price. Should the vendee opt to purchase
via the installment payment system which has been the custom and widely used in our
present-day commercial life with respect to purchase and sale of subdivision lots, he is,
in effect, paying interest on the cash price whether the fact and rate of such interest
payment is disclosed in the contract or not. (Relucio vs. Brillante-Garfin, 187 SCRA 405
[1990].)

340
Art. 1582 OBLIGATIONS OF THE VENDEE 341

tionally conferred, it is effective without further need of demand

either calling for the payment of the obligation or for honoring
the right. The grace period must not be likened to an obligation,
the non-payment of which, under Article 1169 of the Civil Code,
would generally still require judicial or extrajudicial demand
before “default” can be said to arise. (Bricktown Dev’t. Corp. vs.
Amor Tierra Dev’t. Corp., 57 SCAD 437, 239 SCRA 126 [1994].)
The general rule is that an agreement to extend the time of
payment in order to be valid, must be for a definite time. Although
no precise date is fixed, it is sufficient that the time can readily be
determined. The fact that the seller did not act on the request for
what amounts to an indefinite extension may be construed just
as logically as a denial thereof. (City of Cebu vs. Heirs of C. Rubi,
106 SCAD 61, 306 SCRA 408 [1999].)

Pertinent rules.
In connection with the above obligations, the following rules
must be borne in mind:
(1) In a contract of sale, the vendor is not required to deliver
the thing sold until the price is paid nor the vendee to pay the
price before the thing is delivered in the absence of an agreement
to the contrary (La Font vs. Pascacio, 5 Phil. 591 [1906]; see Art.
1524.);
(2) If stipulated, then the vendee is bound to accept delivery
and to pay the price at the time and place designated;
(3) If there is no stipulation as to the time and place of pay-
ment and delivery, the vendee is bound to pay at the time and
place of delivery;
(4) In the absence also of stipulation, as to the place of deliv-
ery, it shall be made wherever the thing might be at the moment
the contract was perfected (Art. 1251.); and
(5) If only the time for delivery of the thing sold has been fixed
in the contract, the vendee is required to pay even before the thing
is delivered to him; if only the time for payment of the price has
been fixed, the vendee is entitled to delivery even before the price
is paid by him. (see Art. 1524.)
342 SALES Art. 1582

EXAMPLES:
(1) S sold to B a specific refrigerator for P7,000.00. S is not
bound to deliver the refrigerator until payment by B; neither is
B required to pay P7,000.00 until delivery by S. From the mo-
ment either party performs his obligation, the other must com-
ply with his part; otherwise, he will be guilty of delay. (Art.
1169, par. 3.)
(2) If it has been stipulated that B must accept the refrig-
erator and pay the price at the house of S on October 10, then B
is bound to accept delivery and to pay the price on October 10
at the house of S.
(3) If there is no stipulation, as to the time and place of
delivery and S delivers the refrigerator at the house of B on
October 10, then B is bound to accept the refrigerator and to
pay the price at the same time and place.
(4) If there is also no stipulation, S is not required to de-
liver the refrigerator at the house of B because in such case the
place of delivery shall be where the refrigerator was at the
moment the contract was perfected. So if it was at the house of
S at that time, then that is the place of delivery and also the
place of payment. (Art. 1582, par. 2.)
(5) If the obligation of S to deliver is subject to a period
which has not yet arrived, B is bound to pay even before the
refrigerator is delivered to him. On the other hand, if the sale is
on credit, B is entitled to its delivery though the price be not
first paid.

Liability of vendee for obligations

of company bought out.
(1) Obligation not of considerable amount or value. — In some
cases, when one company buys out another and continues the
business of the latter company, the buyer may be said to assume
the obligations of the company bought out when said obligations
are not of considerable amount or value, especially when incurred
in the ordinary course of trade and when the business of the lat-
ter company is continued.
(2) Obligation of considerable amount or value. — When said
obligations are of extraordinary value and the company was
brought out not to continue its business but to stop its operation
Art. 1582 OBLIGATIONS OF THE VENDEE 343

in order to eliminate competition, it cannot be said that the vendee

assumed all the obligations of the rival company. (Phil. Air Lines,
Inc. vs. Balinquit, 99 Phil. 486 [1956].)

ILLUSTRATIVE CASE:
See No. (2) above.
Facts: PAL purchased and acquired a majority of the shares
of FEATI. These two airlines were, previous to the said pur-
chase, then competing in various air routes throughout the
Philippines with the result that both companies were losing
and it became necessary to maintain only one airline. The pur-
chase gave rise to the problem of what to do with the FEATI
employees. After some negotiations, the parties finally reached
an agreement on May 21, 1947, whereby PAL agreed to absorb
some 70% of the FEATI employees under the same terms and
conditions as they worked for the FEATI until such time as they
come to a definite understanding.
Under the collective agreement on August 1, 1946 between
FEATI and its employees, through their union, the latter were
granted vacation and sick leaves with pay every year. On July
9, 1947, PAL reached a “definite understanding” with the un-
ion whereby they entered into an agreement cancelling the
agreements of May 21, 1947 and August 1, 1946. It also pro-
vided for the laying off of all the FEATI employees as of June 15,
1947 and the payment of 1-1/2 months separation pay which
amounted roughly to P150,000.00.
The FEATI employees union filed a petition with the (de-
funct) Court of Industrial Relations praying that PAL be ordered
to pay vacation and sick leave with pay from August 1, 1946,
which had already accrued at the time they were laid-off on June
15, 1947. The employees claim that when PAL bought out FEATI,
the former assumed all the obligations and rights of the latter.
Issue: Is PAL legally liable for the payment of the money
equivalent of the vacation and sick leave earned from FEATI?
Held: No. As the obligation of FEATI is of considerable
value, which in this case amounts to P100,000.00, and FEATI
was bought out by PAL not to continue its business but to stop
its operation in order to eliminate competition, as shown by
the fact that all the employees of FEATI were laid-off, it cannot
be said that PAL assumed the obligations of FEATI, its rival
344 SALES Art. 1583

airline. The final agreement of July 9, 1947 failed to make any

mention whatsoever about the money equivalent of the vaca-
tion and sick leave. This leave was earned by the employees
from FEATI for services rendered from August 1, 1946 up to
May 21, 1947 when they ceased to render said service to FEATI.
For those employees who were absorbed by PAL from May 21,
1947 to June 15, 1947, when they were laid-off, they may be
said to have earned the corresponding leave from PAL.
Had the employees insisted on the payment of the leave
already earned from FEATI in the execution of the agreement
of July 9, 1947, FEATI could perhaps have been made to pay
unless, of course, PAL agreed to assume the obligation. When
they failed to raise the question or have it embodied in the agree-
ment, said failure may be regarded as a waiver of their right.
(Ibid.)

ART. 1583. Unless otherwise agreed, the buyer of

goods is not bound to accept delivery thereof by
installments.
Where there is a contract of sale of goods to be
delivered by stated installments, which are to be sepa-
rately paid for, and the seller makes defective deliver-
ies in respect of one or more installments, or the buyer
neglects or refuses without just cause to take deliv-
ery of or pay for one or more installments, it depends
in each case on the terms of the contract and the cir-
cumstances of the case, whether the breach of con-
tract is so material as to justify the injured party in
refusing to proceed further and suing for damages
for breach of the entire contract, or whether the breach
is severable, giving rise to a claim for compensation
but not a right to treat the whole contract as broken.
(n)

Rules governing delivery in installments.

(1) General rule. — In an ordinary contract for the sale of goods,
the buyer is not bound to receive delivery of the goods in
installments. He is entitled to delivery of all the goods at the same
time and, it may be added, is bound to receive delivery of all at
Art. 1583 OBLIGATIONS OF THE VENDEE 345

the same time. Similarly, a buyer has no right to pay the price in
installments. Neither can he be required to make partial payments.
By agreement, however, the goods may be deliverable by
installments or the price payable in installments. (see Art. 1248.)
(2) Where separate price has been fixed for each installment. —
Where the contract provides for the delivery of goods by
installments and a separate price has been agreed upon for each
installment, it depends in each case on the terms of the contract
and the circumstances of the case whether the breach thereof is
severable or not.
(a) Where breach affects whole contract. — If the seller makes
defective, partial or incomplete deliveries or the buyer wrong-
fully neglects or refuses to accept delivery or fails to pay any
installment, the injured party may sue for damages for breach
of the entire contract if the breach is so material (e.g., breach
of one installment prevents the further performance of the
contract) as to affect the contract as a whole.
(b) Where breach severable. — Where the breach is severable,
it will merely give rise to a claim for compensation for the par-
ticular breach but not a right to treat the whole contract as
broken.

ILLUSTRATIVE CASE:
Seller, after making partial deliveries, flatly refused to make any
more delivery.
Facts: S agreed to deliver to B monthly for a period of ten
years a specified amount of water gas tar and coal gas tar. S
failed to make delivery up to a certain date and “flatly refused
to make any delivery under the contract.”
Issue: May B sue for breach of the entire contract?
Held: Yes. As a general rule, a contract to do several things
at several times is divisible in nature, so as to entitle the injured
party to damages from time to time for breaches as they occur.
But an unqualified and positive refusal to perform a contract,
though the performance thereof is not yet due, may be treated
as a complete breach entitling and requiring the injured party
to recover all his damages in one suit. (Blossom & Co. vs. Manila
Gas Corporation, 55 Phil. 226 [1930].)
346 SALES Art. 1584

ART. 1584. Where goods are delivered to the buyer

which he has not previously examined, he is not
deemed to have accepted them unless and until he
has had a reasonable opportunity of examining them
for the purpose of ascertaining whether they are in
conformity with the contract, if there is no stipulation
to the contrary.
Unless otherwise agreed, when the seller tenders
delivery of goods to the buyer, he is bound, on re-
quest, to afford the buyer a reasonable opportunity
of examining the goods for the purpose of ascertain-
ing whether they are in conformity with the contract.
Where goods are delivered to a carrier by the seller,
in accordance with an order from or agreement with
the buyer, upon the terms that the goods shall not be
delivered by the carrier to the buyer until he has paid
the price, whether such terms are indicated by mark-
ing the goods with the words “collect on delivery,” or
otherwise, the buyer is not entitled to examine the
goods before the payment of the price, in the absence
of agreement or usage of trade permitting such ex-
amination. (n)

Buyer’s right to examine the goods.

Acceptance, as used in Article 1584, is assent to become owner
of the specific goods when delivery of them is offered to the buyer.
(3 Williston, op. cit., p. 31.)
(1) Actual delivery contemplated. — The delivery referred to in
said article, as can be gathered from its context, is actual delivery.
In other words, the ownership of the goods shall be transferred
only upon actual delivery subject to a reasonable opportunity of
examining them to determine if they are in conformity with the
contract. (par. 1; see Arts. 1481, 1501, par. 2.)
The right of examination or inspection under paragraph 1 is
thus a condition precedent to the transfer of ownership unless there is
a stipulation to the contrary.
(2) Goods delivered C.O.D./not C.O.D. — Where, in pursuance
of a contract of sale, the seller is authorized or required to send
Art. 1585 OBLIGATIONS OF THE VENDEE 347

the goods to the buyer, delivery of the goods to a carrier for the
purpose of transmission to the buyer is deemed to be delivery to
the buyer. (see Art. 1523, par. 1.)
(a) Although title passes to the buyer by the mere deliv-
ery to the carrier, the buyer unless the goods are sent C.O.D.
which is the normal procedure in importations, has the right
to examine the goods before paying. In this case, the right to
examine the goods is a condition precedent to paying the price
after ownership has passed.
(b) It should be noted that even in a C.O.D. sale, the buyer
is allowed to examine the goods before payment of the price
should it have been so agreed upon or if it is permitted by
usage. (par. 3.)
(3) Right of examination not absolute. — The buyer does not have
an absolute right of examination since the seller is bound to af-
ford the buyer a reasonable opportunity of examining the goods
only “on request.” (par. 2.) If the seller refused to allow opportu-
nity for the inspection, the buyer may rescind the contract and
recover the price or any part of it that he has paid.
(4) Right to be exercised within reasonable time. — While Article
1584 accords the buyer the right to a reasonable opportunity to
examine the goods to ascertain whether they are in conformity
with the contract, such opportunity to examine should be availed
of within a reasonable time in order that the seller may not suffer
undue delay or prejudice. (Grageda vs. Intermediate Appellate
Court, 155 SCRA 95 [1987].)
(5) Waiver of right to examine before payment. — The right of
inspection may, of course, be given up by the buyer by stipula-
tion. (Ibid.) The waiver, however, need not be in express terms.
An illustration of a bargain inconsistent with examination of the
goods before payment is a contract by which goods are to be sent
to the buyer C.O.D. (par. 3.) But the buyer is still entitled to ex-
amine the goods after their delivery and payment of the price. (par.
1.) Here, the right of examination is a condition subsequent after
transfer of ownership and payment of the price.

ART. 1585. The buyer is deemed to have accepted

the goods when he intimates to the seller that he has
348 SALES Art. 1585

accepted them, or when the goods have been deliv-

ered to him, and he does any act in relation to them
which is inconsistent with the ownership of the seller,
or when, after the lapse of a reasonable time, he re-
tains the goods without intimating to the seller that
he has rejected them. (n)

Modes of manifesting acceptance.

Article 1585 expresses a definition of acceptance. It may be
manifested either expressly or impliedly.
(1) Express acceptance takes place when the buyer, after deliv-
ery of the goods, intimates to the seller, verbally or in writing, that
he has accepted them.
(2) Implied acceptance takes place:
(a) when the buyer, after delivery of goods, does any act
inconsistent with the seller’s ownership, as when he sells or
attempts to sell the goods, or he uses (see Smith Bell & Co.
[Phils.], Inc. vs. Gimenez, 8 SCRA 407 [1963]; Pan Pacific Com-
pany [Phils.] vs. Advertising Corporation, 23 SCRA 977
[1968].) or makes alteration in them in a manner proper only
for an owner; or
(b) when the buyer, after the lapse of a reasonable time,
retains the goods without intimating his rejection. Thus, the
failure of the buyer to interpose any objection to the invoices
issued to it, to evidence delivery of the materials ordered as
per agreement with the seller and which contained the con-
ditions in question, should be deemed as an implied accept-
ance by the buyer of the said conditions. (Naga Development
vs. Court of Appeals, 41 SCRA 106 [1971]; Sy vs. Mina, 164
SCRA 312 [1988].)
The retention of the goods is a strong evidence that the
buyer has accepted ownership of the goods. While retention
may be considered an act inconsistent with the ownership of
the seller, it is stated as a separate mode of manifesting accept-
ance as it is merely a negative indication which may be due
merely to carelessness.
Art. 1586 OBLIGATIONS OF THE VENDEE 349

Delivery and acceptance, separate acts.

Delivery and acceptance are two distinct and separate acts of
different parties.
(1) Acceptance, not a condition to complete delivery. — Delivery
is an act of the vendor. Thus, one of the obligations of the vendor
is the delivery of the thing sold. (Art. 1495.) The vendee has noth-
ing to do with the act of delivery by the vendor.
On the other hand, acceptance is an obligation on the part of
the vendee. (Art. 1582.) Consequently, acceptance cannot be re-
garded as a condition to complete delivery. (La Fuerza, Inc. vs.
Court of Appeals, 23 SCRA 1217 [1968].) In other words, the seller
must comply with his obligation to deliver although there is no
acceptance yet by the buyer.
(2) Acceptance and actual receipt do not imply the other. — Ac-
ceptance of the buyer may precede actual delivery. There may be
an actual receipt without any acceptance and there may be accept-
ance without any receipt. (1 Williston, 4th ed., op. cit., pp. 129-130.)

ART. 1586. In the absence of express or implied

agreement of the parties, acceptance of the goods by
the buyer shall not discharge the seller from liability
in damages or other legal remedy for breach of any
promise or warranty in the contract of sale. But, if,
after acceptance of the goods, the buyer fails to give
notice to the seller of the breach in any promise of
warranty within a reasonable time after the buyer
knows, or ought to know of such breach, the seller
shall not be liable therefor. (n)

Acceptance, not a bar to action

for damages.
Acceptance, as used in this article, has the meaning explained
previously — assent to receive delivery as transferring possession
and ownership in the goods; but it does not carry with it the ad-
ditional agreement that the property in the goods shall be taken
in full satisfaction of all obligations. (3 Williston, op. cit., p. 37.)
Therefore, unless otherwise agreed, acceptance of the goods
by the buyer (Art. 1585.) does not discharge the seller from liabil-
350 SALES Art. 1587

ity in damages or other legal remedy (like rescission) for breach

of any promise (Art. 1546.) or warranty (Art. 1547; see Ker & Co.
vs. De la Rama, 11 Phil. 453 [1908].) in the contract of sale. (see
Art. 1599[1, 2].)

Notice to seller of breach of promise

or warranty.
(1) Necessity. — Article 1586 requires the buyer, in order to
hold the seller liable for breach of promise or warranty, to give
notice to the seller of any such breach within a reasonable time.
(2nd sentence.) Time is counted not simply from the moment the
buyer knows of the defect, but from the time when he ought to
have known it. Prompt exercise of opportunity for discovering
defects is, therefore, essential.
(2) Purpose. — The purpose is to protect the seller against
belated claims which prevent him from making prompt investi-
gation to determine the cause and extent of his liability and also
to enable him to take any other immediate steps that his interest
may require.
Note: The word “of’’ before “warranty” in Article 1586 should
read “or.”

ART. 1587. Unless otherwise agreed, where goods

are delivered to the buyer, and he refuses to accept
them, having the right so to do, he is not bound to
return them to the seller, but it is sufficient if he noti-
fies the seller that he refuses to accept them. If he
voluntarily constitutes himself a depositary thereof,
he shall be liable as such. (n)

Where buyer’s refusal to accept

justified.
(1) Duty of buyer to take care of goods without obligation to return.
— If the goods have been sent to the buyer and he rightfully
refuses to accept them, as in the case where the goods are of not
the kind and quality agreed upon, he is in the position of a bailee
who has had goods thrust upon him without his assent. Doubt-
less, he has the obligation to take reasonable care of the goods,
Art. 1588 OBLIGATIONS OF THE VENDEE 351

but nothing more can be demanded of him. Accordingly, he is

under no obligation to return the goods to the seller.
(2) Duty of seller to take delivery of goods. — After notice that
the goods have not been and will not be accepted, the seller must
have the burden of taking delivery of said goods.
(3) Seller’s risk of loss of goods. — While the goods remain in
the buyer’s possession under these circumstances, they are, of
course, at the seller’s risk. But the buyer is not deemed and is not
liable as a depositary, unless he voluntarily constitutes himself as
such.
(4) Right of buyer to resell goods. — Should the seller, when
notified to take delivery of the goods fails to do so, the buyer may
resell the goods. The provisions governing resale by the seller
when the buyer is in default, it seems, will generally apply. (see
Art. 1533.)

ART. 1588. If there is no stipulation as specified in

the first paragraph of article 1523, when the buyer’s
refusal to accept the goods is without just cause, the
title thereto passes to him from the moment they are
placed at his disposal. (n)

Where buyer’s refusal to accept wrongful.

Under this article, the buyer’s refusal to accept the goods is
without just cause while under Article 1587, the refusal is with a
right to do so.
As a general rule, the delivery of the goods to a carrier is
deemed to be a delivery of the goods to the buyer. (Art. 1523, par.
1.) This is true even if the buyer refuses to accept the goods in case
his refusal is without just cause. The title passes to the buyer and,
therefore, the risk of loss is borne by him (Art. 1504.) from the
moment they are placed at his disposal. (Art. 1588.) In those cases
where the right of the buyer to inspect goods at the time of deliv-
ery is a condition precedent to transfer of ownership (Art. 1584,
par. 1.), the ownership passes by operation of law after such in-
spection.
352 SALES Art. 1589

ART. 1589. The vendee shall owe interest for the

period between the delivery of the thing and the pay-
ment of the price, in the following three cases:
(1) Should it have been so stipulated;
(2) Should the thing sold and delivered produce
fruits or income;
(3) Should he be in default, from the time of judi-
cial or extrajudicial demand for the payment of the
price. (1501a)

Liability of vendee for interest where

payment is made after delivery.
This article presupposes that the delivery of the thing sold and
the payment of the price were not made simultaneously but the
thing sold was delivered, first followed by the payment of the
price after the lapse of a certain period of time. The vendee is li-
able to pay interest from the delivery of the thing until the pay-
ment of the price.
(1) Interest expressly stipulated. — In such case, the rate stipu-
lated governs. The stipulation of the parties to pay interest may
be oral. Article 1956 of the Civil Code which provides that “no
interest shall be due unless it has been expressly stipulated in
writing” should be construed as applicable only to contracts of
loan.
If the parties failed to fix the rate, then the legal rate of inter-
est shall be due.
(2) Fruits or income received by vendee from thing sold. — Under
No. 2, two conditions must exist: (a) that the thing sold has been
delivered, and (b) that it produces fruits or income. If the vendee
would not be bound to pay interest for the use of the money, which
he should have paid, the principle of bilaterality which charac-
terizes a contract of sale would no longer exist.
Since the law makes no distinction, the vendee is still bound
to pay interest even if a term has been fixed for the payment of
the price. (see 10 Manresa 278.)
Art. 1590 OBLIGATIONS OF THE VENDEE 353

(3) Vendee guilty of default. — If the vendee incurs delay in the

payment of the agreed price (see Art. 1169.), the interest is due
from the time of judicial or extrajudicial demand by the vendor
for the payment of the price. This demand by the vendor is the
starting point for the commencement of default or delay on the
part of the vendee. (10 Manresa 278.) Under Nos. 1 and 2 of Arti-
cle 1589, no demand is necessary. (see Art. 1169[1].)

ART. 1590. Should the vendee be disturbed in the

possession or ownership of the thing acquired, or
should he have reasonable grounds to fear such dis-
turbance, by a vindicatory action or a foreclosure of
mortgage, he may suspend the payment of the price
until the vendor has caused the disturbance or dan-
ger to cease, unless the latter gives security for the
return of the price in a proper case, or it has been
stipulated that, notwithstanding any such contin-
gency, the vendee shall be bound to make the pay-
ment. A mere act of trespass shall not authorize the
suspension of the payment of the price. (1502a)

Right of vendee to suspend

payment of price.
(1) When vendee has right. — The vendee, under this article, may
suspend the payment of the price in two cases only:
(a) if he is disturbed in the possession or ownership of the
thing bought; or
(b) if he has a well-grounded fear that his possession or
ownership would be disturbed by a vindicatory action or fore-
closure of mortgage.
Under the circumstances provided for by Article 1590, the
vendee is only entitled to retain the price that has not been paid
to the vendor. He is not entitled to recover what has already been
paid. Under the second case, it is not necessary that an action be
brought against the vendee.
It has been held that a buyer of a condominium unit is justi-
fied in suspending payment of his monthly amortizations where
354 SALES Art. 1590

the seller fails to give him a copy of the contract to sell despite
repeated demands therefor. A buyer is entitled to a copy of the
contract to sell; otherwise, he would not be informed of his rights
and obligations under the contract. (Gold Loop Properties, Inc.
vs. Court of Appeals, 142 SCAD 238, 350 SCRA 371 [2001].)
(2) When vendee has no right. — In the following cases, the
vendee cannot suspend the payment of the price even if there is
disturbance in his possession or ownership of the thing sold:
(a) if the vendor gives security for the return of the price
in a proper case;
(b) if it has been stipulated that notwithstanding any such
contingency, the vendee must make payment (see Art. 1548,
par. 3.);
(c) if the vendor has caused the disturbance or danger to
cease (see Bareng vs. Court of Appeals, 107 Phil. 641 [1960].);
(d) if the disturbance is a mere act of trespass; and
(e) if the vendee has fully paid the price.
If the thing sold is in the possession of the vendee and the price
is already in the hands of the vendor, the sale is a consummated
contract and Article 1590 is no longer applicable. Article 1590
presupposes that the price or any part thereof has not yet been
paid and the contract has not yet been consummated. (10 Manresa
286-287.)

Right of vendee to demand rescission.

Under the provisions of Article 1590, the vendee has no cause
of action for rescission before final judgment the reason being that
otherwise, the vendor might become the victim of machinations
between the vendee and the third person. (Bachrach Motor Co.,
Inc. vs. Santos, 6 C.A. Rep. 706.) It must be noted that the distur-
bance must be in the possession or ownership of the thing ac-
quired.
The remedy of the buyer is rescission, not suspension of pay-
ment where the disturbance is caused by the existence of a non-
apparent servitude. (see Art. 1560.)
Arts. 1591-1592 OBLIGATIONS OF THE VENDEE 355

ART. 1591. Should the vendor have reasonable

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

Right of vendor to rescind sale

of immovable property.
This article refers only to a sale of immovable or real prop-
erty where the vendor has good reasons to fear the loss of the prop-
erty and its price. It contemplates a situation where there has been
a delivery of the immovable property but the vendee has not yet
paid the price.
“Suppose the vendee has not yet paid the price, but he de-
stroys the building sold, pulls out the plants on the land, cuts
down the forest, or places himself on the brink of insolvency.
In other words, the subject matter of the sale is going to per-
ish. To think of demanding payment from the vendee is some-
thing useless, because the vendee has shown signs of irrespon-
sibility. The only remedy that can guarantee the vendor against
such damage is the rescission of the contract.” (10 Manresa
282-284.)
Article 1591 is applicable to both cash sales and to sales in
installments as it does not distinguish between one and the other.
(Ibid., 284-285.)
Pursuant to Article 1191 of the Civil Code, the vendor may
sue for either fulfillment or rescission with damages in either case
upon the vendee’s failure to comply with his obligation to pay
the agreed price. Rescission, however, is allowed only where the
breach is substantial and fundamental to the fulfillment of the
obligation.

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

though it may have been stipulated that upon failure
to pay the price at the time agreed upon the rescis-
sion of the contract shall of right take place, the
356 SALES Art. 1592

vendee may pay, even after the expiration of the pe-

riod, as long as no demand for rescission of the con-
tract has been made upon him either judicially or by a
notarial act. After the demand, the court may not grant
him a new term. (1504a)

Rule where automatic rescission of sale

of immovable property stipulated.
As a general rule, the vendor may sue for rescission of the
contract should the vendee fail to pay the agreed price. (Art. 1191.)
The sale of real property, however, is subject to the stipulations
agreed upon by the parties and to the provisions of Article 1592
which speaks of non-payment of the purchase price as a resolutory
condition. Article 11912 is subordinated to the provisions of Arti-
cle 1592 when applied to sales of immovable property.
Before a demand for rescission of the contract (for non-pay-
ment of the price) has been made by the vendor, either judicially3
or by a notarial act, the vendee may still pay the price even after
the expiration of the stipulated period for payment and notwith-
standing a stipulation that failure to pay the price on the stipu-
lated date ipso facto resolves the sale. (Adiarte vs. Court of Ap-
peals, 92 Phil. 758 [1953]; Villareal vs. Tan King, 43 Phil. 251 [1922].)
A judicial or notarial act is necessary before a valid rescission can
take place, whether or not automatic rescission has been stipu-
lated. It is to be noted that the law uses the phrase “even though,’’
emphasizing that when no stipulation is found on automatic re-
scission, the judicial or notarial requirement still applies. (Iriñgan
vs. Court of Appeals, 155 SCAD 686, 366 SCRA 41 [2001].) A let-
ter informing the buyer of the automatic rescission of a contract
of sale of a real property of sale does not amount to a demand for

2
See note 4 to Article 1458.
3
In the case of Luzon Brokerage Co., Inc. vs. Maritime Bldg. Co., Inc. (see facts, infra.), S
demanded from LBC, to whom B leased the properties sold, the payment of the monthly
rentals and the surrender of the same to S. As a consequence, LBC filed an action for
interpleader. S, in its answer, filed a cross-claim against B praying for the confirmation
of its right to cancel the contract. The Supreme Court held that even if the contract were
considered an unconditional sale so that Article 1592 could be deemed applicable, S’s
answer to the complaint for interpleader in the lower court constituted a judicial de-
mand for the rescission of the contract.
Art. 1592 OBLIGATIONS OF THE VENDEE 357

rescission if it is not notarized. The offer to pay prior to the de-

mand for rescission is sufficient to defeat the vendor’s right un-
der Article 1592. (Ocampo vs. Court of Appeals, 52 SCAD 610, 233
SCRA 551 [1994]; Laforteza vs. Machuca, 127 SCAD 798, 333 SCRA
643 [2000].)
There is no existing provision in our laws authorizing the
automatic rescission of contracts of sale of real property for non-
payment of the purchase price except as provided in Article 1592.4
A complaint by the vendor seeking the cancellation of the vendee’s
adverse claim on the vendor’s original certificate of title and for
the refund of the payments made, cannot be considered a judi-
cial demand under Article 1592 because it does not pray for the
rescission of the contract of sale. In other words, seeking discharge
from contractual obligations and an offer for restitution is not the
same as abrogation of the contract. To rescind is “to declare a con-
tract void in its inception and to put an end to it as though it never
were.” (Ocampo vs. Court of Appeals, supra; see Arra Realty Corp.
vs. Guarantee Development Corp. and Insurance Agency, 438
SCRA 441 [2004].)
Note: In Articles 1191 and 1592, the rescission is a principal
action which seeks the resolution or cancellation of the contract,
while in Article 1381, the action is a subsidiary one limited to cases
of rescission for lesion as enumerated in said article. The prescrip-
tive period applicable for rescission under Articles 1191 and 1592
is found in Article 1144 which provides that the action upon a
written contract should be brought within 10 years from the time
the right of action accrues. (see Iriñgan vs. Court of Appeals, su-
pra.)

Right of seller to rescind not absolute.

In a contract of sale, the remedy of the unpaid seller is either
specific performance or rescission with the right to claim dam-
ages in either case. (Art. 1191.)

4
“We concede the validity of the automatic forfeiture clause, which deems any pre-
vious payments forfeited and the contract automatically rescinded upon the failure of
the vendee to pay three successive monthly installments or any one year-end lump sum
payment. However, petitioners failed to prove the conditions that would warrant the
implementation of this clause.’’ (Valarao vs. Court of Appeals, 104 SCAD 114, 304 SCRA
155 [1999].)
358 SALES Art. 1592

A seller, however, cannot unilaterally and extrajudicially re-

scind a contract of sale of immovable property where there is no
express stipulation authorizing him to extrajudicially rescind
(Laforteza vs. Machuca, supra.) except as provided in Article 1592.
Judicial action for rescission of a contract is not necessary where
the contract provides for automatic rescission in case of breach.
(Gomez vs. Court of Appeals, 134 SCAD 206, 340 SCRA 720
[2000].)
(1) Court may grant vendee a new term. — The right to rescind
is not absolute and the court may extend the period for payment.
(Art. 1191, par. 3.) Once a demand for rescission by suit or notarial
act is made, however, under Article 1592, the court may not grant
the vendee a new term. Nevertheless, in the interest of justice and
equity, the court may grant the vendee a new term where he has
substantially performed in good faith. (J.M. Tuazon & Co., Inc.
vs. Javier, 31 SCRA 829 [1970].)
(2) Vendor may waive his right. — The right of “automatic re-
scission” (subject to Article 1592 when applicable) stipulated in a
contract of sale is subject to waiver. In a case, the right was held
waived by the vendor who granted many extensions to the
vendee, in all of which, the vendor never called attention to the
proviso on “automatic rescission.” (Pilipinas Bank vs. Intermedi-
ate Appellate Court, 151 SCRA 546 [1987].) The unqualified ac-
ceptance by the vendor of payments after the six-month period
expired was held to constitute waiver of the period and hence, of
the ground to rescind under Article 1592. (Ocampo vs. Court of
Appeals, supra.)
(3) Written notice of cancellation must be given. — While judi-
cial action for the rescission of contract is not necessary where the
contract provides that it may be cancelled for violation of its terms
and conditions, there must be at least a written notice sent to the
defaulter informing him of the rescission. The indispensability of
notice of cancellation to the buyer of real estate is underscored in
Section 3(b) of R.A. No. 6552 (see Appendix “B.”) which specifi-
cally provides that the notice of cancellation or the demand for
rescission of the contract must be by a notarial act. (Jison vs. Court
of Appeals, 164 SCRA 339 [1988]; Siska Development Corp. vs.
Office of the President of the Phils., 50 SCAD 46, 231 SCRA 674
[1994].)
Art. 1592 OBLIGATIONS OF THE VENDEE 359

A notarial act presupposes signing before a notary public and

two competent witnesses. A letter to the vendee rescinding a con-
tract of sale which is not notarized is defective. More importantly,
the notarized demand must be proven to have been received by
the vendee. (Ocampo vs. Court of Appeals, supra.) Similarly, a
letter in the form of a “Formal Notice’’ ordering the buyer to va-
cate the premises in question for the reason that the occupancy of
the lot is presumed to be illegal as the lot is still registered in the
name of the seller does not amount to a demand for rescission
where there is no reference to the sale much less a declaration that
the sale is being rescinded or abrogated from the beginning. (City
of Cebu vs. Heirs of C. Rubi, 106 SCAD 61, 306 SCRA 408 [1999].)
Neither will a letter written by the vendor declaring his intention
to rescind to operate to validly rescind the sale. But an action for
judicial confirmation of rescission and damages has been held to
comply with the requirement of the law for judicial decree of re-
scission. Even a crossclaim found in the answer can constitute a
judicial demand for rescission that satisfies the requirement of the
law. (Iriñgan vs. Court of Appeals, 155 SCAD 686, 366 SCRA 41
[2001]; Luzon Brokerage Co., Inc. vs. Maritime Building Co., Inc.,
43 SCRA 93 [1972].)
(4) Breach must be substantial. — The general rule is that re-
scission of a contract will not be permitted for a slight or causal
breach but only for such substantial and fundamental breach as
would defeat the very object of the parties. This is especially true
where the slight breach by the vendee is outweighed by the bad
faith of the vendor in reneging in his own prestation. The ques-
tion of whether a breach of a contract is substantial depends, of
course, upon the attendant circumstances. (Ibid.) Where it was
stipulated in the deed of sale that payment could be made even
after 10 years from the execution of the contract provided the
vendee paid 12% interest, the failure of the vendee to pay the bal-
ance of the purchase price within 10 years from the execution of
the deed would not amount to a substantial breach. (Vda. de
Mistica vs. Naguiat, 418 SCRA 73 [2003].)

When Article 1592 not applicable.

(1) Sale on installment of real estate. — Article 1592 which re-
quires rescission either by judicial action or notarial act contem-
360 SALES Art. 1592

plates an absolute sale. It does not apply to sales on installment

of real property in which the parties have laid down the proce-
dure to be followed in the event the vendee failed to fulfill his
obligation. (Albea vs. Inquimboy, 86 Phil. 477 [1950]; Caridad
Estates, Inc. vs. Santero, 71 Phil. 114 [1940]; Torralba vs. De Los
Angeles, 96 SCRA 69 [1980].)
(2) Contract to sell/conditional sale of real estate. — Neither is
Article 1592 applicable to a mere promise to sell (executory con-
tract to sell) where the title remains with the vendor until
fulfillment of a positive condition, such as full payment of the
price (Roque vs. Lapuz, 96 SCRA 741 [1980]; Caridad Estates vs.
Santero, supra.; Manila Racing Club vs. Manila Jockey Club, 69
Phil. 57 [1939]; Manuel vs. Rodriguez, 109 Phil. 1 [1960]; Joseph
& Sons Enterprises, Inc. vs. Court of Appeals, 143 SCRA 663 [1986];
Alfonso vs. Court Appeals, 186 SCRA 400 [1990]; Adelfa Proper-
ties, Inc. vs. Court of Appeals, 58 SCAD 462, 240 SCRA 565 [1995];
Valarao vs. Court of Appeals, 104 SCAD 114, 304 SCRA 155 [1999];
Gomez vs. Court of Appeals, 134 SCAD 206, 340 SCRA 720 [2000].)
Such payment is a positive suspensive condition the failure of
which is not a breach, casual or serious, but simply an event that
prevents the obligation of the vendor to convey title from acquir-
ing binding force. In an absolute sale, non-payment is a resolutory
condition. (Pangilinan vs. Court of Appeals, 87 SCAD 408, 279
SCRA 590 [1997]; Odyssey Park, Inc. vs. Court of Appeals, 87
SCAD 735, 280 SCRA 253 [1997].)
(3) Cases covered by R.A. No. 6552. — R.A. No. 6552 (see Ap-
pendix “B.”) recognizes in conditional sales of all kinds of real
estate the non-applicability of Article 1592 to such contracts to sell
on installments and the right of the seller to cancel the contract
upon non-payment, “which is simply an event that prevents the
obligation of the vendor to convey title from acquiring binding
force.” The Act in modifying the terms and application of Article
1592 recognizes the vendor’s right to cancel unqualifiedly in case
of “industrial lots, commercial buildings, and sales to tenants” and
requires a grace period in other cases, particularly residential lots,
with a refund of certain percentages of payments made on account
of the cancelled contract. (Luzon Brokerage Co., Inc. vs. Maritime
Bldg. Co., Inc., 43 SCRA 93 [1972] and 86 SCRA 305 [1978]; Rillo
vs. Court of Appeals, 83 SCAD 905, 274 SCRA 461 [1997]; Olym-
Art. 1592 OBLIGATIONS OF THE VENDEE 361

pia Housing, Inc. vs. Panasiatic Travel Corporation, 395 SCRA 298
[2003].)
In other words, the vendee, in Nos. (1) and (2) above, may no
longer pay the price after the expiration of the time agreed upon
although no demand has yet been made upon him by suit or
notarial act, except that in the case of sale on installment payments
of residential properties, while the vendor’s right to cancel the
contract to sell upon breach by non-payment of the stipulated
installments is recognized by R.A. No. 6552, a grace period is re-
quired, with the vendee entitled to refund of certain percentages
of payments in the event that the contract is cancelled. But the
rule upholding the validity of automatic rescission clauses con-
tained in contracts to sell industrial and commercial real estates
on installments upon failure to pay stipulated installments, and
allowing the retention or forfeiture as rentals of the installments
previously paid, is not applicable to a contract to sell real estate
on installments which is not essentially such a contract but is more
of a contract for the redemption of mortgaged property foreclosed
by the mortgagee. (Phil. National Bank vs. Court of Appeals, 94
SCRA 357 [1979].)
R.A. No. 6552 makes no distinction between “option” and
“sale” which, under Section 2(b) of P.D. No. 957 (Appendix B.),
virtually includes all transactions concerning land and housing
acquisition including reservation agreements. (Realty Exchange
Venture Corp. vs. Sendino, 53 SCAD 57, 233 SCRA 665 [1994].)
This law, which normally applies to all transactions or contracts,
involving the sale or financing of real estate on installments pay-
ments, including residential condominium apartments, excludes
industrial lots, commercial buildings, and sales to tenants under
R.A. No. 3844, the Code of the Agrarian Reforms.5 (Odyssey Park,
Inc. vs. Court of Appeals, supra.) It has been held that a decision
in an ejectment case can operate as notice of cancellation required
by Section 3(b) of R.A. No. 6552. (Leaño vs. Court of Appeals, 158
SCAD 34, 369 SCRA 36 [2001].)

5
Superseded by R.A. No. 6657, otherwise known as the Comprehensive Agrarian
Reform Law of 1988.
362 SALES Art. 1593

ILLUSTRATIVE CASE:
Vendor, retaining ownership of immovable property sold, under-
took to convey it provided vendee, who defaulted, paid in full balance
of purchase price payable in monthly installments.
Facts: S, vendor, entered into a contract entitled “Deed of
Conditional Sale” with B, vendee, involving three parcels of
land with the improvements thereon. The purchase price was
P1,000,000. The amount of P50,000 was paid upon the execu-
tion of the deed and the balance of P950,000 was to be paid in
monthly installments of P10,000 a month with interest. It was
stipulated that in case of failure to pay any of the installments,
the contract would be annulled at the vendor’s option, all pay-
ments forfeited, and the property repossessed.
S advised B of the cancellation of the deed of conditional
sale and demanded the return of the property, B having failed
to pay three installments. Upon suit, B invoked Article 1592.
Issue: Is Article 1592 applicable?
Held: No. S’s obligation to convey the property was ex-
pressly made subject to a suspensive (precedent) condition of
the punctual and full payment of the balance of the purchase
price. What S sought was a judicial declaration that because
the suspensive condition (full and punctual payment) had not
been fulfilled, his obligation to sell to B never arose or never
became effective, and, therefore, S was entitled to repossess the
property object of the contract, possession being a mere inci-
dent to its right of ownership. In seeking the ouster of B for
failure to pay the price as agreed upon, S was not rescinding
(or more properly, resolving) the contract, but precisely enforc-
ing it according to its express terms.
In short, the contract in question was not the ordinary con-
tract of sale envisaged in Article 1592 transferring ownership
simultaneously with delivery but one in which the vendor re-
tained ownership of the immovable property object of the sale,
merely undertaking to convey it provided B strictly complied
with the terms of the contract. (Luzon Brokerage Co., Inc. vs.
Maritime Building Co., Inc., supra.)

ART. 1593. With respect to movable property, the

rescission of the sale shall of right take place in the
interest of the vendor, if the vendee, upon the expira-
Art. 1593 OBLIGATIONS OF THE VENDEE 363

tion of the period fixed for the delivery of the thing,

should not have appeared to receive it, or having ap-
peared, he should not have tendered the price at the
same time unless a longer period has been stipulated
for its payment. (1505)

Rule where automatic rescission of sale

of movable property stipulated.
In the sale of real property, the vendor must make a demand
for rescission before he can have the right to rescind the contract.
(Art. 1592.) In the case of personal property (which has not yet
been delivered to the vendee), the vendor can rescind the contract,
as a matter of right, if the vendee, without any valid cause, does
not (1) accept delivery or (2) pay the price unless a credit period
for its payment has been stipulated.
The mere failure of the vendee to comply with the terms of
the contract does not rescind the same. It is necessary that the
vendor should take some affirmative action indicating his inten-
tion to rescind. (Guevarra vs. Pascual, 12 Phil. 311 [1908].) The
parties, however, may validly enter into an agreement that viola-
tion of the terms of the contract would cause cancellation thereof
even without judicial intervention or permission. (see University
of the Phil. vs. De los Angeles, 35 SCRA 102 [1970]; Consing vs.
Jamandre, 64 SCRA 1 [1975].)

EXAMPLE:
S sold his piano to B for P30,000.00; said piano is to be de-
livered on October 18. If on October 18, B does not accept de-
livery or pay the price without lawful cause, then S may elect
to enforce compliance or to rescind the contract with the right
to damages in either case.

Reason for the rule with respect

to movable property.
The reason for the difference is that personal properties are
not capable of maintaining a stable price in the market. Their
prices are so changeable that any delay in their disposal might
cause the vendor a great prejudice.
364 SALES Art. 1593

This is not true in the case of real property which has more or
less stable price in the market and the delay that might result from
the requirement imposed on the vendor to demand rescission
before being entitled to rescind the contract will not in any way
prove detrimental to the interest of the vendor. (see 10 Manresa
291.)

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