Law on Sales

 SALES
NATURE, FORMS AND REQUISITES
By the contract of sale one of the contracting parties obligates himself to transfer the ownership
and to deliver a determinate thing, and the other to pay therefor a price certain in money or its
equivalent. (Article 1458, NCC)

Let's break down the definition provided above and determine the elements of a contract of sale.
First, take note that a sale is a contract. As such, the three (3) essential elements of a valid contract
should be present, namely: consent, object and cause (COC). In a contract of sale, consent is present
when there is a meeting of minds to transfer ownership in exchange of the price, the object or the
subject matter is the determinate thing to be delivered, and the cause or consideration is the price
certain in money or its equivalent. Absence of any of these essential elements will render the
contract of sale void.
In addition to the essential elements, a contract of sale also has natural elements, these are
elements which are inherent and are deemed to exist in the contract, in the absence of any
stipulation to the contrary:
a. Warranty against hidden defects
b. Warranty against eviction

There are also accidental elements, these refer to the stipulations agreed upon by the parties, such
as those pertaining to the terms and manner of payment, penalty, interest, and other conditions
governing the contract of sale.

In order to understand further the concept of a contract of sale, it is likewise necessary to determine
its characteristics (CBCPON):
a. Consensual - It is perfected by mere consent
b. Bilateral - The parties are bound by their reciprocal obligations(i.e., seller-deliver and transfer
a determinate thing, buyer-pay the price)
c. Commutative - The parties exchange almost equivalent values
d. Principal - Its existence does not depend upon another contract
e. Onerous - The parties give valuable considerations in order to acquire rights
f. Nominate - The law designates a special name to it.
As stated in letter (a) above, a contract of sale is consensual; it is perfected at the moment there is a
meeting of the minds between the seller and the buyer as to the thing which is the object of the
contract and upon the price.

Q: Is it necessary that a contract of sale be in writing be valid?

A: No, the general rule is that a contract of sale may be made in writing, or by word of mouth, or
partly in writing and partly by word of mouth, or may be inferred from the conduct of the parties.(Art.
1483, NCC)
Remember the rule under your Obligations and Contracts that contracts shall be obligatory, in
whatever form they may have been entered into, provided all the essential requisites for their
validity are present. (Art. 1356, NCC)

Exceptions:
1. If the law requires a document or other special form, the contracting parties may compel
each other to observe that form (Art. 1357, NCC)
2. Under Statute of Frauds, certain contracts must be in writing, otherwise, they shall be
unenforceable(Art. 1403(2), NCC)

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Law on Sales

3. Sale of large cattle which requires that the same be recorded with the city/municipal
treasurer and that a certificate of transfer be issued. Otherwise, the sale is not valid (Art.
1581, NCC)

A contract of sale may be absolute or conditional.

Absolute Sale Conditional Sale
A sale is absolute when no condition is It is conditional where the sale contemplates a
imposed, and ownership passes to the contingency, and in general, where the contract is
vendee upon delivery of the thing subject of subject to certain conditions, usually in the case of
the sale (NCC, Art. 1497). A deed of sale is the vendee, the full payment of the agreed
absolute when there is no stipulation in the purchase price and in the case of the vendor,
contract that title to the property remains certain warranties (De Leon, 2013). In a conditional
with the seller until full payment of the sale, as in a contract to sell, ownership remains
purchase price. The sale is also absolute if with the vendor and does not pass to the vendee
there is no stipulation giving the vendor the until full payment purchase price. The full payment
right to cancel unilaterally the contract the of the purchase price partakes of a suspensive
moment the vendee fails to pay within a condition, and non-fulfillment of the condition
fixed period. (Spouses Ramos vs. Spouses prevents the obligation to sell from arising.
Heruela, G.R.obligation No. 145330, (Spouses Ramos vs. Spouses Heruela, G.R.obligation
October14, , 2005) No. 145330, October14, , 2005)

Contract of sale distinguished from other contracts. Now, in order to understand better the features
of a contract of sale, let us distinguish it from other contracts:
A. Sale vs. Donation
SALE DONATION
Onerous Gratuitous/onerous
Consensual Formal contract
Law on Sales Law on Donation

B. Sale vs. Barter

SALE BARTER
Cause or consideration is in money Cause or consideration is another thing

Q: What if the consideration is partly in money and partly in another thing?

For example, you have an old model of iPhone and you want to upgrade to iPhone 12 Pro
Max. So, you went to Powermac, surrendered your old iPhone currently valued at P25,000,
then, Powermac, after considering the value of your old iPhone as discount, sold to you the
newest iPhone 12 Pro Max at only P45,000, instead of the original price of P70,000.

What kind of contract did you enter with Powermac?

A: Rules in determining whether a contract is a sale or barter:

Priority 1: The contract shall be one of sale or barter depending upon the manifest intention.
Priority 2: If the intention of the parties does not clearly appear:
a. The contract is one of barter if the value of the thing given is part of the consideration
exceeds the monetary consideration
b. The contract is one of sale if the monetary consideration is more than or equal to the value of
the thing given as part of the consideration. (Art. 1468)

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Law on Sales

In our example, it is apparent that the intention of the parties is to enter into a contract of sale
because of the use of the term "sold".
Even if the intention of the parties is not clear, the contract will still be one of sale because the
monetary consideration is more than the value of the thing given as part of the consideration, which
is the old iPhone in our example.

C. Sale vs. Agency to sell

SALE AGENCY TO SELL
Title to the goods is transferred to the Title to the goods is not transferred to the agent
buyer upon delivery of the thing sold upon delivery
The buyer is required to pay the price The agent is required to turn over to the principal the
price of the goods which he received from the buyer

D. Sale vs. Dacion en pago

SALE DACION EN PAGO
There is no pre-existing credit There is a pre-existing credit
Creates obligations Extinguishes obligations
The cause or consideration is the The cause or consideration is the extinguishment of the
price from the seller's point of obligation, from the debtor's point of view; and the delivery
view; and the delivery of object of the object given in place of the credit from the creditor's
from the buyer's point of view point of view
There is greater freedom in fixing There is less freedom in fixing the price because of the
the price amount of the pre-existing credit which the parties seek to
extinguish

E. Sale vs. Lease

SALE LEASE
Obligation to absolutely transfer ownership of thing Use of thing is for specified period only
with obligation to return
Consideration is the price Extinguishes obligations
Seller needs to be owner of thing to transfer Lessor need not be owner
ownership. NOTE: Lease with option to buy - really a
contract of sale but designated as lease in name

.
F. Sale vs contract for a piece of work
SALE CONTRACT FOR PIECE OF WORK
A contract for the delivery at a certain price of an The goods are to be manufactured specially
article which the vendor in the ordinary course of for the customer and upon his special order
business manufactures or procures for the general and not for the general market
market, whether the same is on hand or not

G. Sale vs contract to sell

SALE CONTRACT TO SELL
The title to the property passes to the Ownership is, by agreement, reserved to vendor and is
vendee upon the delivery of thing sold not to pass to the vendee until payment of the
NOTE: Vendor has lost and cannot purchase price NOTE: Prior to full payment, ownership
recover ownership until and unless the is retained by the seller
contract is resolved or rescinded

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Law on Sales

Full payment of the purchase price is a positive

Non-payment of the price is a negative suspensive condition, i.e., title remains in the vendor if
resolutory condition, i.e., the vendor the vendee does not comply with condition precedent
loses ownership of the payment property of making payment at the time specified in the
and cannot recover it until and unless the contract. In other words, failure to pay the price is not
contract of sales is resolved or rescinded. a breach but an event that prevents the obligation of
the vendor to convey title from becoming effective
The risk of loss is on the buyer The risk of loss is on the seller
There is only one contract executed There two contracts:
between the seller and the buyer 1.The contract to sell NOTE: Preparatory sale
2. The deed of absolute sale NOTE: The principal
contract is executed after full payment of the
purchase price

In order to understand better the distinction between a contract of sale and contract to sell, let us
define contract to sell.

Contract to Sell
A bilateral contract whereby the prospective seller, while expressly reserving the ownership of
the subject property despite delivery thereof to the prospective buyer, binds himself to sell the said
property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that is,
full payment of the purchase price (Coronel v. CA, G.R. No. 103577, October 7, 1996).

Note that the transfer of ownership of the property is subject to a condition, that is, the full payment
of the price. Does that mean that a contract to sell is the same as a conditional contract of sale?

No, a contract to sell may further be distinguished from a conditional contract of sale, in that, the
fulfillment of the suspensive condition, which is the full payment of the purchase price, will not
automatically transfer ownership to the buyer although the property may have been previously
delivered to him. The prospective vendor still has to convey title to the prospective buyer by entering
into a contract of absolute sale. While in a conditional contract of sale, the fulfillment of the
suspensive condition renders the sale absolute and affects the seller's title thereto such that if there
was previous delivery of the property, the seller's ownership or title to the property is automatically
transferred to the buyer. (Ursal vs. Court of Appeals, G.R. No. 142411, October 14, 2005)

Now that we have distinguished contract of sale from other contracts. Let us now discuss the parties
to a contract of sale. In order to have a contract of sale, it is of course necessary that there should be
a seller and a buyer. The seller is the one who sells and transfers the thing and ownership to the
buyer. On the other hand, the buyer is the one who buys the thing upon payment of the
consideration agreed upon.

PERSONS WHO MAY NOT ENTER INTO A CONTRACT OF SALE

Q: Can anyone enter into a contract of sale?
A: As a general rule, all persons, whether natural or juridical, who can bind themselves, have legal
capacity to buy and sell. (Article 1489(1), NCC)
1. Vendor/Seller - must be legally capacitated to enter into a contract
 If the vendor is a corporation, the contract must be executed by the board of directors or
by a corporate agent duly authorized by the board. (Spouses Firme vs. Bukal Enterprises,
G.R. No. 08, October 23, 2003)

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Law on Sales

 The vendor must have a right to transfer the ownership at the time it is delivered. Nemo
Dat Quod Non Habet( You cannot give what you do not have) (Art. 1459, CC; Heirs of San
Miguel vs. Court of Appeals, G.R. No. 136054, September 5, 2001

2. Vendee/Buyer - The vendee must be also legally capacitated to enter into contract. Also, if
the vendor is a corporation, the contract must be executed by the board of directors or by a
corporate agent duly authorized by the board. (Spouses Firme vs. Bukal Enterprises, supra)
3. All persons are authorized to enter into a contract of sale except those who are disqualified
either by absolute incapacity, relative incapacity and other special disqualifications. (Art. 1327
and 1329,CC)

Absolute incapacity
- Incapacity is absolute in case of persons who cannot bind themselves

Example: Minors, insane and demented persons, imbeciles, deaf and dumb persons, prodigals and
those subject to civil interdiction. As their personality is restricted, they have no capacity to purchase
and sell by themselves personally, but only through their legal representatives.(Art. 1327,CC)

Note: In case of minors or other persons without capacity to act, the contract of sale is voidable.
However, the purchase of necessaries is valid, for which they shall pay a reasonable price therefor.
(Art. 37, 1489, CC).

Relative incapacity
-Incapacity is relative when certain persons, under certain circumstances cannot buy certain property.

Example: Husband and wife - sale by and between spouses.

Rationale for the prohibition:
a. To prevent a spouse from defrauding his creditors by transferring his properties to the other
spouse;
b. To avoid a situation where the dominant spouse would unduly take advantage of the weaker
spouse;
c. To avoid an indirect violation of the prohibition against donations between spouses under
Article 133 of the Civil Code (Medina v. Collector of Internal Revenue, G.R. No. L-15113,
January 28, 1961).

Special disqualifications:
The following cannot acquire property by purchase, even at a public auction, either in person or
through the mediation of another (Art. 1491, CC):
1. Sale between guardians and wards - the contract is void and not merely voidable. The
prohibition exists only when guardianship exists.
2. Sale between agents and principals
XPN: The prohibition does not apply if the principal consents to the sale of the property in the
hands of the agent or administrator.
Also, after the termination of the affairs of the agency, the prohibition no longer applies. The
transaction may be ratified by way of a new contract which will become valid only from its
execution and will not retroact to the date of the first contract.

3. Sale between executors and administrators of estate of the deceased. But hereditary rights
are not included in the prohibition.
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Law on Sales

4. Sale involving property of the government by public officers and employees, the
administration of which has been entrusted to them; this provision shall apply to judges and
government experts who, in any manner whatsoever take part in the sale;

-The nullity of such prohibited contracts is definite and permanent and cannot be cured by
ratification. The public interest and public policy remain paramount and do not permit of
compromise or ratification.

5. Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other
officers and employees connected with the administration of justice, the property and rights
in litigation or levied upon an execution before the court within whose jurisdiction or territory
they exercise their respective functions; this prohibition includes the act of acquiring by
assignment and shall apply to lawyers, with respect to the property and rights which may be
the object of any litigation in which they may take part by virtue of their profession;
6. Sale of property in litigation [NCC, Art. 1491(5)]
7. Others specially disqualified by law. (E.g. aliens may not purchase private agricultural lands in
the Philippines)

OBJECT OF THE CONTRACT OF SALE

Now that we have learned who are the persons authorized to enter into a contract of sale, let us now
proceed to the rules on the object of the contract of sale. In other words, what may be sold?
1. The thing must be within the commerce of men
2. The thing must be licit((i.e. it must not be contrary to law, morals good customs, public order
or public policy) (Art. 1459)
3. The thing must be determinate

 A thing is determinate if it is particularly designated or physically segregated from all others

of the same class. The requisite that a thing is determinate is satisfied if at the time the
contract is entered into, the thing is capable of being made determinate without the
necessity of a new or further agreement between the parties.(Art. 1460)

Q: Can you sell something you do not own at the time of sale?
A: Yes. It is during the delivery that the law requires the seller to have the right to transfer ownership
of the thing sold. In general, a perfected contract of sale cannot be challenged on the ground of the
seller's non-ownership of the thing sold at the time of the perfection of the contract (Alcantara-Daus
v. De Leon, G.R. No. 149750, June 16, 2003).
This rule is in accord with a well-known principle of law that one cannot transmit or dispose of that
which he does not have - nemo dat quod non-habet.

NOTE: Future inheritance cannot be the subject of sale.

 Things having a potential existence may be the object of a contract of sale. Thus, one can sell
the future harvest from a harm. However, the thing must come into existence, otherwise the
sale will not be effective for not having a subject matter.

Distinction between sale of an expected thing(emptio rei speratae) and the sale of the hope
itself(emptio spei)
Emptio rei speratae Emptio Spei
Sale of thing having potential existence Sale of mere hope or expectancy
Uncertainty is w/ regard to quantity & quality Uncertainty is W/ regard to existence of thing
Contract deals w/ future thing Contract deals W/ present thing - hope or
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Law on Sales

expectancy
Sale is valid only if the expected thing will exist. Sale is valid even though expected thing does
So that if the condition is not fulfilled, if the not come into existence as long as the hope
thing does not come into existence, the itself validly existed e.g., lotto NOTE: Sale of a
contract cannot have the effect for lack of an vain hope or expectancy however, is void (NCC,
essential requisite. Although the vendee may Art. 1461). Example: Sale of a losing sweepstake
have reserved his right to claim indemnity from ticket already drawn
the vendor in the event that the latter knew not
come into existence

 Future goods or goods to be manufactured, raised or acquired by the seller after the
perfection of the contract of sale and goods whose acquisition by the seller depends upon a
contingency which may or may not happen, may also be the subject of a contract of sale.

Example: Sale of garments to be sewn or to be purchased by the seller are goods to be

manufactured or acquired by the seller, sale of a car promised to you by your father, once
you pass the CPA Board Exams

 The sole owner of a thing may sell an undivided interest therein(Art. 1463) Such sale shall
produce the effect of making the seller and the buyer co-owners of the thing sold.

Example: Mimiyuuuh owns a parcel of land. She decided to sell 1/2 of the property to Sassa
Gurl. Such sale shall produce the effect of making Mimiyuuuh and Sassa Gurl co-owners of
the property, with each party owning ½ undivided interest therein.

 Sale of fungible goods

Fungible goods refer to interchangeable goods such as grain, oil, etc. that allow one to be
replaced by another without loss of value.

Sale of an undivided share in a specific mass of fungible goods makes the buyer a co-owner of
the entire mass in proportion to the amount he bought (Art. 1464). The following rules shall
be observed if the quantity sold is different from the quantity of the mass:
a. If the quantity, i.e., number, weight or measure, of the mass is more than the quantity
sold, the parties shall become co-owners of the mass.
Example: Daphne sold to Eloise 200 sacks of rice. The mass, however, actually consists
of 300 sacks of rice. Thus, Daphne and Eloise will become co-owners of the whole
mass to the extent of 2/3 for Eloise and 1/3 for Daphne.

b. If the quantity of the mass is less than the quantity sold, the buyer becomes the
owner of the whole mass, with the seller being bound to make good the deficiency
from goods of the same kind and quality, unless a contrary intent appears.

Example: Daphne sold to Eloise 300 sacks of rice. The mass, however, actually consists
of 250 sacks of rice. In this case, Eloise becomes the owner of all 250 sacks of rice and
Daphne is bound to deliver to Eloise an additional 50 sacks of rice to complete the
quantity agreed upon.

Things subject to a resolutory condition may be the object of a contract of sale.

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Law on Sales

Example: Meredith sold to George her house with right to repurchase within 5 years from the date of
the sale. The sale and the right to repurchase were registered in the Registry of Deeds where the
property is located. Three years after the sale, George sold the house to Burke. Burke becomes the
owner of the house although subject to Meredith's right to repurchase it within the five-year period
from the time she sold it to George.

We have understood the parties to a contract of sale and the object of the sale, now let us discuss
the price.

Price is the sum stipulated as the equivalent of the thing sold and also every incident taken into
consideration for the fixing of the price put to the debit of the buyer and agreed to by him.

RULES ON PRICE
1. Certainty - Price of the thing sold must be certain; otherwise the sale is void by reason of the
absence of meeting of minds between the parties.

Q: When is a price considered certain?

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

b. If it be with reference to another thing certain

Example: Mark sold to John a bag, the price of which is the price of 30 kilos of chicken being
sold at SM Legazpi.

c. If the determination of the price is left to the judgment of specified person(s)

- If such person or persons are unable or unwilling to fix the price, the contract shall be
inefficacious, unless the parties subsequently agree upon the price

- If the third person or persons acted in bad faith or by mistake, the courts may fix the price

- If such third persons or persons are prevented from fixing the price or terms by the fault of
the seller or buyer, the party not at fault may have such remedies against the party at fault as
are allowed the seller or buyer, as the case may be(Art. 1469)
d. By reference to certain fact(s) as referred to in Art. 1472 (NCC, Art. 1469).

NOTE: If the price is based on estimates, it is uncertain.

2. Simulated Price
The price is simulated when neither party had the intention that the amount will be paid (Yu Bun
Guan v. Ong, G.R. No. 144735, October 18, 2001).

Effect if price is simulated

GR: The sale is void.
XPN: If it can be shown to be a donation or another contract (NCC, Art. 1471).

Admission by the vendee that he did not pay any centavo for the property makes the sale void
(Labagala v. Santiago, G.R. No. 132305, December 4, 2001).

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Law on Sales

3. Gross Inadequacy of Price

Q: Macoy sold to Justin a Ferrari car amounting to P10,000,000 for only P 1,000,000. Does the gross
inadequacy of the price affect the contract of sale?
A: No, it does not affect the validity of the sale

XPN:
1. If Consent is vitiated (may be annulled or presumed to be equitable mortgage);
2. If the parties intended a Donation or some other act/ contract;
3. If the price is so low as to be "Shocking to conscience";
4. If in the event of Resale, a better price can be obtained.

Note: The price is grossly inadequate if a reasonable man will not agree to dispose of his property at
that amount.

Q: What if the parties have not agreed on the price of the thing sold?
A: Effect of failure to determine the price
1. Where contract is executory - ineffective.
2. Where the thing has been delivered to and appropriated by the buyer - the buyer must pay a
reasonable price therefore.

OPTION MONEY AND EARNEST MONEY

A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.

An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding
upon the promisor if the promise is supported by a consideration distinct from the price. (Art. 1479,
CC)

Q: What is an option money?

A: Option money is the consideration paid for the purpose of holding one to his promise to buy or sell
a determinate thing for a certain period of time, which consideration is separate and distinct from
the purchase price(Dizon vs. Lustre) However, the consideration for an option contract is not always
monetary but could consist of other things or undertakings. If the consideration is not monetary,
there must be things or undertakings of value in of the onerous nature of the option contract.
Furthermore, when a consideration for an option contract is not monetary, said consideration must
be clearly specified as such in the option contract or clause.( Bible Baptist Church vs. CA)

Q: What is the effect of having an option money?

A: The offeror cannot withdraw the offer until after the expiration of the option

Example:
Ji-Pyeong a.k.a Goodboy promised to sell his car to Dal-mi for P1,000,000, giving Dal-mi one week to
decide whether to buy or not. Dal-mi accepted the promise and gave Goodboy P1,000 to hold the
offer for a week.

Q:May Goodboy withdraw his promise to sell to Dal-mi?

A: No, he is bound thereto because there is a contract of option that was perfected, when Dal-mi
gave the P1,000 consideration.

Q: By giving option money, is Dal-mi obliged to buy the car?

A: No, she is merely given the option to buy it.

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Q: How much will Dal-mi pay if she eventually decides to buy the car? 1,000,000 or 999,000?
A: 1,000,000 because the amount paid by Dal-mi as option money is not part of the purchase price.

Relative to the discussion of option money, is the concept of earnest money.

Q: What is earnest money?
A: Earnest money is the money given as part of the purchase price and as proof of the perfection of
the contract.(Dizon vs. Lustre) It is also called "arras" or something of value to show that the buyer
was really in earnest and given to the seller to bind the bargain.(Soriano, 2011)

Note: Earnest money is part of the purchase price and a proof of the perfection of the contract (Art.
1482)
Example:
Lebron offered to buy Stephen's car for P500,000, to which the latter agreed. To show that he is in
earnest, Lebron gave Stephen P10,000 upon the execution of this agreement, which Stephen accepts.
Since there is already a perfected contract of sale, Lebron will only pay Stephen P490,000 on the due
date of the payment.

Note: Since there is already a perfected contract of sale, any of the parties cannot refuse to continue
with the sale on the ground that the transaction appears to be disadvantageous to them.

Q: Based on the foregoing, what is the difference between an option money and earnest money?
OPTION MONEY EARNEST MONEY
As to Money Given Money given as distinct Forms part of the purchase price
consideration for an option contract
As to Perfection Applies to a sale not yet perfected Given only when there is already a
sale
Obligation of the Prospective buyer is not required to When given, the buyer is bound to
buyer upon payment buy pay the balance
of consideration
As to Recovery If buyer does not decide to buy, it f sale did not materialize, it must
cannot be recovered be returned. (Villanueva, 2014;
Pineda, 2010).
As to Transfer of Ownership is reserved to the seller Title passes to the buyer upon
Ownership and is not to pass until full payment delivery of the thing sold
Effect of Nonpayment Specific performance Specific performance and
rescission
STAGES OF FORMATION OF CONTRACT OF SALE
1. Negotiation/Preparatory offer
2. Perfection
3. Consummation

Negotiation - occurs upon the communication of the offer to buy/sell to the other party. Prior to
acceptance of the offer, no contract of sale is perfected.

Perfection
You have learned that a contract of sale is a consensual contract, meaning it is perfected at the
moment there is meeting of the minds upon the thing which is the object of the contract andupon
the price. From that moment, the parties may reciprocally demand performance, subject to the
provisions of the law governing the form of contracts.
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Law on Sales

The acceptance of the offer must be absolute. It must be plain, unequivocal, unconditional and
without variance of any sort from the proposal.(Rabuya, 2017)

Effect of a qualified acceptance

It constitutes merely a counteroffer which must in turn be accepted to give rise to a valid and binding
contract (Villanueva, 2009)

Consummation
Consummation stage in a contract of sale takes place by the delivery of the thing together with the
payment of the price.

Rules on preservation of, injury to or benefit from the thing sold before or after perfection.
1. Duty of seller to preserve thing after perfection but before delivery
The seller is obliged to take care of the thing with the diligence of a good father of a family
unless the law or the stipulation of the parties requires another standard of care(Art. 1163)

2. Right of the buyer to the fruits

The buyer has a right to the fruits of the thing from the time of the perfection of the
contract(Art. 1537)
(Note: Compare this with the general rule in your Oblicon under Art. 1164, which states that
the creditor shall have a right to the fruits of the thing from the time the obligation to deliver
the thing arises), unless a contrary stipulation has been agreed upon or a later date is set by
the parties when such right will accrue such as when the obligation to deliver arises at some
future date. However, the buyer shall acquire no real right over the thing and its fruits until
the same have been delivered to him. (Art. 1164)

3. Loss of or injury to the thing

a. Loss before perfection (including deterioration in quality)
i. In case of complete loss, the sale is void because of the absence of the object.
ii. In case of partial loss, the buyer may choose between:
a) Withdrawal from the contracts(rescission), and
b) Demanding the remaining part and paying its proportionate price(Arts.
1493, 1494)

b. Loss after perfection but before delivery - seller bears the risk of loss(Art. 1504) i.e.,
the buyer is not obliged to pay the price.
After perfection, the goods remain at the seller's risk until the ownership of the goods
is transferred to the buyer by actual or constructive delivery. However,
notwithstanding that the ownership is not transferred to the buyer, the goods are at
the buyer's risk:
a) If there is an agreement to that effect
b) If the ownership of the goods is retained by the seller merely to secure the
performance by the buyer of his obligation under the contract
c) When actual delivery has been delayed through the fault of the buyer. (Soriano,
2011)

OBLIGATIONS OF THE VENDOR

The Law on Sales imposes the following obligations on vendors (Art.1495):
1. To transfer the ownership of the thing sold.

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Law on Sales

The ownership of the thing sold is acquired by the vendee from the moment the thing is
delivered to him(Art. 1496)

2. To deliver the thing sold.

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

3. To warrant the thing sold.

The vendor is liable for breach of warranty against eviction and warranty against hidden
defects or encumbrances.(Art. 1547)

4. To take care of the thing sold with the diligence of a good father of a family, unless the
parties agreed to a different standard of care.

DELIVERY
Q: When is a thing considered to be delivered?
A: The thing sold shall be understood as delivered, when it is placed in the control and possession of
the vendee.(Art. 1497)

Kinds of Delivery/Tradition
1. ACTUAL or REAL - thing sold is placed under the physical control and possession of
buyer/agent;
2. CONSTRUCTIVE or LEGAL - does not confer physical possession of the thing, but by
construction of law, is equivalent to acts of real delivery.

Requisites:
1) The seller must have control over the thing;
2) The buyer must be put under control;
3) There must be intention to deliver the thing for purposes of ownership.

i. Traditio Simbolica - delivery of certain symbols representing the thing. Example:

Delivery of keys of a house
ii. Traditio Longa Manu - Delivery of thing by mere agreement; when seller points to the
property without need of actually delivering
NOTE: The thing to be transferred must be within sight at that time (Rabuya, 2017).
iii. Tradicion Brevi Manu - the buyer, being already in possession of the thing sold due to
some other cause, merely remains in possession after the sale is effected, but now in
concept of owner. e.g., From lessee to becoming an owner
iv. Constitutum Possessorium - the seller remains in possession of the property in a
different capacity. e.g., From owner to lessee

3. QUASI-TRADITIO - delivery of rights, credits or incorporeal property, made by:

a. When sale is made through a public instrument
b. Placing titles of ownership in the hands of the buyer;
c. Allowing buyer to make use of rights.

4. TRADITION BY LEGAL FORMALITIES - Execution of a public instrument is equivalent to

delivery. But to be effective, it is necessary that the seller have such control over the thing
sold that, at the moment of sale, its material delivery could have been made.

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GR: There is presumption of delivery

XPN:
a. Contrary stipulation;
b. When at the time of execution, subject matter was not subject to the control of seller;
c. Seller has no capacity to deliver at time of execution;
d. Such capacity should subsist for a reasonable time after execution of instrument.

Effect of delivery through a carrier

GR: Delivery of specific goods to a carrier or other bailee for the purpose of transmission to the buyer
transfers ownership to the buyer.
NOTE: Here, the carrier is deemed the bailee of the buyer and the seller is deemed the agent of the
buyer in employing the carrier (Rabuya, 2017).

Exceptions i.e., ownership of specific goods is retained by the seller despite delivery to carrier or
other bailee in the following cases:
1. When there is a stipulation to that effect.
2. When by the terms of the bill of lading, the goods are to be delivered to the seller or his agent
or to the order of the seller or his agent
3. When by the terms of the bill of lading, the goods are to be delivered to the order of the
buyer or his agent, but the bill of lading is retained by the seller or his agent.
4. When the seller draws on the buyer a bill of exchange for the price of goods and transmits
the bill of exchange and the bill of lading to the buyer to secure acceptance or payment of the
bill of exchange, but the buyer dishonors such bill of exchange(Art. 1503)

However, if the bill of lading is negotiated to a purchaser for value in good faith, ownership of the
goods is passed on to him.

So, when you are ordering from Shopee or Lazada, delivery through Ninjavan is generally considered
as delivery to you.

When the object should be delivered

1. Stipulated time
2. If there is none, at a reasonable hour.

Place of delivery (Art. 1521 in relation to Art. 1582 of NCC)

The place of delivery shall be:
1. That agreed upon;
2. Place determined by usage of trade;
3. Seller's place of business;
4. Seller's residence;
5. In case of specific goods, where they can be found.

Effects of a sale of goods on installment

1. Goods must be delivered in full except when stipulated;
2. When not examined by the buyer - it is not accepted until examined or at least had
reasonable time to examine

Q: What are the remedies of a buyer if the seller delivers to him a quantity of goods less than what
he contracted to sell?

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A: The buyer may:

1. Reject them;
2. If the buyer accepts or retains the goods so delivered, knowing that the seller is not going to
perform the contract in full, he must pay for them at the contract rate; or
3. If, however, the buyer has used or disposed of the goods delivered before he knows that the
seller is not going to perform his contract in full, the buyer shall not be liable for more than
the fair value to him of the goods so received (Art. 1522).

Q: What are the remedies of a buyer if the seller delivers to him a quantity of goods larger than
what he contracted to sell?
A: The buyer may:
1. Accept the goods included in the contract and reject the rest;
2. If the buyer accepts the whole of the goods so delivered, he must pay for them at the
contract rate; or
3. If the subject matter is indivisible, the buyer may reject the whole of the goods (Art. 1522, CC)

Q: What are the remedies of the buyer if the seller delivers to him goods which he contracted to
sell and which are mixed with goods of a different description not included in the contract?
A: The buyer may:
1. Accept the goods which are in accordance with the contract and reject the rest; or
2. If the subject matter is indivisible, the buyer may reject the whole of the goods(Art. 1522, CC)

Q: What are the rules on the sale of real estate?

A: If the sale of real estate should be made with a statement of its area at the rate of a certain price
for a unit of measure or number
1. The vendor shall be obliged to deliver to the vendee, if the latter should demand it, all that
may have been stated in the contract; or
2. Should it be not possible, the vendee may choose between:
i. Proportional reduction of the price; and
ii. Rescission of the contract, provided that the lack in the area is not less than one-tenth
(1/10) of that stated (CIVIL CODE, Art. 1539).

Q: What are the rules if any part of the immovable is not of the quality specified in the contract?
A: The same rules above will apply if any part of the immovable is not of the quality specified in the
contract, even when the area is the same. The rescission in this case shall only take place at the will
of the vendee when the inferior value of the thing sold exceeds one-tenth (1/10) of the price agreed
upon (Art. 1539, CC).

Q: When is the seller not bound to deliver the thing sold?

A: The seller is not bound to deliver the thing sold:
1. If the buyer has not paid the price;
2. No period for payment has been fixed in the contract(Art. 1524, CC)
3. A period for payment has been fixed in the contract but the buyer has lost the right to make
use of the time.

Suspension of payment by the buyer (Art.1590,CC)

GR:
1. If he is disturbed in the possession or ownership of the thing bought

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2. If he has well-grounded fear that his possession or ownership would be disturbed by a

vindicatory action or foreclosure of mortgage.

Note: If the vendee would not have bought the immovable had he known of its smaller area or
inferior quality, he may rescind the sale (CIVIL CODE, Art. 1539).
XPNS:
1. Seller gives security for the return of the price in a proper case;
2. A stipulation that notwithstanding any contingency, the buyer must make payment;
3. Disturbance or danger is caused by the seller;
4. If the disturbance is a mere act of trespass;
5. Upon full payment of the price.

Necessity of payment of the purchase price to transfer ownership

GR: Ownership of the thing sold shall be transferred to the vendee upon the actual or constructive
delivery.
XPN: Unless the contract contains a stipulation that ownership of the thing sold shall not pass to the
purchaser until he has fully paid the price.

Acceptance of delivery by the buyer of the thing sold

1. Express - he communicates or intimates to the seller that he has accepted (NCC, Art. 1585).
2. Implied (NCC, Art. 1585)
a. Buyer does not act inconsistent with ownership of seller after delivery;
b. Retains the thing without communicating to seller that he has rejected.

Effect if the buyer refuses to accept despite delivery of the object of if the sale
Delivery is completed. Since delivery of the subject matter of the sale is an obligation on the part of
the seller, the acceptance thereof by the buyer is not a condition for the completeness of the
delivery (Villanueva, 2009).
NOTE: Thus, even with such refusal of acceptance, delivery (actual/constructive), will produce its
legal effects (e.g., transferring the risk of loss of the subject matter to the buyer who has become the
owner thereof) (Villanueva, 2004).

Under Art. 1588 of the Civil Code, 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. (Villanueva, 2004)

"SALE OR RETURN" and "SALE ON APPROVAL"

1. Sale or return
The ownership of the goods is transferred to the buyer on delivery, but the buyer has the
option to re-vest their ownership on the seller by returning them within the time fixed in the
contract, or if no time has been fixed, within a reasonable time. (Art. 1502)
Example: On February 1, Shawn delivered to Mariah an air fryer under a sale or return
agreement. Shawn gave Mariah until February 14, to return the air fryer. Upon delivery,
Mariah became the owner of the air fryer. If on or before February 14, Mariah does not
return the air fryer, she becomes the absolute owner thereof. If she returns it, ownership is
reverted to Shawn. If, for example, the air fryer was destroyed by fire, on February 13, Mariah
is still bound to pay because she became the owner, thus, she bears the risk of loss. (Res perit
domino - The owner bears the loss of the property). The same rule applies even if the loss was
due to Mariah's fault.

2. Sale on approval or on trial or on satisfaction

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Ownership of the goods remains with the seller despite delivery but shall be transferred to
the buyer in the following cases:
a. When he signifies his approval or acceptance of the goods.
b. When he does an act adopting the transaction. Thus, the buyer is deemed to have
approved of the goods if he starts consuming or using them.
c. If he does not signify his approval or acceptance of the goods but retains the goods
without giving notice of rejection within the time fixed in the contract, or within a
reasonable time, and such time has expired. (Art. 1502)

Example: On February 1, Shawn delivered to Mariah an air fryer under a sale on approval
agreement. Shawn gave Mariah until February 14, to decide if she will purchase the air fryer.
Upon delivery, Mariah does not become the owner of the air fryer.

If on or before February 14, Mariah signifies her approval of the air fryer, she becomes the
absolute owner thereof. If Mariah does not signify her approval but retains possession of the
air fryer, ownership is likewise passed on to her. If, for example, the air fryer was destroyed
by fire, on February 13, Mariah is not bound to pay because she is not yet the owner, thus,
the seller bears the risk of loss. (Res perit domino- The owner bears the loss of the property).
However, if the loss was due to Mariah's fault, she is liable to pay.

DOCUMENTS OF TITLE TO GOODS

"Document of title to goods" includes any bill of lading, dock warrant, "quedan," or warehouse
receipt or order for the delivery of goods, or any other document used in the ordinary course of
business in the sale or transfer of goods, as proof of the possession or control of the goods or
authorizing or purporting to authorize the possessor of the document to transfer or receive, either
by indorsement or by delivery, goods. represented by such document.(Art. 1636, CC)

Examples of documents of title:

a. Bill of lading - a written acknowledgment of the receipt of goods and an agreement to
transport and to deliver them at a specified place to a person named therein, or to his order
or to bearer
b. Warehouse receipt - written acknowledgment by a warehouseman of the receipt of the
goods which are placed in his possession.
c. Dock warrant - a warrant given by a dock owner to the owner of the goods imported and
warehoused on the dock upon the faith of the bill of lading, as a recognition of the title to the
goods of the owner of such goods.

Classes of Document of Title

1. Negotiable documents of title - A document of title in which it is stated that the goods referred
to therein will be delivered to the bearer, or to the order of any person named in such document
Examples:
a. Bearer document of title -"Deliver the 10 sacks of rice to bearer"
b. Order document of title - "Deliver the 10 sacks of rice to the order of Taylor Swift"

2. Non-negotiable documents of title - One in which it is stated that the goods are to be delivered
to a specified person.

Example: "Deliver the 10 sacks of rice to Taylor Swift"

Note: A negotiable document of title even if marked "non-negotiable" remains to be negotiable.(Art.
1510, CC)

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Negotiation of document of title

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

Whereby the terms of a negotiable document of title the goods are deliverable to bearer or where a
negotiable document of title has been indorsed in blank or to bearer, any holder may indorse the
same to himself or to any specified person, and in such case the document shall thereafter be
negotiated only by the indorsement of such indorsee.

2. By indorsement plus delivery

If by the terms of the document of title, the goods are to be delivered to the order of a specified
person, the document of title may be negotiated by him only by indorsement coupled with
delivery.

Kinds of indorsement
a. Blank - consists of mere signature without specifying the indorsee. If the instrument is
originally an order instrument, it will be converted to a bearer instrument and may further be
negotiated by mere delivery.
b. Special - where the name of the indorsee is specified. The document may be negotiated
further through the indorsee's indorsement plus delivery.
Note:
 A non-negotiable document cannot be negotiated and the indorsement of such a document
gives the transferee no additional right.(Art. 1511, CC)
 The validity of the negotiation of a negotiable document of title is not impaired by the fact
that the negotiation was a breach of duty on the part of the person making the negotiation,
or by the fact that the owner of the document was deprived of the possession of the same by
loss, theft, fraud, accident, mistake, duress, or conversion, if the person to whom the
document was negotiated or a person to whom the document was subsequently negotiated
paid value therefor in good faith without notice of the breach of duty, or loss, theft, fraud,
accident, mistake, duress or conversion.

Who may negotiate a negotiable document of title?

A negotiable document of title may be negotiated:
1. By the owner thereof; or
2. By any person to whom the possession or custody of the document has been entrusted by
the owner, if, by the terms of the document the bailee issuing the document undertakes to
deliver the goods to the order of the person to whom the possession or custody of the
document has been entrusted, or if at the time of such entrusting the document is in such
form that it may be negotiated by delivery.

Rights of a person to whom a negotiable document of title is negotiated

A person to whom a negotiable document of title has been duly negotiated acquires thereby:

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1. Such title to the goods as the person negotiating the document to him had or had ability to
convey to a purchaser in good faith for value and also such title to the goods as the person to
whose order the goods were to be delivered by the terms of the document had or had ability
to convey to a purchaser in good faith for value; and
2. The direct obligation of the bailee issuing the document to hold possession of the goods for
him according to the terms of the document as fully as if such bailee had contracted directly
with him.
Rights of transferee of a non-negotiable document of title
a. as against the transferor - the title to the goods, subject to the terms of any agreement with
the transferor.
b. the right to notify the bailee who issued the document of the transfer thereof, and thereby to
acquire the direct obligation of such bailee to hold possession of the goods for him according
to the terms of the document.

Rights of transferee of a negotiable document of title but not negotiated

a. as against the transferor - the title to the goods, subject to the terms of any agreement with
the transferor.
b. the right to notify the bailee who issued the document of the transfer thereof, and thereby to
acquire the direct obligation of such bailee to hold possession of the goods for him according
to the terms of the document.
c. the right to compel the transferor to indorse the document unless a contrary intention
appears

Warranties of persons transferring or negotiating a document of title

A person who for value negotiates or transfers a document of title by indorsement or delivery,
including one who assigns for value a claim secured by a document of title unless a contrary
intention appears, warrants:
1. That the document is genuine;
2. That he has a legal right to negotiate or transfer it;
3. That he has knowledge of no fact which would impair the validity or worth of the document;
and
4. That he has a right to transfer the title to the goods and that the goods are merchantable or
fit for a particular purpose, whenever such warranties would have been implied if the
contract of the parties had been to transfer without a document of title the goods
represented thereby.

Note: The indorsement of a document of title shall not make the indorser liable for any failure on the
part of the bailee who issued the document or previous indorsers thereof to fulfill their respective
obligations.(Art. 1517,CC)

UNPAID SELLER
An unpaid seller is one who has not been paid or tendered the whole of the price or who has
received a bill of exchange or other negotiable instrument as conditional payment and the condition
under which it was received has been broken by reason of the dishonor of the instrument, the
insolvency of the buyer, or otherwise.
The term "unpaid seller" within the scope of Articles 1525 up to 1535 includes: (1) an agent of the
seller; (2) a consignor or agent who has himself paid or is directly responsible for the price; or (3) any
other person in the position of the seller. A seller is unpaid within the definition whether title has or
has not passed. (Art. 1526.)

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Rights of an unpaid seller

1. Possessory lien or a lien on the goods or right to retain them while he is in possession of them,
(Art. 1526)
2. Right of stoppage in transitu in case of insolvency of the buyer (Art. 1530.);
3. Right of resale (Art. 1533.); and
4. Right to rescind the sale. (Art. 1534.)

Possessory Lien
a. When available:
This right is available to the seller and notwithstanding that he may be in possession of the goods
as agent or bailee for the buyer in the following instances:
1. Where the goods have been sold without any stipulation as to credit
2. Where the goods have been sold on credit but the credit term has expired
3. Where the buyer is insolvent

b. Lien where there is partial delivery

Where an unpaid seller has made part delivery of the goods, he may exercise his right of lien on
the remainder, unless such part delivery has been made under such circumstances as to shoe an
intent to waive the lien or right of retention.(Art. 1528)

c. When lien is lost

The unpaid seller loses his lien on the goods in the following cases:
1. When he delivers the goods to a carrier or other bailee for the purpose of transmission to
the buyer without reserving the ownership in the goods or the right to the possession
thereof.
2. When the buyer or his agent lawfully obtains possession of the goods.
3. By waiver thereof.
Note: The unpaid seller having a lien on the goods does not lose his lien by reason only that he has
obtained judgment or decree for the price of the goods.(Art. 1529)

Stoppage in Transitu
This right involves the right of the unpaid seller to resume possession of the goods at any time while
they are in transit, and he will then become entitled to the goods as he would have had if had never
parted with the possession.(Art. 1530)

Requisites: (I-SCENT-U)
a. Insolvent buyer
b. The sale of goods must be on Credit
c. Seller must Surrender the negotiable document of title, if any
d. Seller must bear the Expenses of delivery of the goods after the exercise of the right.
e. Seller must either actually take possession of the goods sold or give Notice of his claim to the
carrier or other person in possession
f. Goods must be in Transit
g. Unpaid seller
NOTE: Buyer's insolvency need not be judicially declared. A person is insolvent who either has ceased
to pay his debts in the ordinary course of business or cannot pay his debts as they become due,
whether insolvency proceedings have been commenced or not. [NCC, Art. 1636 (2)].

How exercised:

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The unpaid seller may exercise his right of stoppage in transitu either by obtaining actual
possession of the goods or by giving notice of his claim to the carrier or other bailee in whose
possession the goods are. Such notice may be given either to the person in actual possession of the
goods or to his principal. In the latter case the notice, to be effectual, must be given at such time and
under such circumstances that the principal, by the exercise of reasonable diligence, may prevent a
delivery to the buyer.
When notice of stoppage in transitu is given by the seller to the carrier, or other bailee in
possession of the goods, he must redeliver the goods to, or according to the directions of, the seller.
The expenses of such delivery must be borne by the seller. If, however, a negotiable document of
title representing the goods has been issued by the carrier or other bailee, he shall not be obliged to
deliver or justified in delivering the goods to the seller unless such document is first surrendered for
cancellation. (Art. 1532)

When goods are in transit

(1) From the time when they are delivered to a carrier by land, water, or air, or other bailee for
the purpose of transmission to the buyer, until the buyer, or his agent in that behalf, takes
delivery of them from such carrier or other bailee;
(2) If the goods are rejected by the buyer, and the carrier or other bailee continues in possession
of them, even if the seller has refused to receive them back.

When goods are no longer in transit

(1) If, after the arrival of the goods at the appointed destination, the carrier or other bailee
acknowledges to the buyer or his agent that he holds the goods on his behalf and continues in
possession of them as bailee for the buyer or his agent; and it is immaterial that further
destination for the goods may have been indicated by the buyer;
(2) If the carrier or other bailee wrongfully refuses to deliver the goods to the buyer or his agent
in that behalf.

If the goods are delivered to a ship, freight train, truck, or airplane chartered by the buyer, it is a
question depending on the circumstances of the particular case, whether they are in the possession
of the carrier as such or as agent of the buyer.

If part delivery of the goods has been made to the buyer, or his agent in that behalf, the remainder of
the goods may be stopped in transitu, unless such part delivery has been under such circumstances
as to show an agreement with the buyer to give up possession of the whole of the goods.(Art. 1531)

Right of Resale
When available
1. The buyer has defaulted in the payment of the price
2. The seller has the right of lien or has stopped the goods in transit
3. Title to the goods has passed on to the buyer
4. The grounds must be any of the following
a. The goods are of perishable nature.
b. The seller expressly reserved the right of resale in case the buyer should make default.
c. The buyer has been in default in the payment of the price for an unreasonable time.
Effects of resale
1. The seller will not be liable to the original buyer upon the contract of sale or for any profit
made by such resale
2. The seller may recover from the buyer damages for any loss occasioned by the breach of the
contract of sale.

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3. The buyer acquires a good title as against the original buyer.

Note: It is not essential to the validity of a resale that notice of the time and place of such resale
should be given by the seller to the original buyer.

Right to rescind
Requisites:
1. The buyer has defaulted in the payment of the price
2. The seller has the right of lien or has stopped the goods in transit.
3. Title to the goods has passed on to the buyer
4. The grounds must be any of the following:
a. The seller has expressly reserved the right to rescind the sale in case the buyer should
make default
b. The buyer has been in default in the payment of the price for an unreasonable time.

How rescission is made

1. By giving notice to the buyer of the intention to rescind
2. By doing an overt act manifesting the intention to rescind

It is not necessary that such overt act should be communicated to the buyer, but the giving or
failure to give notice to the buyer of the intention to rescind shall be relevant in any issue
involving the question whether the buyer had been in default for an unreasonable time
before the right of rescission was asserted.(Art. 1534)
Effects of rescission
1. The seller shall not be liable to the buyer upon the contract of sale Re
2. He may recover damages for any loss occasioned by the breach of contract of sale

The seller resumes ownership of the goods

Note: The unpaid seller's right of lien or stoppage in transitu is not affected by any sale, or other
disposition of the goods which the buyer may have made, unless the seller has assented thereto.

If, however, a negotiable document of title has been issued for goods, no seller's lien or right of
stoppage in transitu shall defeat the right of any purchaser for value in good faith to whom such
document has been negotiated, whether such negotiation be prior or subsequent to the notification
to the carrier, or other bailee who issued such document, of the seller's claim to a lien or right of
stoppage in transitu.

WARRANTIES
Any affirmation of fact or any promise by the seller relating to the thing is an express warranty if the
natural tendency of such affirmation or promise is to induce the buyer to purchase the same, and if
the buyer purchases the thing relying thereon.

Kinds of warranties
1. Express
2. Implied
Express warranties
Any affirmation of fact or any promise by the seller relating to the thing if the natural tendency of
such affirmation or promise is to induce the buyer to purchase the same, and if the buyer purchases
the thing relying thereon (Art. 1546).

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Requisites: (AIR)
1. It must be an Affirmation of fact relating to the subject matter of sale
2. Natural tendency is to Induce buyer to purchase subject matter
3. Buyer purchases the subject matter Relying thereon

Liability of the seller for breach of express warranties

The seller is liable for damages (Villanueva, 2009).

Statement of seller's opinion

No affirmation of the value of the thing, nor any statement purporting to be a statement of the
seller's opinion only, shall be construed as a warranty, unless the seller made such affirmation or
statement as an expert and it was relied upon by the buyer.

What does this mean?

For example, you bought a facial wash from a department store. You approached the sales lady
and asked whether the facial wash is effective against pimples. In response, the sales lady said that
the facial wash can erase pimples overnight. With that representation, you bought the facial wash.
Contrary to the sales lady's statement, your pimples increased in number. Will the store be liable for
damages for the sales lady's opinion?
A: No, because the statement of the sales lady is an opinion only. There is no showing that she is an
expert in skincare, and it was relied upon by the buyer.

Implied Warranties
-those that are inherent in contracts of sale and accompany them unless they are suppressed by the
parties. They are of two kinds:

1. Warranty against eviction - This refers to the implied warranty on the part of the seller that
he has a right to sell the thing at the time when the ownership is to pass, and that the buyer
shall from that time have and enjoy the legal and peaceful possession of the thing.
2. Warranty against hidden defects - This refers to the implied warranty that the thing shall be
free from any hidden faults or defects, or any charge or encumbrance not declared or known
to the buyer.

Non-applicability of implied warranty (ASAP)

1. "As is and where is" sale;
2. Sale of second hand articles;
3. Sale by virtue of authority in fact or law;
4. Sale at public auction for tax delinquency.

Warranty in case of eviction

Q: When is there eviction?

A: Eviction shall take place whenever by a final judgment based on a right prior to the sale or an act
imputable to the vendor, the vendee is deprived of the whole or of a part of the thing purchased.

Requisites:
a. The purchaser has been deprived of the whole or part of the thing sold.
b. The eviction is by final judgment. The vendee need not appeal from the decision or judgment
in order that the vendor may become liable for eviction, (Art. 1549)

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c. The deprivation is based on a right prior to the sale or an act imputable to the vendor. (Art.
1548)
d. The vendor must have been notifies of the suit for eviction at the instance of the vendee. (Art.
1558)

NOTE: For eviction - disturbance in law is required and not just trespass in fact.

Other instances when seller is liable for breach of warranty against eviction.
a. Sale of the property for non-payment of taxes
If the property is sold for non-payment of taxes due and not made known to the vendee
before the sale, the vendor is liable for eviction.(Art. 1551)

b. Judicial Sales
The judgment debtor is liable for eviction unless otherwise decreed in the judgment. (Art.
1551)

Vendor's liability in case of eviction

A. If there is a stipulation exempting the vendor from the obligation to answer for eviction

1. Vendor acted in bad faith, i.e., he had knowledge at the time of sale of the existence of a fact
that may give rise to eviction, the waiver is The vendor shall be liable for the following (R-I-C-E
with damages):
a. The Return of the value which the thing sold had at the time of the eviction, be it
greater or lesser than the price of the sale;
b. The Income or fruits, if he has been ordered to deliver them to the party who won the
suit against him;
c. The Costs of suit which caused the eviction, and, in a proper case, those of suit
brought against the vendor for the warranty;
d. The Expenses of contract if buyer has paid them;
e. The damages, interests and ornamental expenses if sale was made in bad faith (NCC,
Art. 1555).

2. Vendor acted in good faith - Vendor's liability shall be as follows:

a. If vendee made the waiver without knowledge of the risks of eviction(waiver
consciente), he shall pay only the value of the thing sold at the time of eviction.
b. If vendee made the waiver with knowledge of the risks of eviction and assumed the
consequences (waiver intencionada), the vendor shall not be liable.

B. Where no warranty has been agreed upon or there was no stipulation exempting the vendor
from liability
1. Vendor acted in bad faith - Vendor's liability shall be the same as items a) to e) in A.1 above
2. Vendor acted in good faith -Vendor's liability shall be the same as items a) to d) in A.1 above,
i.e. there is no liability for damages and interest

Partial Eviction
Should the vendee lose, by reason of the eviction, a part of the thing sold of such importance, in
relation to the whole, that he would not have bought it without said part, he may demand
1. The rescission of the contract; but with the obligation to return the thing without other
encumbrances that those which it had when he acquired it; or
2. Enforce the vendor's liability for eviction.

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Law on Sales

The same rule shall be observed when two or more things have been jointly sold for a lump sum, or
for a separate price for each of them, if it should clearly appear that the vendee would not have
purchased one without the other. (Art. 1556)

Remedy of vendee should the immovable sold be encumbered with any non-apparent easement or
servitude

Q: What is an easement or servitude?

A: Easement or servitude is an encumbrance imposed upon an immovable for the benefit of another
immovable belonging to a different owner. Example: right of way
a. Within one year from the execution of the deed of sale, the vendee may ask for:
a) Rescission or
b) Damages

b. After one year from the execution of the deed of sale, the vendee may ask for:
Damages within a period of one year from the discovery of the easement or servitude. (Art.
1560)

When vendor not liable for easement or servitude:

a. When the easement is apparent
b. When the non-apparent easement or servitude is recorded in the Registry of Property, unless
there is an express warranty that the thing is free from all burdens and encumbrances. (Art.
1560)
c. When the vendee has knowledge at the time of the sale of the existence of the easement or
servitude, through it was non-apparent, such as when it was mentioned in the agreement.

Warranty against Hidden Defects

Hidden defect (NCC, Art.1561)
-One which is unknown or could not have been known to the buyer (Diaz, 2006.)

NOTE: Seller does not warrant patent defect.

Reason: Caveat emptor (buyer beware).

Requisites
The seller shall be responsible for warranty against "hidden defect" only when:
1. The defect must exist at the time of the sale. (Art. 1561)
2. The defect must be hidden, i.e., not patent or visible
Note: The vendor shall not be answerable for patent defects or those which may be visible, or
for those which are not visible if the vendee is an expert who, by reason of his trade or
profession, should have known them
3. The nature of the hidden defect is such that it should render the subject matter unfit for the
use for which it is intended; or should diminish its fitness for such use to such an extent that,
had the buyer been aware thereof, he would not have acquired it or would have given a
lower price for it.
4. The action to enforce it must be made within the period provided by law(Art. 1568).

Specific implied warranties in sale of goods (NCC, Art. 1562)

1. Warranty of fitness for a particular purpose

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Law on Sales

Requisites:
a. Buyer manifests to the seller the particular purpose for which the goods are required; and
b. Buyer relies upon the seller's skill or judgment

2. Warranty of merchantability
- This is an implied warranty that the goods are fit for the general purpose of the thing, and not
necessarily for the purpose of the buyer.

Remedies of the buyer in case of breach of warranty (under Articles 1561, 1562, 1564, 1565 and
1566)
The buyer may choose between:
1. Accion redhibitoria - Withdrawing from the contract or rescission, and
2. Accion quanti minoris - Demanding a proportionate reduction in the price, with damages in
either case.

Loss of the thing with hidden defects

 If the cause of the loss is the defect
a. If the vendor was aware, he shall be obliged to:
1. Return the price
2. Refund the expenses of the contract
3. Pay damages
b. If the vendor was not aware, he shall be obliged to:
1. Return the price
2. Pay the interest thereon.
3. Refund the expenses of the contract

 If the cause of loss is a fortuitous event or the fault of the vendee

a. If the vendor was aware, he shall be obliged to:
1. Return the price less the value of the thing at the time of the loss
2. Pay damages
b. If the vendor was not aware, he shall be obliged to:
-Return the price less the value of the thing at the time of the loss

Period of filing action

The action to withdraw from the contract (accion redhibitoria) or reduction of the price with
damages (accion quanti minoris) (Arts 1561 to 1567); and all other actions to enforce the seller's
liability for hidden defects when the thing is lost (Arts. 1568 and 1569) and in judicial sales (Art. 1570)
is six(6) months from the delivery of the thing sold. (Art. 1571)

Rule in case of redhibitory defects on animals

Redhibitory defect
It is a defect in the article sold against which defect the seller is bound to warrant. The vice must
constitute an imperfection, a defect in its nature, of certain importance; and a minor defect does not
give rise to redhibition.

Redhibitory defect on animals (NCC, Art. 1576)

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Law on Sales

If the hidden defect of animals, even in case a professional inspection has been made, should be
of such a nature that expert knowledge is not sufficient to discover it, the defect shall be considered
as redhibitory.
But if the veterinarian, through ignorance or bad faith should fail to discover or disclose it, he
shall be liable for damages.

Remedies of vendee in case of sale of animals with redhibitory defects:

 The vendee may also choose between accion redhibitoria and accion quanti minoris.

Note: If two or more animals are sold together, whether for a lump sum or for a separate price for
each of them, the redhibitory defect of one shall only give rise to its redhibition, and not that of the
others; unless it should appear that the vendee would not have purchased the sound animal or
animals without the defective one.

The latter case shall be presumed when a team, yoke pair, or set is bought, even if a separate price
has been fixed for each one of the animals composing the same

Period to file the action: Must be brought within forty days from the date of their delivery to the
vendee.

When sale of animals is void:

The sale of animals suffering from contagious diseases shall be void.
A contract of sale of animals shall also be void if the use or service for which they are acquired has
been stated in the contract, and they are found to be unfit therefor. (Art. 1575)

Vendor's liability in case the animals sold dies from disease

If the animal should die within three days after its purchase, the vendor shall be liable if the disease
which cause the death existed at the time of the contract.

Note: There is no warranty against hidden defects of animals sold at fairs or at public auctions, or of
livestock sold as condemned.

OBLIGATIONS OF THE VENDEE

1. Accept the delivery of the thing sold.
The buyer is deemed to have accepted the goods when:
a. He intimates to the seller that he has accepted them, or
b. When the goods have been delivered to him, and he does any act in relation to them
which is inconsistent with the ownership of the seller, or
c. When, after the lapse of a reasonable time, he retains the goods without intimating to the
seller that he has rejected them. (Art. 1585)

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, therefore.

General rule: The buyer of goods is not bound to accept delivery thereof by installments.
Exception: Unless otherwise agreed upon

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Law on Sales

If there is a stipulation and the seller makes defective deliveries in respect of one or more
instalments, or the buyer neglects or refuses without just cause to take delivery of or pay for one or
more instalments, it depends in each case on the terms of the contract and the circumstances of the
case, whether the breach of contract is so material as to justify the injured party in refusing to
proceed further and suing for damages for breach of the entire contract, or whether the breach is
severable, giving rise to a claim for compensation but not to a right to treat the whole contract as
broken.

Effect when buyer refuses to accept delivery

If with just cause - He is not bound to return them to the seller, but it is sufficient if he notifies the
seller that he refuses to accept them. If he voluntarily constitutes himself a depositary thereof, he
shall be liable as such.
If without just cause- The title thereto passes to him from the moment they are placed at his
disposal

2. Pay the price of the thing sold at the time and place stipulated in the contract.
3. Bear the expenses for the execution and registration of the sale and putting the goods in a
deliverable state
4. To take care of the goods without the obligation to return, where the goods are delivered to the
buyer, and he rightfully refuses to accept it.
5. To pay the interest for the period between delivery of the thing and the payment of the price in
the following cases:
a. Interest is stipulated
b. Fruits or income are received by the vendee from the thing sold
c. Vendee is guilty of default

BREACH OF CONTRACT OF SALES

Actions for breach of contract of sale of goods:
1. Action by the seller for the payment of price-(Art. 1595)
2. Action by the seller for damages for non-acceptance (Art. 1596)
3. Action by the seller for rescission of the contract for breach thereof(Art. 1597)
4. Action by the buyer for specific performance(Art. 1598)
5. Action by the buyer for rescission or damages for breach of warranty(Art. 1599)

Q: When may an action for payment of price be exercised?

A:
1. The ownership has passed to the buyer and he wrongfully neglects or refuses to pay for the
price;
2. The price is payable on a day certain and he wrongfully neglects or refuses to pay for the price,
irrespective of the delivery or transfer of title; or
3. The goods cannot readily be resold for a reasonable price and the buyer wrongfully refuses to
accept them even before the ownership of the goods has passed, if Art. 1596 is
inapplicable.(Art. 1595)

Q: When may an action for damages be exercised?

A:
1. Where the buyer wrongfully neglects or refuses to accept and pay for the goods
2. In an executory contract, where the ownership in the goods has not passed, and the seller
cannot maintain an action to recover the price(Art. 15995)
3. If the goods are not yet identified at the time of the contract or subsequently.

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Law on Sales

Q: What is the measure of damages?

A: The measure of damages is the estimated loss directly and naturally resulting in the ordinary
course of events from the buyer's breach of contract.

Where there is an available market for the goods in question, the measure of damages is, in the
absence of special circumstances showing proximate damage of a different amount, the difference
between the contract price and the market or current price at the time or times when the goods
ought to have been accepted, or, if no time was fixed for acceptance, then at the time of the refusal
to accept.

Q: When may the seller totally rescind the sale?

A: Where the goods have not been delivered to the buyer, and the buyer has repudiated the contract
of sale, or has manifested his inability to perform his obligations thereunder, or has committed a
breach thereof.(Art. 1597)

Note: Should the vendor have reasonable grounds to fear the loss of immovable property sold and its
price, he may immediately sue for the rescission of the sale.(Anticipatory breach)(Art. 1591)

RECTO LAW(Article 1484 of the Civil Code)

Coverage: Sale of personal property where price is payable in several installments.

Note: It does not apply to sales of personal property on straight payment or where the balance, after
payment of the initial sum, should be paid in its totality at the time specified.

The Supreme Court held in the case of Bachrach Motor vs. Millan that the principal object of Recto
Law is to prevent abuses in foreclosure of chattel mortgages, especially when the mortgagee-
creditors foreclosed the mortgaged properties and bought them at a much lower price, then
continues collecting for deficiencies against the mortgagor-debtor.

Q: When may a vendee suspend payment?

A: Should the vendee be disturbed in the possession or ownership of the thing acquired, or should he
have reasonable grounds to fear such disturbance, by a vindicatory action or a foreclosure of
mortgage, he may suspend the payment of the price until the vendor has caused the disturbance or
danger to cease, unless the latter gives security for the return of the price in a proper case, or it has
been stipulated that, notwithstanding any such contingency, the vendee shall be bound to make the
payment. A mere act of trespass shall not authorize the suspension of the payment of the price.

Q: What is the effect of failure on the part of the buyer to pay the price?
A: Generally, the seller may sue for rescission.

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

Remedies of vendor in sale of personal property payable in installments.

The vendor of personal property payable in installments may exercise any of the following remedies:

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Law on Sales

1. Specific performance: elect fulfillment upon the vendee's failure to pay;

GR: If availed of, the unpaid seller cannot anymore choose other remedies;
XPN: if after choosing, it has become impossible, rescission may be pursued
2. Rescission: cancel the sale, if the vendee shall have failed to pay two or more installments;
Deemed chosen
a. Notice of rescission is sent
b. Takes possession of subject matter of sale
c. Files action for rescission

3. Foreclosure: foreclose the chattel mortgage, if one has been constituted, if the vendee shall
have failed to pay two or more installments.

-If the vendor has chosen the third remedy of foreclosure of the chattel mortgage if one has been
given on the property, he is not obliged to return to the vendee the amount of the installments
already paid should there be an agreement to that effect. But he shall have no further action against
the vendee for the recovery of any unpaid balance of the price remaining after the foreclosure and
actual sale of the mortgaged chattel, and any agreement to the contrary is void.(Zayas Jr. vs Luneta
Motor Company)

Q: After the foreclosure of the chattel mortgage, can the vendor proceed against the guarantor of
the vendee's obligation?
A: No, if the guarantor is made liable, the guarantor will in turn, recover from the vendee. Thus, it
will be the vendee who will ultimately be made liable for the balance after the foreclosure. This will
indirectly subvert the protection given by Article 1484.

Note: These remedies are alternative and are not to be exercised cumulatively or successively and
the election of one is a waiver of the right to resort to the others.

Q: Does Recto Law cover a contract to sell movables?

A: No. Because when the suspensive condition upon which the contract is based fails to materialize,
it would extinguish the contract, and consequently there is no contract to rescind.

(Villanueva, p. 381, 2009 ed.)

REALTY INSTALLMENT BUYER ACT(Maceda Law)

Q: What is the Realty Installment Buyer Act?

A: Commonly known as the "957 Law." It is embodied in R.A. 6552 which provides for certain
protection to particular buyers. of real estate payable on installments. The law declares as "public
policy to protect buyers of real estate on installment payments against onerous and oppressive
conditions.
Note: The purpose of the law is to protect buyers in installment against oppressive conditions.

Coverage:
Sale of immovables on installment including residential condominium apartments but excluding
industrial lots, commercial buildings and sales to tenants under agrarian laws.
Note: Maceda Law only covers sale or financing of real estate.

Republic Act No. 6552 aimed to protect buyers of real estate on installment payments, not
borrowers or mortgagors who obtained a housing loan to pay the costs of their purchase of real

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Law on Sales

estate and used the real estate as security for their loan. The "financing of real estate in installment
payments" referred to in Section 3, should be construed only as a mode of payment vis-à vis the
seller of the real estate, and excluded the concept of bank financing that was a type of loan. (Spouses
Sebastian vs BPI Family Bank)
Simply stated, if a buyer obtains a housing loan from a bank and uses the proceeds to purchase
an immovable property in cash, this transaction is not covered by Maceda Law. The installment
payments are not payment for the purchase price of the immovable, instead, these are payments for
the housing loan from the bank.

Tip: If you want your installment purchase of real estate to be covered by the Maceda Law, you find
a developer first, and then apply for in-house or bank financing to pay the price.

Rights granted to buyer:

 If installment paid is less than two(2) years
a. Grace period is not less than 60 days from due date
b. Cancellation if failure to pay w/in 60 days grace
c. 30 days notice of cancellation by a notarial act before final cancellation

Note: buyer can still pay w/in the 30 days period with interest.

 If installment paid is at least two (2) years installment

a. Pay w/o interest the balance within the grace period of 1 month for every year of
installment payment. Grace period to be exercised once every 5 years.
b. If contract is cancelled, buyer is entitled to cash surrender value equivalent to 50% of
what he has paid + 5% for every year but not exceeding 90% of payments made
c. 30 days notice of cancellation by a notarial act and full payment of cash surrender
value, before final cancellation

Other rights granted to a buyer:

1. Sell or assign rights to another
2. Reinstate contract by updating within 30 days before and cancellation
3. Deed of Sale to be done by notarial act
4. Pay full installment in advance the balance of price anytime w/o interest.
5. Have full payment annotated in certificate of title

DOUBLE SALES
Q: When is there a double sale?
A:
1. Two or more transactions constitute valid sales
2. The sales pertain to exactly the same object or subject matter
3. The object must be bought from the same immediate seller
4. Two or more buyers who are at odds over the rightful ownership of the subject matter must
represent conflicting interests

When the project is without access to any existing public road, the developer must secure a right of
way which must be developed and maintained according to the requirement of the government
authorities concerned.

Rules of preference in double sales

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Law on Sales

 Movable property
Ownership shall be transferred to the first possessor in good faith. Possession may be either actual or
constructive
Example:
1. A sold to B his rolex watch on February 14, A said that he will deliver the watch on February
18. The next day, A sold the same watch to C who immediately took possession of the watch
but without knowledge of the prior sale to B. Who is the rightful owner of the watch?

A: C is the rightful ownership of the watch because he is the first possessor in good faith

2. A sold to B his laptop on February 14 and they executed a public instrument for that purpose.
B told A to deliver the laptop on February 20 because he will be out of town. The next day. A
sold the laptop to C, who immediately took possession of the laptop but without knowledge
of the prior sale to B. Who is the rightful owner of the laptop?

A: B because the laptop was constructively delivered to him through the execution of the public
instrument.

 Immovable property
Priority 1: Ownership shall belong to the person who in good faith first registered the sale in the
Registry of Property.
Priority 2: If there was no registration, ownership shall pertain to the first possessor in good faith,
Priority 3: In the absence of both registration and possession, ownership shall belong to the person
who presents the oldest title in good faith.

In all of the above cases, good faith is essential being the basic premise of preferential rights granted
to the person claiming ownership of the immovable.
Example:
On February 14, A sold to B his lot. The deed of sale was in a private instrument. On February 16, A
sold the same lot to C in a public instrument. On February 20, A sold again the same lot to D in a
public instrument. D registered the sale with the Registry of Deeds. All of the buyers are in good faith
and none of them took physical possession of the lot.

Q: Who has a better right to the lot?

A: D, because he registered the sale.

Q: Suppose D did not register the sale, or he registered the sale, but he was in bad faith. Who has the
better right to the lot?
A: C, because he was the first one who took possession of the lot in good faith. The execution of the
public instrument constitutes constructive delivery

Q: Suppose all of the sales are in private instrument and all the buyers are in good faith, who has a
better right to the lot?
A: Since there was no registration and possession, B will have the better right to the lot because he
has the oldest title.

Note: The governing principle in double sales is priore tempore, potior jure (first in time, stronger in
right)

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The first buyer is always in good faith. His knowledge of the second sale does not defeat his rights,
except where the second buyer registers in good faith the second sale ahead of the first. On the
other hand, the knowledge gained by the second buyer of the first sale defeats his rights even if he is
first to register the second sale since such knowledge taints his prior registration with bad faith.

EXTINGUISHMENT OF SALE
Q: When is a contract of sale extinguished?
A: Sales are extinguished by the same causes as all other obligations, by those stated in the
preceding articles of this Title, and by conventional or legal redemption.

1. Same causes as other obligations (PALOREMECONO PARE-FU)

a. Payment
b. Loss of the thing due
c. Remission or Condonation
d. Merger or Confusion of rights
e. Compensation
f. Novation
g. Prescription
h. Annulment
i. Rescission
j. Fulfillment of resolutory condition

2. Redemption
a. Conventional
b. Legal

Conventional redemption
-takes place when the vendor reserves the right to repurchase the thing sold, with the obligation to
return to the vendee the price of the sale, expenses of the contract, and any other legitimate
payments made by reason of the sale, the necessary and useful expenses made on the thing sold and
other stipulations which may have been agreed upon.

Period to avail the right to repurchase:

a. If there is no stipulation - 4 years
b. If there is a stipulation - it should not exceed 10 years

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

Q: Against whom may the vendor bring his action for redemption?
A: Against every possessor whose right is derived from the vendee, even if in the second contract no
mention should have been made of the right to repurchase, without prejudice to the provisions of
the Mortgage Law and the Land Registration Law with respect to third persons.

Rules on redemption of undivided immovable property

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1. The vendee of a part of an undivided immovable who acquires the whole thereof in the case
of article 498, may compel the vendor to redeem the whole property, if the latter wishes to
make use of the right of redemption.
2. If several persons, jointly and in the same contract, should sell an undivided immovable with
a right of repurchase, none of them may exercise this right for more than his respective share.
The same rule shall apply if the person who sold an immovable alone has left several heirs, in
which case each of the latter may only redeem the part which he may have acquired.
3. In case of 1 and 2, the vendee may demand all the vendors or co-heirs that they come to an
agreement upon the repurchase of the whole thing sold; and should they fail to do so, the
vendee cannot be compelled to consent to a partial redemption.
4. Each one of the co-owners of an undivided immovable who may have sold his share
separately, may independently exercise the right of repurchase as regards his own share, and
the vendee cannot compel him to redeem the whole property.
5. If the vendee should leave several heirs, the action for redemption cannot be brought against
each of them except for his own share, whether the thing be undivided, or it has been
partitioned among them.

Legal Redemption
-the right to be subrogated, upon the same terms and conditions stipulated in the contract, in the
place of one who acquires a thing by purchase or dation in payment, or by any other transaction
whereby ownership is transmitted by onerous title.

Instances of legal redemption

1. Sale of a co-owner of his share to a stranger (NCC, Art. 1620) (2000, 2002 BAR)
2. When a credit or other incorporeal right in litigation is sold (NCC, Art. 1634).
3. Sale of an heir of his hereditary rights to a stranger (NCC, Art. 1088)
4. Sale of adjacent rural lands not exceeding 1 hectare (NCC, Art. 1621).
5. Sale of adjacent small urban lands bought merely for speculation (NCC, Art. 1622).

Other instances when the right of legal redemption is also granted

1. Redemption of homesteads
2. Redemption in tax sales
3. Redemption by judgment debtor
4. Redemption in extrajudicial foreclosure
5. Redemption in judicial foreclosure of mortgage

Running of period of legal redemption

The right of legal redemption shall not be exercised except within 30 days from the notice in
writing by the prospective seller, or seller, as the case may be. The deed of sale shall not be recorded
in the Registry of Property unless accompanied by an affidavit of the seller that he has given written
notice thereof to all possible redemptioners (NCC, Art. 1623).

Written notice indispensable

The right of legal pre-emption or redemption shall not be exercised except within 30 days from the
notice in writing by the prospective vendor, or by the vendor, as the case may be (NCC, Art. 1623).

Note: Mere knowledge does not satisfy the requirement, there must still be written notice despite
such knowledge.

The right of redemption of co-owners excludes that of adjoining owners (NCC, Art. 1623).

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Law on Sales

This means that co-owners are preferred if the property is to be redeemed by a co-owner and an
adjoining owner.

Pre-emption
Redemption presupposes that the property was already sold or transferred to another. In pre-
emption, the right is present before the sale; there is a right to purchase ahead of or before it can be
sold or transferred to other persons.

e.g., Whenever a piece of urban land which is so small and so situated that a major portion thereof
cannot be used for any practical purpose within a reasonable time, having been bought merely for
speculation, is about to be re-sold, the owner of any adjoining land has a right of pre-emption at a
reasonable price (NCC, Art. 1620).

Pre-emption vs. Redemption

PRE-EMPTION REDEMPTION
Arises before sale Arises after sale
No rescission because no sale yet exists There can be rescission of the original sale
Action Is directed against the prospective seller Action is directed against the buyer

Equitable Mortgage
- is one which, although it lacks the proper formalities or other requisites of a mortgage required by
law, nevertheless reveals the intention of the parties to burden real property as a security for a debt
and contains nothing impossible or contrary to law.

The contract shall be presumed to be an equitable mortgage, in any of the following cases:
1. When the price of a sale with right to repurchase is unusually inadequate;
2. When the vendor remains in possession as lessee or otherwise;
3. When upon or after the expiration of the right to repurchase another instrument extending
the period of redemption or granting a new period is executed;
4. When the purchaser retains for himself a part of the purchase price;
5. When the vendor binds himself to pay the taxes on the thing sold;
6. In any other case where it may be fairly inferred that the real intention of the parties is that
the transaction shall secure the payment of a debt or the performance of any other obligation.

Notes:
1. In case of doubt, a contract purporting to be a sale with right to repurchase shall be
construed as an equitable mortgage.
2. Inadequacy of price does NOT constitute proof sufficient to declare a contract as one of
equitable mortgage. Mere inadequacy of the price is not sufficient. The price must be grossly
inadequate, or purely shocking to the conscience
3. The intention of the parties, such as the relative situation of the parties at that time, the
attitude acts, conduct, declarations of the parties, the negotiations between them leading to
the deed, and generally, all pertinent facts having a tendency to fix and determine the real
nature of their design and understanding is the decisive factor in evaluation if the deed is a
mortgage
4. There can be no interest to be collected in equitable mortgage because the same is not
stipulated in writing

Effects when sale is adjudged as an equitable mortgage

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Law on Sales

1. The apparent seller may ask for the reformation of the instrument (NCC, Art. 1605).
2. Money, fruit or other benefit to be received by the buyer as rent or otherwise shall be
considered as interest. (NCC, Art. 1602).
3. The court may decree that "vendor" pay his outstanding loan to the "vendee" (Banga v. Bello,
G.R. No. 156705, September 30, 2005).
4. A remand of the case to the trial court where the latter did not pass upon the mortgagor's
claim that he had paid his mortgage obligation for the purpose of determining whether said
obligation has been paid, and if not, how much should still be paid. (Banga v. Bello, G.R. No.
156705, September 30, 2005).

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