Sales Isv Notes Part II

1 | S A L E S : P O S T M I D T E R M : AT T Y I G N A C I O : I S V N o t e s
IMPLIED OBLIGATIONS OF THE PARTIES
Obligations of the Seller
Transfer the
ownership of
determinate thing
Deliver the thing,

with its accessions
and accessories if
Tt
Warrant against
eviction and against
hidden effects
PRINCIPAL
OBLIGATIONS OF
Pay for the
expenses of the
deed of sale, unless
there is a stipulation
to the contrary
Take care of the
thing, pending
delivery with proper
Article 1537. The vendor is bound to deliver the thing sold and its accessions and accessories in the
condition in which they were upon the perfection of the contract.
Article 1495. The vendor is bound to transfer the ownership of and deliver, as well as warrant the
thing which is the object of the sale. (1461a)
Article 1163. Every person obliged to give something is also obliged to take care of it with the proper
diligence of a good father of a family, unless the law or the stipulation of the parties requires
another standard of care
Article 1494. Where the parties purport a sale of specific goods, and the goods without the knowledge of
the seller have perished in part or have wholly or in a material part so deteriorated in quality as to be
substantially changed in character, the buyer may at his option treat the sale:
(1) As avoided; or
(2) As valid in all of the existing goods or in so much thereof as have not deteriorated, and as binding the
buyer to pay the agreed price for the goods in which the ownership will pass, if the sale was divisible.
Article 1521 (5). Unless otherwise agreed, the expenses of and incidental to putting the goods
into a deliverable state must be borne by the seller. (n)
Article 1487. The expenses for the execution and registration of the sale shall be borne by the vendor,
unless there is a stipulation to the contrary
OBLIGATIONS OF THE BUYER
Article 1582. The vendee is bound to accept delivery and to pay the price of the thing sold at the time
and place stipulated in the contract
Article 1589. The vendee shall owe interest for the period between the delivery of the thing and the
payment of the price, when:
(1) Stipulated;
(2) Thing sold and delivered produce fruits or income;
(3) In default, from the time of judicial or extrajudicial demand for the payment of the price. (1501a)
Article 1584. Where goods are delivered to the buyer, which he has not previously examined, he is not
deemed to have accepted them unless and until he has had a reasonable opportunity of
examining them for the purpose of ascertaining whether they are in conformity with the
contract if there is no stipulation to the contrary.
Unless otherwise agreed, when the seller tenders delivery of goods to the buyer, he is bound, on
request, to afford the buyer a reasonable opportunity of examining the goods for the purpose of
ascertaining whether they are in conformity with the contract.
Where goods are delivered to a carrier by the seller, in accordance with an order from or agreement
with the buyer, upon the terms that the goods shall not be delivered by the carrier to the buyer until he
has paid the price, whether such terms are indicated by marking the goods with the words "collect on
delivery," or otherwise, the buyer is not entitled to examine the goods before the payment of the price, in
the absence of agreement or usage of trade permitting such examination. (n)
PERFORMANCE BY THE SELLER OF HIS OBLIGATIONS
TO DELIVER A DETERMINATE THING

Article 1497. The thing sold shall be understood as delivered, when it is placed in the control and
possession of the vendee.
Aviles v. Arcega, 44 Phil 924, 18 Sep. 1922

Facts:
House in dispute was sold by the spouses Alcantara to the plaintiff Aviles, as evidence by the
document marked by the letter A, and acknowledged on the 8th day of November of the same year before
the notary public, Jose Galang Serano, for the sum of P497, it having been stipulated that during the four
months from the 10th of October 1917, the vendors would continue in possession of the house, the
expenses, the repairs, land and other taxes to be for their account, as well as the payment of the rent of
the lot on which it is erected.
That in the document dated March 13, 1918 and acknowledge on the following day before a notary
public, the same property was sold by the same spouses for P500K, to Arcega who took in possession of
the property
Issue:
Which of the two purchasers acquired title to the property?
Held:
The court decided that the spouses Arcega are the owners of the house because of absence of
symbolic delivery and the absence of the stipulation that after the lapse of 4 months, spouses Aviles will
acquire the land.
Furthermore, the spouses Arcega are the ones who first took possession of the land and therefore
the lawful owners of such.
DOUBLE SALE
When is there a double sale?

There is double sale when the same object of the sale is sold to different vendees.
Requisites:
1.Same subject matter

2.Same immediate seller
3.Two or more different buyers
4.Both sales are valid
What is the rule on double sale?

A: First in time, priority in right
Note: Rule on Double Sale regarding immovables:
GR: Apply Art.1544
Article 1544. If the same thing should have been sold to different vendees, the ownership shall be
transferred to the person who may have first taken possession thereof in good faith, if it should be
movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith
first recorded it in the
Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the
possession; and, in the
absence thereof, to the person who presents the oldest title, provided there is good faith. (1473)
XPN: Sale of registered lands apply Torrens System
What are the rules according to Article 1544 of the Civil Code?
Movable Owner who is first to possess in good faith
Immovable
a. First to register in good faith
b. no inscription, first to possess in good faith

c. No inscription & no possession in good faith Person who presents oldest title in good faith
To Transfer ownership of a thing
Article 1477. The ownership of the thing sold shall be transferred to the vendee upon the actual or
constructive delivery thereof. (n)
Article 1496. The ownership of the thing sold is acquired by the vendee from the moment it is
delivered to him in any of the ways
specified in articles 1497 to 1501, or in any other manner signifying an agreement that the possession
is transferred from the
vendor to the vendee.
Article 1497. The thing sold shall be understood as delivered, when it is placed in the control
and possession of the vendee.
Article 1498. When the sale is made through a public instrument, the execution thereof shall
be equivalent to the delivery of the thing which is the object of the contract, if from the deed the
contrary does not appear or cannot clearly be inferred. With regard to movable property, its delivery
may also be made by the delivery of the keys of the place or depository where it is stored or
kept.
Article 1499. The delivery of movable property may likewise be made by the mere consent or
agreement of the contracting parties, if the thing sold cannot be transferred to the possession of the
vendee at the time of the sale, or if the latter already had it in his possession for any other reason.
Article 1500. There may also be tradition constitutum possessorium (the change in intention of one
having legal possession of real or personal property whereby the original possessor of the property
remains in control but transfers the legal possession to another)
Article 1501. With respect to incorporeal property, the provisions of the first paragraph of article
Article 1459. The thing must be licit and the vendor must have a right to transfer the ownership thereof
at the time it is delivered.
Article 559. The possession of movable property acquired in good faith is equivalent to a title.
Nevertheless, one who has lost any movable or has been unlawfully deprived thereof, may recover it
from the person in possession of the same.
If the possessor of a movable lost or which the owner has been unlawfully deprived, has
acquired it in good faith at a public sale, the owner cannot obtain its return without reimbursing the price
paid therefor.
DIZON v SUNTAY
Facts:
Lourdes Suntay is the owner of a 3-carat diamond ring valued at P5,500. She and Clarita Sison
entered into a transaction wherein the ring would be sold on commission. Clarita received the ring and
issued a receipt. After some time, Lourdes made demands for the return of the ring but the latter refused
to comply.
When Lourdes insisted on the return, Clarita gave her the pawnshop ticket which is the receipt of
the pledge and she found out that 3 days after the ring was received by Clarita, it was pledged by Melia
Sison, the niece of Claritas husband in connivance with Clarita with the pawnshop of Dominador Dizon for
P2,600. Lourdes then filed an estafa case. She then asked Dominador Dizon for the return of the ring
pledged but refused to return the ring thus the case filed by Lourdes. The CFI issued a writ of replevin so
Lourdes was able to have possession of the ring during the pendency of the case. The CFI also ruled in her
favor which was affirmed by the CA on appeal. Thus the case at bar.
Issue:
W/N the CA erred in ruling that Lourdes has a right to possession of the ring
Held:
NO
It reiterated the ruling in de Garcia v. CA, that the controlling provision is Art. 559 of the CC which
states that the possession ofmovable property acquired in good faith is equivalent to a title. Nevertheless,
one who has lost any movable or has been unlawfully deprived thereof may recover it from the person in
possession of the same. If the possessor of a movable lost of which the owner has been unlawfully
deprived, has acquired it in good faith at a public sale, the owner cannot obtain its return without
reimbursing the price paid therefor.
Lourdes, being unlawfully deprived of her ring thus she has a right to recover it from the current
possessor. Dizon is engaged in a business where presumably ordinary prudence would require him to
inquire whether or not an individual who is offering the jewelry by pledge is entitled to do so. The principle
of estoppel cannot help him at all. Since there was no precaution availed of, perhaps because of the
difficulty of resisting opportunity for profit, he only has himself to blame and should be the last to complain
if the right of the true owner of the jewelry should be recognized.
Other issues raised:

1. Principle of estoppel = has its roots in equity, moral right and natural justice.
For estoppel to exist, there must be a declaration, act or omission by the party who is sought to be
bound.
A party should not be permitted to go against his own acts to the prejudice of another.
Concurring opinion by J. Teehankee:

Interpretation of the unlawfully deprived in Art. 559 of the CC. It is understood to include all cases
where there has been no valid transmission of ownership. If our legislature intended interpretation to be
that of the French Code, it certainly would have adopted and used a narrower term than the broad
language of Art. 559 (formerly 464) and the accepted meaning in accordance with our jurisprudence.
EDCA VS SANTOS
Facts:
A person identifying himself as Professor Jose Cruz placed an order by telephone with thepetitioner
company for 406 books, payable on delivery. Herein petitioner prepared and delivered the sametogether
with an invoice. In turn Cruz issued a personal check covering the purchase price of P8,995.65.Cruz then
sold 120 of the books to private respondent Leonor Santos who, after verifying the seller'sownership from
the invoice he showed her, paid him P1,700.00.
Petitioner made an inquiry with the De la Salle College where Cruz had claimed to be a
dean.Petitioner was informed that there was no such person in its employ. It was found out that Cruz had
nomore account or deposit with the Philippine Amanah Bank, against which he had drawn the payment
check.With the aid of policemen Cruz was trapped. His real name is Tomas de la Pea. It was found out that
120of the books he had ordered from EDCA were sold to the private respondents. Petioner and the police
went to Santos store and seized the subject books.
The private respondents sued for recovery of the books after demand for their return was
rejectedby EDCA. The Municipal Trial Court ruled in favour of private respondents, which was sustained by
theRegional Trial Court. The Court of Appeals affirmed the same. Hence, this petition. The petitioner
arguesthat it was, because the impostor acquired no title to the books that he could have validly
transferred to theprivate respondents. Its reason is that as the payment check bounced for lack of funds,
there was a failureof consideration that nullified the contract of sale between it and Cruz.
ISSUE:
Whether or not petitioner has been unlawfully deprived of the books because the check issued
bydela Pena in payment therefor which was dishonored.
HELD:
The contract of sale is consensual and is perfected once agreement is reached between theparties
on the subject matter and the consideration. According to the Civil Code:
ART. 1475. The contract of sale is perfected at the moment there is a meeting of mindsupon the thing
which is the object of the contract and upon the price.From that moment, the parties may reciprocally
demand performance, subject to the provisions of the lawgoverning the form of contracts.
ART. 1477. The ownership of the thing sold shall be transferred to the vendee upon theactual or
constructive delivery thereof.
ART. 1478. The parties may stipulate that ownership in the thing shall not pass to thepurchaser until he has
fully paid the price.
It is clear that ownership in the thing sold shall not pass to the buyer until full paymnent of the
purchase price only if there is a stipulation to that effect. Otherwise, the rule is that such ownership shall
pass from the vendor to the vendee upon actual or constructive delivery of the thing sold even if the
purchase price has not yet been paid. Non- payment only creates a right to demand payment or to rescind
the contract, or to criminal prosecution in case of bouncing checks. But absent the stipulation above noted,
10 | S A L E S : P O S T M I D T E R M : A T T Y I G N A C I O : I S V N o t e s
delivery of the thing sold will effectively transfer ownership to the buyer who in turn transfer it to another.
Actual delivery of the books have been made, Cruz acquired ownership over the books which he could then
validly transfer to the private respondents. The fact that he had not yet paid for them to EDCA was a
matter between him and EDCA and did not impair the title acquired by private respondents to the books.
Article 559 provides The possession of movable property acquired in good faith is
equivalent to a title., thus dispensing with further proof. Leonor Santos took care to ascertain first that
the books belonged to Cruz when he purchased them. The private respondents did not have to go beyond
invoice to satisfy herself that the books being offered to sale by Cruz belonged to him; yet she did.
Although the title of Cruz was presumed under Article 599 by his mere possession of the books, these
being movable property, Leonor Santos nevertheless demanded more proof before deciding to buy them.
Petition is denied.
Sale By A Person Not The Owner.

It is a fundamental doctrine of law that no one can give what he has not or transfer a greater right to
another than he himself
has. Sale is a derivative mode of acquiring ownership and the buyer gets only such rights as the seller had.
(see Arts. 1458-1459.)
A derivative right cannot exist higher than its source.5 (Reyes vs. Sierra, 73 SCRA 472 [1979].)
The exceptions to the rule are given below.
(1) Where the owner of the goods is, by his conduct, precluded from denying the sellers authority to sell
(2) Where the law enables the apparent owner to dispose of the goods as if he were the true owner
thereof.
(3) Where the sale is sanctioned by statutory or judicial authority
Judicial Foreclosure sales
Ordinary Execition
Extrajudicial Foreclosure sales
(4) Where the sale is made at merchants stores, fairs or markets.
(5) Where the seller has a voidable title which has not been avoided
at the time of the sale. See Article 1506.
(6) Where seller subsequently acquires title.
GENERAL RULE: Ownership is not acquired by the buyer. One cannot give what one does not
have. (Art 1505, CC)
EXCEPTIONS: (RE-ROM)
a. Seller has a Right to transfer ownership
Seller need not be the owner of the thing at the time of perfection of the contract. It is sufficient that
seller has a right to transfer ownership thereof at the time it is delivered. (Art. 1459)
One who sells something he does not own yet is bound by the sale when he acquires the thing later
(Bucton vs Gabar, 1974)
b. Estoppel: Owner is, by his conduct, precluded from denying the sellers authority to sell. (Art. 1434)
c. Registered land bought in good faith
GENERAL RULE: Buyer need not go beyond the Torrens title
EXCEPTION: When he has actual knowledge of facts and circumstances that would impel a reasonably
cautious man to make further inquiry
d. Order of courts; Statutory Sale
In execution sale, the buyer merely steps into the shoes of the judgment debtor (Rule 39, sec. 33, ROC)
e. When goods are purchased in Merchants store, Fair, or Market (Art 1505, CC)
The policy of the law has always been that where the rights and interest of the vendor clash with that of an
innocent buyer for value, the latter must be protected. (Sun Brothers and Co. vs. Velasco, 1958)
Sale by person having a voidable title

a. True owner may recover the thing when the ff. requisites concur:
Subject matter is movable
Owner has either lost the thing or has been unlawfully deprived. (Art 559, CC)
b. Reimbursement is necessary before owner can recover when:
Buyer acted in good faith
Acquired at a public auction (Art 559, CC)
c. Recovery no longer possible when:
Buyer in good faith

Acquired it at a merchants store, fair or market. (Art 1506, CC)
SELLER NEED NOT TO DELIVER THING SOLD

1. When buyer has not paid the price
2. no period for payment has been fixed in the contract
3. period is lost due to IGIVA
Insolvency (ACTUAL OR TECHNICAL)
Guarantee- collateral (did not deliver)
Impaired collateral was not replaced with equal collateral
Violation of Agreement
Abscond
Article 1189. When the conditions have been imposed with the intention of suspending the
efficacy of an obligation to give, the following rules shall be observed in case of the
improvement, loss or deterioration of the thing during the pendency of the condition:
(1) If the thing is lost without the fault of the debtor, the obligation shall be extinguished;
(2) If the thing is lost through the fault of the debtor, he shall be obliged to pay damages; it is understood
that the thing is lost when it perishes, or goes out of commerce, or disappears in such a way that its
existence is unknown or it cannot be recovered;
(3) When the thing deteriorates without the fault of the debtor, the impairment is to be borne by the
creditor;
(4) If it deteriorates through the fault of the debtor, the creditor may choose between the rescission of the
obligation and its fulfillment, with indemnity for damages in either case;
(5) If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the
creditor;
(6) If it is improved at the expense of the debtor, he shall have no other right than that granted to the
usufructuary.
Article 1478. The parties may stipulate that ownership in the thing shall not pass to the purchaser until
he has fully paid the price.
Article 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is
transferred to the buyer, but when the ownership therein is transferred to the buyer the goods are at the
buyer's risk whether actual delivery has been made or not, except that:
(1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance of
the contract and the ownership in the goods has been retained by the seller merely to secure performance
by the buyer of his obligations under the contract, the goods are at the buyer's risk from the time of such
delivery;
(2) Where actual delivery has been delayed through the fault of either the buyer or seller the goods are at
the risk of the party in fault.
RISK OF LOSS BY FORTUITOUS EVENT AFTER PERFECTION BUT BEFORE DELIVERY.

Q: When is a thing considered lost?
A: It is understood that the thing is lost when it:
1. perishes, or
2. goes out of commerce, or
3. disappears in such a way that its existence is unknown or cannot be recovered. (Art. 1189, 2nd par.)
(1) Conflict between Article 1480 and Article 1504. Under Article 1480, if the thing sold is lost after
perfection of the contract but before its delivery, that is, even before the ownership is transferred to the
buyer, the risk of loss by fortuitous event without the sellers fault is borne by the buyer as an exception to
the rule of res perit domino. Consequently, the buyers obligation to pay the price subsists if he has not yet
paid the same or if he had, he cannot recover it from the seller although the latters obligation
to deliver the thing is extinguished by its loss.
However, the first paragraph of Article 1504 which has been inserted in our Civil Code presents a
contrary rule. Taken from the American law on sales (Sec. 22 of the Uniform Sales Act.), it provides that:
Unless otherwise agreed, the goods remain at the sellers risk until the ownership therein is transferred to
the buyer. By Article 1480, as already pointed out, the risk of loss of the thing after perfection is shifted
from the seller to the buyer even though the buyer has not yet acquired ownership thereof.
(2) Solution suggested to avoid conflict. A solution has been suggested to avoid the conflict, to wit:
Article 1504 should be restricted in its application to sale of goods as this term is defined in Article 1636,
and Article 1480, to sales of things which cannot be called goods, as for the example, to sales of real
estate. This would make Article 1480 the general rule on risk of loss and Article 1504, the exception. By
this conclusion, it is claimed, the cardinal rule of statutory construction that all provisions of a law should,
as much as possible, be given effect is satisfied; for to say that there is an irreconcilable conflict between
Article 1480 and Article 1504 is to render either of them useless
WARRANTIES
Q: What is a warranty?
A: A statement or representation made by the seller of goods, as part of the contract of sale, having
reference to the character, quality, or title, of the goods, and by which he promises or undertakes to insure
that certain facts are or shall be as he then represents.
Q: What is the effect of a breach of warranty?

A: Buyer may:
1. Refuse to proceed with the contract; or
2.Proceed with the contract; waive the condition.
Note: If the condition is in the nature that it should happen, the nonperformance may be treated as a
breach of warranty.
Q: What are the kinds of warranties? Distinguish.

A:Express and Implied
EXPRESS WARRANTIES
Q: What are express warranties?
A: 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)
Q: What are the requisites of express warranties?

A: 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
Q: What is the liability of the seller for breach of express warranties?

A: The seller is liable for damages. (Villanueva, p. 249)
Article 1340. The usual exaggerations in trade, when the other party had an opportunity to know the
facts, are not in themselves fraudulent.
Article 1341 A mere expression of an opinion does not signify fraud, unless made by an expert and the
other party has relied on the former's special knowledge
Article 1546. Any affirmation of fact or any promise by the seller relating to the thing is an express
warranty if the natural tendency of such affirmation or promise is to induce the buyer to purchase the
same, and if the buyer purchases the thing relying thereon. 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. (n)
IMPLIED WARRANTIES (Arts. 1564, 1561)
Q: What are implied warranties?

A: Warranties deemed included in all contracts of sale by operation of law. (Art. 1547)
1. Warranty that seller has right to sell refers to consummation stage. Not applicable to sheriff,
auctioneer, mortgagee, pledge
2. Warranty against eviction

Requisites: JPENS
a. Buyer is Evicted in whole or in part from the subject matter of sale
b. Final Judgment
c. Basis of eviction is a right Prior to sale or act imputable to seller
d. Seller has been Summoned in the suit for eviction at the instance of buyer; or made 3rd party defendant
through 3rd party complaint brought by buyer
e. No waiver on the part of the buyer
Note: For eviction disturbance in law is required and not just trespass in fact.
3. Warranty against encumbrances (non apparent)

Requisites:
a. immovable sold is encumbered with nonapparent burden or servitude not mentioned in the agreement
b. nature of nonapparent servitude or burden is such that it must be presumed that the buyer would not
have acquired it had he been aware thereof
XPN: warranty not applicable when nonapparent burden or servitude is recorded in the Registry of
Property unless there is expressed warranty that the thing is free from all burdens & encumbrances
4. Warranty against Hidden Defects

Requisites: HENNAS
a. Defect is important or Serious
i. The thing sold is unfit for the use which it is intended
ii . Diminishes its fitness for such use or to such an extent that
the buyer would not have acquired it had he been aware thereof
b. Defect is Hidden
c. Defect Exists at the time of the sale

d. Buyer gives Notice of the defect to the seller within reasonable time
e. Action for rescission or reduction of the price is brought within the proper period
i. 6 months from delivery of the thing sold
ii Within 40 days from the delivery in case of animals
f. There must be No waiver of warranty on the part of the buyer.
Q: When is implied warranty not applicable?

A: 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
Article 1564. An implied warranty or condition as to the quality or fitness for a particular purpose may be
annexed by the usage of trade. (n)
Article 1561. The vendor shall be responsible for warranty against the hidden defects which the thing
sold may have, should they render it unfit for the use for which it is intended, or should they diminish its
fitness for such use to such an extent that, had the vendee been aware thereof, he would not have
acquired it or would have given a lower price for it; but said vendor shall not be answerable for patent
defects or those which may be visible, or for those which are not visible if the vendee is an expert who, by
reason of his trade or profession, should have known them. (1484a)
What are the effects of waiver of an implied warranty?

A: 1. Seller in bad faith & there is waiver against eviction void
2. When buyer w/o knowledge of a particular risk, made general renunciation of warranty is not a waiver
but merely limits liability of seller in case of eviction
3. When buyer with knowledge of risk of eviction assumed its consequences & made a waiver seller not
liable (applicable only to waiver of warranty against eviction)
WARRANTIES OF THE SELLER

1. WARRANTY AGAINST
a. Hidden Defects
b. Eviction
c. Redhibitory effects
WARRANTY AGAINST EVICTION

Q: What is a warranty against eviction?
A: In a contract of sale, unless a contrary intention appears, there is an implied warranty on the part of the
seller that 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. (Art. 1547, 1st paragraph)
Q: What is covered by a warranty against eviction?

A: It covers eviction by a final judgment based on a right prior to the sale or an act imputable to the
vendor, the vendee is deprived of the whole or of a part of the thing purchased.
The vendor shall answer for the eviction even though nothing has been said in the contract on the subject.
(Art. 1548, NCC)
Q: What is the effect of a breach of warranty against eviction?

A: The buyer shall have the right to demand the seller:
1. 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
2. The income or fruits, if he has been ordered to deliver them to the party who won the suit against him
3. The costs of suit which caused the eviction, and, in a proper case, those of suit brought against the
vendor for the waranty
4. The expenses of contract if buyer has paid them
5. The damages and interests and ornamental expenses if sale was made in bad faith.
Note: Vendor is liable for any hidden defect even if he is not aware. (Caveat Venditor)
Purchaser must be aware of the title of the vendor. (Caveat Emptor)
Q: What are the rights of buyer in case of partial eviction?

A: 1. Restitution (with obligation to return the thing w/o other encumbrances than those which it had when
he acquired it)
2. Enforcement of warranty against eviction (Paras, p. 153 and Art. 1556)
WARRANTY AGAINST HIDDEN DEFECT

Q: What is a hidden defect?
A: A hidden defect is one which is unknown or could not have been known to the buyer. (Diaz, p. 145)
Note: Seller does not warrant patent defect; Caveat emptor (buyer beware)
Q: What is a redhibitory defect?

A: 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. (De Leon, Comments and Cases on Sales and Lease, 2005 ed, p. 318)
Q: What is a redhibitory defect on animals?

A: 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.
Q: When is the sale of animal void?

A: The sale is void if animal is:
1. Suffering from contagious diseases;
2. Unfit for the use or service for which they were purchased as indicated in the contract
Q: When is a vendor responsible for hidden defects?

A: If the hidden defects which the thing sold may have:
1. Render it unfit for the use for which it is intended, or
2. Diminish its fitness for such use to such an extent that, had the vendee been aware thereof, he would
not have acquired it or would have given a lower price for it. (Art. 1561)
Q: Up to what extent does the seller warrant against hidden defects?

A: The seller is responsible to the vendee for any hidden faults or defects in the thing sold, even though he
was not aware thereof.
Q: When is the seller not answerable for the defects of the thing sold?
A: 1. For patent defects or those which are visible, or 261
2. Even for those which are not visible if the buyer is an expert who, by reason of his trade or profession,
should have known them (Art. 1561), or
3. If the contrary has been stipulated, and the vendor was not aware of the hidden faults or defects in the
thing sold. (Art. 1566)
Q: What is the effect of a breach of warranty against hidden defects?

A: It would depend on whether the seller had knowledge of such defect and whether there has been a
waiver of the warranty.
1. If the thing should be lost in consequence of the hidden faults, and seller was aware of them he shall:
a. bear the loss,
b. return the price and
c. refund the expenses of the contract with damages
2. If the thing is lost and seller was not aware of the hidden faults he shall:
a. return the price and interest
b. reimburse the expenses of the contract which the buyer might have paid, but not for damages.
(Villanueva, Law on Sales,2004 ed, pp. 548549)
Q: What are the remedies of the buyer in case of sale of things with hidden defects?
A: The vendee may elect between:
1. Withdrawing from the contract, or
2. Demanding a proportionate reduction of the price, with damages in either case.
Q: Is there a waiver of warranty against hidden defects when the lessee inspected the premises and
pushed through with the contract?
A: Yes. Under Arts. 1561 and 1653 of the Civil Code, the lessor is responsible for warranty against hidden
defects, but he is not answerable for patent defects or those, which are visible. Jon de Ysasi admitted on
crossexamination that he inspected the premises three or four times before signing the lease contract.
During his inspection, he noticed the rotten plywood on the ceiling, which in his opinion was caused by
leaking water or termites. Yet, he decided to go through with the lease agreement. Hence, respondents
cannot be held liable for the alleged warranty against hidden defects. (Jon and Marissa De Ysasi v. Arturo
and Estela Arceo, G.R. No. 136586, Nov. 22, 2001)
IMPLIED WARRANTIES IN CASE OF SALE OF GOODS

Q: What are the specific implied warranties in sale of goods?
A:
1. Warranty of fitness
GR: No implied warranty
XPN: a. Buyer manifests to the seller the particular purpose for which the goods are required; and
b. Buyer relies upon the sellers skill or judgment
2. Warranty of merchantability That goods are reasonably fit for the general purpose for which they are
sold.
CAVEAT EMPTOR
Q: What does the principle of caveat emptor mean?
A: It literally means, Let the buyer beware. The rule requires the purchaser to be aware of the supposed
title of the vendor and one who buys without checking the vendors title takes all the risks and losses
consequent to such failure. (Agcaoili, p. 184)
Q: In what particular sale transactions does caveat emptor apply?

A: 1. Sales of animals (Art. 1574)
2. Double sales (Art. 1544)
3. In sheriffs sales (Art. 1570)
4. Tax sales (Art. 1547, last paragraph)
Note: In the above sales, there is no warranty of title or quality on the part of the seller. The purchaser who
buys without checking the title of the vendor is assuming all risks of eviction.
In sheriffs sales, the sheriff does not guarantee the title to real property and it is not incumbent upon him
to place the buyer in possession of such property. (Pineda sales, p. 275)
Q: Is caveat emptor applicable in sales of registered land?

A: No. The purchaser of a registered land under the Torrens system is merely charged with notice of the
burdens and claims on the property which are inscribed on the face of certificate of title. (Pineda sales, p.
275)
Q: Does caveat emptor apply in judicial sales?

A: Yes. The purchaser in a judicial sale acquires no higher or better title or right than that of the judgment
debtor. If it happens that the judgment debtor has no right, interest, or lien on and to the property sold, the
purchaser acquires none. (Pineda sales, p. 280)
Q: What are the remedies of the buyer in case of breach of warranty?

A: 1. Accept goods & set up breach of warranty by way of recoupment in diminution or extinction or the
price.
2. Accept goods & maintain action against seller for damages
3. Refuse to accept goods & maintain action against seller for damages
4. Rescind contract of sale & refuse to receive goods/return them when already received.
Q: Are the remedies of the buyer in case of breach of warranty absolute?

A: No. The vendee's remedies against a vendor with respect to the warranties against hidden defects of or
encumbrances upon the thing sold are not limited to those prescribed in Article 1567 where the vendee, in
the case of Arts. 1561, 1562, 1564, 1565 and 1566, may elect either to withdraw from the contract or
demand a proportionate reduction of the price, with damages in either case.
The vendee may also ask for the annulment of the contract upon proof of error or fraud, in which case the
ordinary rule on obligations shall be applicable. Under the law on obligations, responsibility arising from
fraud is demandable in all obligations and any waiver of an action for future fraud is void. Responsibility
arising from negligence is also demandable in any obligation, but such liability may be regulated by the
courts, according to the circumstances.
The vendor could likewise be liable for quasidelict under Article 2176 of the Civil Code, and an action
based thereon may be brought by the vendee. While it may be true that the preexisting contract between
the parties may, as a general SALES rule, bar the applicability of the law on quasidelict, the liability may
itself be deemed to arise from quasidelict, i.e., the acts which breaks the contract may also be a quasi
delict. (CocaCola Bottlers Philippines, Inc. v. CA, G.R. No. 110295, Oct. 18, 1993)
Q: What are the instances when the buyer cannot rescind the sale in case there is a breach of warranty?
A:
1. If he knew of the breach of warranty
2. If he fails to return or offer to return goods to seller in substantially as good condition as they were at
time ownership was transferred
3. If he fails to notify the seller within a reasonable time of his election to rescind
Q: What are the instances when the buyer cannot rescind the sale in case there is a breach of
warranty?
A:
1. If he knew of the breach of warranty
2. If he fails to return or offer to return goods to seller in substantially as good condition as they were at
time ownership was transferred
3. If he fails to notify the seller within a reasonable time of his election to rescind
PERFORMANCE BY THE BUYER OF HIS OBLIGATIONS
A.
Pay a price certain in money or its equivalent (Arts. 1458, 1582)
Article 1458. By the contract of sale one of the contracting parties obligates himself to
transfer the ownership and to deliver a determinate thing, and the other to pay therefor a
price certain in money or its equivalent.
A contract of sale may be absolute or conditional. (1445a)
Article 1582. The vendee is bound to accept delivery and to pay the price of the thing sold
at the time and place stipulated in the contract.
If the time and place should not have been stipulated, the payment must be made at the
time and place of the delivery of the thing sold. (1500a)
B.
Inspection of the good sold (Art. 1584 [1])
Article 1584. Where goods are delivered to the buyer, which he has not previously
examined, he is not deemed to have accepted them unless and until he has had a
reasonable opportunity of examining them for the purpose of ascertaining whether they are
in conformity with the contract if there is no stipulation to the contrary.
Unless otherwise agreed, when the seller tenders delivery of goods to the buyer, he is
bound, on request, to afford the buyer a reasonable opportunity of examining the goods for
the purpose of ascertaining whether they are in conformity with the contract.
Where goods are delivered to a carrier by the seller, in accordance with an order from or
agreement with the buyer, upon the terms that the goods shall not be delivered by the
carrier to the buyer until he has paid the price, whether such terms are indicated by marking
the goods with the words "collect on delivery," or otherwise, the buyer is not entitled to
examine the goods before the payment of the price, in the absence of agreement or usage
of trade permitting such examination. (n)
C.
Acceptance of the goods sold (Arts. 1586-1588)
Article 1586. In the absence of express or implied agreement of the parties, acceptance of the
goods by the buyer shall not discharge the seller from liability in damages or other legal remedy for
breach of any promise or warranty in the contract of sale. But, if, after acceptance of the goods, the
buyer fails to give notice to the seller of the breach in any promise of warranty within a reasonable
time after the buyer knows, or ought to know of such breach, the seller shall not be liable therefor.
Article 1587. Unless otherwise agreed, where goods are delivered to the buyer, and he refuses to
accept them, having the right so to do, he is not bound to return them to the seller, but it is
sufficient if he notifies the seller that he refuses to accept them. If he voluntarily constitutes himself
a depositary thereof, he shall be liable as such. (n)
Article 1588. If there is no stipulation as specified in the first paragraph of article 1523, when the
buyer's refusal to accept the goods is without just cause, the title thereto passes to him from the
moment they are placed at his disposal. (n)
VI.
Breach by the Seller and Remedies of the Buyer
(Arts. 1598, 1191, 1545, 1481, 1522, 1521, 1539, 1540, 1542[1], 1544, 1590)
Article 1598. Where the seller has broken a contract to deliver specific or ascertained goods, a
court may, on the application of the buyer, direct that the contract shall be performed specifically,
without giving the seller the option of retaining the goods on payment of damages. The judgment
or decree may be unconditional, or upon such terms and conditions as to damages, payment of the
price and otherwise, as the court may deem just. (n)
Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the
payment of damages in either case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a
period.
This is understood to be without prejudice to the rights of third persons who have acquired the
thing, in accordance with articles 1385 and 1388 and the Mortgage Law. (1124)
Article 1545. Where the obligation of either party to a contract of sale is subject to any condition
which is not performed, such party may refuse to proceed with the contract or he may waive
performance of the condition. If the other party has promised that the condition should happen or
be performed, such first mentioned party may also treat the non-performance of the condition as a
breach of warranty.
Where the ownership in the thing has not passed, the buyer may treat the fulfillment by the seller
of his obligation to deliver the same as described and as warranted expressly or by implication in
the contract of sale as a condition of the obligation of the buyer to perform his promise to accept
and pay for the thing. (n)
Article 1481. In the contract of sale of goods by description or by sample, the contract may be
rescinded if the bulk of the goods delivered do not correspond with the description or the sample,
and if the contract be by sample as well as description, it is not sufficient that the bulk of goods
correspond with the sample if they do not also correspond with the description.
Article 1522. Where the seller delivers to the buyer a quantity of goods less than he contracted to
sell, the buyer may reject them, but if the buyer accepts or retains the goods so delivered, knowing
that the seller is not going to perform the contract in full, he must pay for them at the contract rate.
If, however, the buyer has used or disposed of the goods delivered before he knows that the seller
is not going to perform his contract in full, the buyer shall not be liable for more than the fair value
to him of the goods so received.
Where the seller delivers to the buyer a quantity of goods larger than he contracted to sell, the
buyer may accept the goods included in the contract and reject the rest. If the buyer accepts the
whole of the goods so delivered he must pay for them at the contract rate.
Where the seller delivers to the buyer the goods he contracted to sell mixed with goods of a
different description not included in the contract, the buyer may accept the goods which are in
accordance with the contract and reject the rest.
In the preceding two paragraphs, if the subject matter is indivisible, the buyer may reject the whole
of the goods.
The provisions of this article are subject to any usage of trade, special agreement, or course of
dealing between the parties. (n)
The buyer shall have a reasonable opportunity of comparing the bulk with the description or the
sample. (n)
Article 1521. Whether it is for the buyer to take possession of the goods or of the seller to send
them to the buyer is a question depending in each case on the contract, express or implied,
between the parties. Apart from any such contract, express or implied, or usage of trade to the
contrary, the place of delivery is the seller's place of business if he has one, and if not his
residence; but in case of a contract of sale of specific goods, which to the knowledge of the parties
when the contract or the sale was made were in some other place, then that place is the place of
delivery
Where by a contract of sale the seller is bound to send the goods to the buyer, but no time for
sending them is fixed, the seller is bound to send them within a reasonable time.
Where the goods at the time of sale are in the possession of a third person, the seller has not
fulfilled his obligation to deliver to the buyer unless and until such third person acknowledges to the
buyer that he holds the goods on the buyer's behalf.
Demand or tender of delivery may be treated as ineffectual unless made at a reasonable hour.
What is a reasonable hour is a question of fact.
Unless otherwise agreed, the expenses of and incidental to putting the goods into a deliverable
state must be borne by the seller.
Article 1539. The obligation to deliver the thing sold includes that of placing in the control of the
vendee all that is mentioned in the contract, in conformity with the following rules:
If the sale of real estate should be made with a statement of its area, at the rate of a certain price
for a unit of measure or number, the vendor shall be obliged to deliver to the vendee, if the latter
should demand it, all that may have been stated in the contract; but, should this be not possible,
the vendee may choose between a proportional reduction of the price and the rescission of the
contract, provided that, in the latter case, the lack in the area be not less than one-tenth of that
stated.
The same shall be done, even when the area is the same, if any part of the immovable is not of the
quality specified in the contract.
The rescission, in this case, shall only take place at the will of the vendee, when the inferior value of
the thing sold exceeds one-tenth of the price agreed upon.
Nevertheless, if the vendee would not have bought the immovable had he known of its smaller area
of inferior quality, he may rescind the sale.
Article 1540. If, in the case of the preceding article, there is a greater area or number in the
immovable than that stated in the contract, the vendee may accept the area included in the
contract and reject the rest. If he accepts the whole area, he must pay for the same at the contract
rate.
Article 1542(1) In the sale of real estate, made for a lump sum and not at the rate of a certain
sum for a unit of measure or number, there shall be no increase or decrease of the price, although
there be a greater or less area or number than that stated in the contract.
Article 1544. If the same thing should have been sold to different vendees, the ownership shall be
transferred to the person who may have first taken possession thereof in good faith, if it should be
movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it who in good
faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good faith was first
in the possession; and, in the absence thereof, to the person who presents the oldest title, provided
there is good faith.
Article 1590. Should the vendee be disturbed in the possession or ownership of the thing
acquired, or should he have reasonable grounds to fear such disturbance, by a vindicatory 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
BREACH BY THE BUYER AND REMEDIES OF THE SELLER
(Arts. 1191, 1591, 1593, 1526, 1531, 1530, 1533, 1534, 1527, 1528,1484, 1485, 1486)
Remedies of unpaid seller
Judicial Remedies of an unpaid seller

a. Action for the price or specific performance (Art. 1595)
Conditions:
the goods has passed to the buyer
Price is payable on a certain day, irrespective of delivery of the goods
Buyer can set up the defense that seller could not or did not intend to deliver the goods
Seller was notified by the buyer of his repudiation of the contract after the seller
has completed the manufacture of the goods or had procured the goods to be delivered and the goods
could not readily be resold for a reasonable price
b. Action for damages for non-acceptance, if buyer wrongfully neglects or refuses to accept and pay for
the goods (Art. 1596)
Measure of damages: Estimated loss directly and naturally resulting in the ordinary course of events
from the buyers breach
Where there is available market for goods: Difference between the contract price and the market price
at the time the goods ought to have been accepted or if no time was fixed, at the time of refusal to accept
If the resale was made with diligence: resale price is evidence of market value, taking into account
whether or not the goods could be readily sold
Where labor/expense was necessary for seller to fulfill his obligation: Labor performed and expenses
made by seller before receiving notice of buyers repudiation or countermand
Profit that the seller would have made if sale had been fully performed
c. Rescission by giving the buyer notice of the election to rescind (Art. 1597)
Under this rule, rescission would bar an action on the contract because it means cancellation of the
contractual obligations between the parties. (Baviera)
d. Special rule for sale of movables by instalments Recto Law (Arts. 1484, 1485) (Asked in 99)
Applies in cases of:

Sale of movables in installment
o The rule is intended to apply to sales of movables, the price of which is payable in 2 or more
installments, but not to straight-term sales where the price is payable in full, after making a down payment
because the law aims to protect improvident buyers who may be tempted to buy beyond their means.
(Levy Hermanos vs. Gervacio, 1939)
Lease of personal property with option to buy
o When lessor has deprived the lessee of the possession or enjoyment of the thing (Ex.: When lessor files a
complaint for replevin against lessee)
o Also applies when seller assigns his credit to someone else
Alternative Remedies of the unpaid seller under Recto Law
Specific Performance
Cancellation of sale: If vendee fails to pay 2 or more installments
o When the seller cancels the sale by repossessing the property sold, he is barred from exacting payment
for its price.
Foreclosure of Chattel Mortgage: If vendee fails to pay 2 or more installments
o If seller chooses this remedy, he shall have no further action to recover any unpaid balance, and any
stipulation to the contrary shall be void
o What Art 1484 (3) prohibits is further action against the purchaser to recover any unpaid balance of
the price; and although this Court has construed the word action to mean any judicial or
extrajudicial proceeding by virtue of which the vendor may lawfully be enabled to exact recovery of the
supposed unsatisfied balance of the purchase price from the purchaser or his privy, there is no occasion
at this stage to apply the restrictive provision of the said article because there has not yet been a
foreclosure sale resulting in a deficiency. The payment of the sum of P1,250 of Sapinoso was a voluntary
act on his part and did not result from a further action instituted by Northern Motors. (Motors vs.
Sapinoso, 1970)
o The purpose of the law is to remedy the abuses committed in foreclosure of chattel mortgages. It
prevents mortgagees from seizing the mortgaged property, buying it at foreclosure sale for a low price and
then bringing the suit against the mortgagor for a deficiency judgment. The almost invariable result of this
procedure was that the mortgagor found himself minus the property and still owing practically the full
amount of his original indebtedness. (Bachrach Motor Co., Inc. v. Millan, 1935)
o Remedies are ALTERNATIVE, not cumulative, i.e. exercise of one bars exercise of the others. (Nonato vs.
IAC, 1985)
1. Sale of Movables
Extrajudicial or Self-Help Remedies
No need to resort to the courts as long as possession of the goods has not yet passed to the buyer
a. Possessory lien over the goods

Right to retain possession of goods until payment or tender of the whole price, or unless he agrees to sell
on credit (Arts. 1526-1529, 1503, 1535)
When available:
Goods are sold without stipulation as to credit
Goods are sold on credit, but term of credit has expired
Buyer becomes INSOLVENT
When lost:
Seller delivers goods to carrier or other bailee for transmission to the buyer under a straight or nonnegotiable bill of lading
Buyer/his agent lawfully obtains possession of goods
Seller waives it
o But it is not lost with respect to the remainder of the goods when only partial delivery is made (unless
such is symbolic delivery of the whole)
o It is not lost by the mere fact that seller obtained a judgment for the price
When revived:
Goods are returned by the buyer in a wrongful repudiation of the contract
b. Right of stoppage in transitu
An extension of the lien for the price; entitles unpaid seller to resume possession of the goods while they
are in transit before the goods come in possession of the vendee (Arts. 1530-1532, 1535, 1636[2])
Available when: Vendee becomes INSOLVENT
When are goods in transit?
From the time of delivery to the carrier or other bailee by the seller, for the purpose of transmission
to the buyer, until the buyer or his agent takes such delivery from the carrier.
Even when goods have reached their ultimate destination, if buyer rejects them and carrier retains
possession
o To terminate transit by delivery to a middleman, delivery must be to keep, not to transport.
When are goods no longer in transit?

Buyer obtained delivery of the goods before they have reached their ultimate destination
Goods have arrived at ultimate destination, but carrier refuses to deliver
Carrier enters into a new contract with the buyer upon arrival of the goods at their ultimate destination
How exercised?
By obtaining actual possession of the goods

By giving notice of his claim to the carrier/other bailee who has possession of the goods
o Carrier must redeliver goods to seller, or according to his instructions
o Carrier not obliged to redeliver until the negotiable document of title, if any, has been surrendered for
cancellation
Sellers right to stoppage in transitu is not affected even if buyer has sold or disposed of the goods
unless the seller has given his assent thereto.
c. Special right of resale
Available to unpaid seller who has a right of lien or who has stopped the goods in transitu (Art. 1533)
Purpose: For seller to liquidate his damages

He must do so within a reasonable time and in such manner as to obtain the best price possible.
Resale is deemed to be a fair sale if it is undertaken in accordance with established business practices,
with no attempt to take advantage of the original buyer.
Resale may be in a private or public sale, but seller cannot buy directly or indirectly.
For resale to be valid, buyer need not be notified of an intention to resell or the time and place of the
resale.
Effects:
Seller is no longer liable to the original buyer upon the contract of sale or for any profit made by the
resale
Buyer at resale acquires good title as against the original owner
In case resale is at a loss, seller is entitled to recover the difference from the original buyer
Seller may recover damages from original buyer for breach of contract
d. Special right to rescind:
RETURN of the title over the undelivered goods to the seller, and right to recover DAMAGES for breach
of contract (Art. 1534)
Available to unpaid seller who has a right of lien or who has stopped the goods in transitu
When available:
Seller expressly reserved his right to rescind in case buyer defaults
Buyer has been in default in payment for an unreasonable time
Transfer of title shall not be held to have been rescinded by the unpaid seller until he manifests by notice
to the buyer or some other overt act an intention to rescind.
e. When the whole of the price has not been paid or tendered;
f. When a bill of exchange or other negotiable instrument has been received as conditional payment and
the condition on which it was received has been broken by reason of the dishonor of the instrument, the
insolvency of the buyer, or otherwise.
Article 1191. refer to breach by seller and remedies of the buyer
Article 1591. Should the vendor have reasonable grounds to fear the loss of immovable property sold and
its price, he may immediately sue for the rescission of the sale.
Should such ground not exist, the provisions of article 1191 shall be observed. (1503)
Article 1593. With respect to movable property, the rescission of the sale shall of right take place in the
interest of the vendor, if the vendee, upon the expiration of the period fixed for the delivery of the thing,
should not have appeared to receive it, or, having appeared, he should not have tendered the price at the
same time, unless a longer period has been stipulated for its payment
Article 1526. Subject to the provisions of this Title, notwithstanding that the ownership in the goods may
have passed to the buyer, the unpaid seller of goods, as such, has:
(1) A lien on the goods or right to retain them for the price while he is in possession of them;
(2) In case of the insolvency of the buyer, a right of stopping the goods in transitu after he has parted with
the possession of them;
(3) A right of resale as limited by this Title;
(4) A right to rescind the sale as likewise limited by this Title.
Where the ownership in the goods has not passed to the buyer, the unpaid seller has, in addition to his
other remedies a right of withholding delivery similar to and coextensive with his rights of lien and
stoppage in transitu where the ownership has passed to the buyer.
Article 1531. Goods are in transit within the meaning of the preceding article:
(1) From the time when they are delivered to a carrier by land, water, or air, or other bailee for the purpose
of transmission to the buyer, until the buyer, or his agent in that behalf, takes delivery of them from such
carrier or other bailee;
(2) If the goods are rejected by the buyer, and the carrier or other bailee continues in possession of them,
even if the seller has refused to receive them back.
Goods are no longer in transit within the meaning of the preceding article:
(1) If the buyer, or his agent in that behalf, obtains delivery of the goods before their arrival at the
appointed destination;
(2) If, after the arrival of the goods at the appointed destination, the carrier or other bailee acknowledges
to the buyer or his agent that he holds the goods on his behalf and continues in possession of them as
bailee for the buyer or his agent; and it is immaterial that further destination for the goods may have been
indicated by the buyer;
(3) If the carrier or other bailee wrongfully refuses to deliver the goods to the buyer or his agent in that
behalf.
If the goods are delivered to a ship, freight train, truck, or airplane chartered by the buyer, it is a question
depending on the circumstances of the particular case, whether they are in the possession of the carrier as
such or as agent of the buyer.
If part delivery of the goods has been made to the buyer, or his agent in that behalf, the remainder of the
goods may be stopped in transitu, unless such part delivery has been under such circumstances as to
show an agreement with the buyer to give up possession of the whole of the goods.
Article 1530. Subject to the provisions of this Title, when the buyer of goods is or becomes insolvent, the
unpaid seller who has parted with the possession of the goods has the right of stopping them in transitu,
that is to say, he may resume possession of the goods at any time while they are in transit, and he will
then become entitled to the same rights in regard to the goods as he would have had if he had never
parted with the possession.
Article 1533. Where the goods are of perishable nature, or where the seller expressly reserves the right
of resale in case the buyer should make default, or where the buyer has been in default in the payment of
the price for an unreasonable time, an unpaid seller having a right of lien or having stopped the goods in
transitu may resell the goods. He shall not thereafter be liable to the original buyer upon the contract of
sale or for any profit made by such resale, but may recover from the buyer damages for any loss
occasioned by the breach of the contract of sale.
Where a resale is made, as authorized in this article, the buyer acquires a good title as against the original
buyer.
It is not essential to the validity of resale that notice of an intention to resell the goods be given by the
seller to the original buyer. But where the right to resell is not based on the perishable nature of the goods
or upon an express provision of the contract of sale, the giving or failure to give such notice shall be
relevant in any issue involving the question whether the buyer had been in default for an unreasonable
time before the resale was made.
It is not essential to the validity of a resale that notice of the time and place of such resale should be given
by the seller to the original buyer.
The seller is bound to exercise reasonable care and judgment in making a resale, and subject to this
requirement may make a resale either by public or private sale. He cannot, however, directly or indirectly
buy the goods.
Article 1534. An unpaid seller having the right of lien or having stopped the goods in transitu, may
rescind the transfer of title and resume the ownership in the goods, where he expressly reserved the right
to do so in case the buyer should make default, or where the buyer has been in default in the payment of
the price for an unreasonable time. The seller shall not thereafter be liable to the buyer upon the contract
of sale, but may recover from the buyer damages for any loss occasioned by the breach of the contract.
The transfer of title shall not be held to have been rescinded by an unpaid seller until he has manifested by
notice to the buyer or by some other overt act an intention to rescind. It is not necessary that such overt
act should be communicated to the buyer, but the giving or failure to give notice to the buyer of the
intention to rescind shall be relevant in any issue involving the question whether the buyer had been in
default for an unreasonable time before the right of rescission was asserted. (n)
Article 1527. Subject to the provisions of this Title, the unpaid seller of goods who is in possession of
them is entitled to retain possession of them until payment or tender of the price in the following cases,
namely:
(1) Where the goods have been sold without any stipulation as to credit;
(2) Where the goods have been sold on credit, but the term of credit has expired;
(3) Where the buyer becomes insolvent.
The seller may exercise his right of lien notwithstanding that he is in possession of the goods as agent or
bailee for the buyer. (n)
Article 1528. Where an unpaid seller has made part delivery of the goods, he may exercise his right of
lien on the remainder, unless such part delivery has been made under such circumstances as to show an
intent to waive the lien or right of retention. (n)
Article 1484. In a contract of sale of personal property the price of which is payable in installments, the
vendor may exercise any of the following remedies:
(1) Exact fulfillment of the obligation, should the vendee fail to pay;
(2) Cancel the sale, should the vendee's failure to pay cover two or more installments;
(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee's
failure to pay cover two or more installments. In this case, he shall have no further action against the
purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void.
Article 1485. The preceding article shall be applied to contracts purporting to be leases of personal
property with option to buy, when the lessor has deprived the lessee of the possession or enjoyment of the
thing.
Article 1486. In the case referred to in the two preceding articles, a stipulation that the installments or
rents paid shall not be returned to the vendee or lessee shall be valid insofar as the same may not be
unconscionable under the circumstances.
Rules Governing Sale of Movables, Immovables and Unregistered Lands

1. Sale of Movables
Ownership shall be transferred to the person who may have first taken possession in good faith.
2. Immovables
a. Ownership belongs to the person who:
i. In good faith first recorded it in the Registry of Property; OR
ii. If there is no inscription, ownership passes to the person who in good faith was first in possession; OR
iii. In the absence thereof, to the person who presents the oldest title, PROVIDED there is good faith.
Oldest Title any public document showing acquisition of the land in good faith. To constitute
title, the transmission of ownership must appear in a public document [Art. 1358 (1) Examples: Deed
of Sale, Deed of Donation, Deed of Trust
b. Registration includes any entry made in the Primary Entry Book of the registry, including both
registration in its ordinary and strict sense and cancellation, annotation, and even marginal notes. (Cheng
v. Genato, 1998)
Pencilled entries on the title are not considered registration (AFPMBAI v. Court of Appeals,
1999).
3. Sale by Virtue of Execution and Attachment
Art. 1544 does NOT apply to the sale of unregistered land at an execution sale because a buyer of
unregistered land at an execution sale only steps into the shoes of the judgment debtor, and merely
acquires the latter's interest in the property sold as of the time the property was levied upon. (Carumba
v. CA, 1970)
4. Sale of Unregistered Land
a. Instrument or deeds establishing, transmitting, acknowledging, modifying or extinguishing rights with
respect to lands not registered under the Land Registration Act or the Spanish Mortgage Law, are required
to be registered in the Registry of Property to prejudice 3rd persons, although such registration is
understood to be w/o prejudice to a 3rd party with a better right. (PD 1528 Sec 113)
b. Art. 1544 applies to unregistered land subject to a conventional sale (because of Art. 1358) but NOT to
unregistered land subject to judicial sale.
E. Property Registration Decree

1. General Characteristics
a. One who buys the property of another, without notice that some other person has a right to or interest
in such property, and who pays a full and fair price for the sale, at the time of the purchase or before he
has notice of the claim/interest of some other person in the property. (Agricultural and Home Extension
Development Group v CA, 1992)
b. A purchaser of a parcel of land cannot close his eyes to facts which should put a reasonable man upon
his guard, such as when the property subject of the purchase is in the possession of persons other than the
seller. A buyer who could not have failed to know or discover that the land sold to him was in the adverse
possession of another is a buyer in bad faith. (Heirs of Ramon Durano v Uy, 2010)
2. Presumption
GENERAL RULE: As a rule, he who asserts the status of a purchaser in good faith and for value, has the
burden of proving such assertion. This onus probandi cannot be discharged by mere invocation of the legal
presumption of good faith, i.e., that everyone is presumed to act in good faith (Mathay v CA, 1998)
When buyer is presumed to be in bad faith:
a. Annotation of adverse claim: Places any subsequent buyer of the registered land in bad faith. (Balatbat v
CA, 1996)
b. Annotation of Lis Pendens: Buyer cannot be considered an innocent purchaser for value where it ignored
the lis pendens on the title.
Lis Pendens
May be cancelled even before the action is finally
terminated for causes which may not be
attributable to the claimant
Both are intended to protect the interest of a claimant
said property is subject to a claim.
Annotation of Adverse Claim

may be cancelled only in one instance, i.e., after
the claim is adjudged invalid or unmeritorious by
the Court
by notifying and cautioning other persons that
The two are not contradictory or repugnant to one another; nor does the existence of one automatically
nullify the other, and if any of the registrations should be considered unnecessary or superfluous, it would
be the notice of lis pendens (A. Doronila Resources Development Inc v CA, 1988)
Accompanied by vendors duplicate certificate of title, payment of capital gains tax, and
documentary tax registration fees
Must be accompanied by:
a. Vendors duplicate certificate of title
b. Payment of capital gains tax 6% of the selling price or zonal value, whichever is higher
c. Documentary tax registration fees 1.5% of the selling price or zonal value, whichever is higher
The Recto Law and the Maceda Law

Q: What are the socalled Maceda and Recto laws in connection with sales on
installments? Give the most important features on each law.
A: The Maceda Law (R.A. 6552) is applicable to sales of immovable property on installments. The most
important features are:
1. After having paid installments for at least two years, the buyer is entitled to a mandatory grace period
of one month for every year of installment payments made, to pay the unpaid installments without
interest.
If the contract is cancelled, the seller shall refund to the buyer the cash surrender value equivalent to
fifty percent (50%) of the total payments made, and after five years of installments, an additional five
percent (5%) every year but not to exceed ninety percent (90%) of the total payments made.
1. In case the installments paid were less than 2 years, the seller shall give the buyer a grace period of
not less than 60 days. If the buyer fails to pay the installments due at the expiration of the grace
period, the seller may cancel the contract after 30 days from receipt by the buyer of the notice of
cancellation or demand for rescission by notarial act. (Rillo v. CA, G.R. No. 125347 June 19, 1997)
The Recto Law (Art.1484) refers to sale of movables payable in installments and limiting the right of seller,
in case of default by the buyer, to one of three remedies:
1. Exact fulfillment;
2. Cancel the sale of two or more installments have not been paid;
3. Foreclose the chattel mortgage on the things sold, also in case of default of two or more installments,
with no further action against the purchaser. (1999 Bar Question)
INSTALLMENT SALES LAW

Q: What is the Installment Sales Law?
A: Commonly known as the Recto Law. It is embodied in Art. 1484 of the NCC which provides for the
remedies of a seller in the contracts of sale of personal property by installments.
Note: Art. 1484 of the NCC incorporates the provisions of Act No. 4122 passed by the Philippine
Legislature on Dec. 9, 1939, known as the "Installment Sales Law" or the "Recto Law," which then
amended Art. 1454 of the Civil Code of 1889.
Q: To what does the Recto Law apply?
A: This law covers contracts of sale of personal property by installments (Act No. 4122). It is also applied
to contracts purporting to be leases of personal property with option to buy, when the lessor has deprived
the lessee of the possession or enjoyment of the thing. (PCI Leasing and Finance Inc. v. Giraffe X Creative
Imaging, Inc., G.R. No. 142618, July 12, 2007)
Q: What are the alternative remedies in case of sale of personal property in installments?
A:
1. Specific Performance: Exact fulfillment should the buyer fail 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
1. Rescission: Cancel the sale if buyer fails to pay 2 or more installments
Deemed chosen when:

a. Notice of rescission is sent
b. Takes possession of subject matter of sale
c. Files action for rescission
1. Foreclosure: Foreclose on chattel mortgage if buyer fails to pay 2 or more installments
GR: Actual foreclosure is necessary to bar recovery of balance

1. Extent of barring effect: purchase price
XPN: Mortgagor refuses to deliver property to effect foreclosure; expenses incurred in attorneys
fees, etc.
Q: When the lessor of the property chose to deprive the lessee of the subject personal
property, can the former recover any unpaid rentals from the latter?
A: In choosing, through replevin, to deprive the respondent of possession of the leased equipment, the
petitioner waived its right to bring an action to recover unpaid rentals on the said leased items.
REALTY INSTALLMENT BUYER ACT

Q: What is the Realty Installment Buyer Act?
A: Commonly known as the Maceda 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.
Q: What are the transactions/sale covered by the Maceda Law?
A: The law involves the sale of immovables on installment (Maceda Law, R.A. 6552).
1. Coverage: Residential Real Estate (Villanueva, p. 431)
2. Exclude:
a. Industrial lots
b. Commercial buildings (and commercial lots by implication)
c. Sale to tenants under agrarian laws
Q: What are the rights granted to buyers?

A:
1. Buyer paid at least 2 years installment
a. Pay w/o interest the balance within grace period of 1 month for every year of installment payment.
Grace period to be exercised once every 5 years.
b. When no payment cancelled; buyer entitled to 50% of what he has paid + 5% for every year but not
exceeding 90% of payments made
Note: Cancellation to be effected 30 days from notice & upon payment of cash surrender value.
2. Buyer paid less than 2 years installment
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 before final cancellation
Note: buyer can still pay w/in the 30 days period with interest.
Q: What are the other rights granted to a buyer?

A:
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
Note: Applies to contracts even before the law was enacted. Stipulation to the contrary is void
Q: What are the socalled Maceda and Recto laws in connection with sales on
installments? Give the most important features on each law.
A: The Maceda Law (R.A. 6552) is applicable to sales of immovable property on installments. The most
important features are:
1. After having paid installments for at least two years, the buyer is entitled to a mandatory grace period
of one month for every year of installment payments made, to pay the unpaid installments without
interest.
If the contract is cancelled, the seller shall refund to the buyer the cash surrender value equivalent to fifty
percent (50%) of the total payments made, and after five years of installments, an additional five percent
(5%) every year but not to exceed ninety percent (90%) of the total payments made.
1. In case the installments paid were less than 2 years, the seller shall give the buyer a grace period of
not less than 60 days. If the buyer fails to pay the installments due at the expiration of the grace
period, the seller may cancel the contract after 30 days from receipt by the buyer of the notice of
cancellation or demand for rescission by notarial act. (Rillo v. CA, G.R. No. 125347 June 19, 1997)
The Recto Law (Art.1484) refers to sale of movables payable in installments and limiting the right of seller,
in case of default by the buyer, to one of three remedies:
1. Exact fulfillment;
2. Cancel the sale of two or more installments have not been paid;
3. Foreclose the chattel mortgage on the things sold, also in case of default of two or more installments,
with no further action against the purchaser. (1999 Bar Question)
Q: What are the alternative remedies in case of sale of personal property in installments?
A:
1. Specific Performance: Exact fulfillment should the buyer fail 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
1. Rescission: Cancel the sale if buyer fails to pay 2 or more installments
Deemed chosen when:

a. Notice of rescission is sent
b. Takes possession of subject matter of sale
c. Files action for rescission
1. Foreclosure: Foreclose on chattel mortgage if buyer fails to pay 2 or more installments
GR: Actual foreclosure is necessary to bar recovery of balance

1. Extent of barring effect: purchase price
XPN: Mortgagor refuses to deliver property to effect foreclosure; expenses incurred in attorneys
fees, etc.
Q: When the lessor of the property chose to deprive the lessee of the subject personal
property, can the former recover any unpaid rentals from the latter?
A: In choosing, through replevin, to deprive the respondent of possession of the leased equipment, the
petitioner waived its right to bring an action to recover unpaid rentals on the said leased items.
Sale of personal property not payable in installments. Article 1484 does not apply to a sale of personal
property on straight term or partly in cash and partly in term. Where the balance, after payment of the
initial sum, should be paid in its totality at the time specified, the transaction is not by instalment as
contemplated in Article 1484.(Levi Hermanos, Inc. vs. Gervacio, 69 Phil. 52 [1939]).
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 (Pacific Commercial Co. vs.
De la Rama, 62 Phil.380 [1935]; Erlanger & Galinger, Inc. vs. Flor, [C.A.] 57 O.G. 482; Cruz vs.
Filipinas Invest. & Finance Corp., 23 SCRA 791 [1968]; Filipinas Invest. & Finance Corp. vs.
Ridad, 30 SCRA 564 [1969]; Industrial Finance Corp. vs. Tobias, 78 SCRA 28 [1977]; Nonato vs.
Intermediate Appellate Court, 140 SCRA 255 [1985]).
The remedy of rescission is not available in contracts to sell (Diego v. Diego, 691 SCRA 361, 20
February
2013).
In a contract of sale, the vendor cannot recover the thing sold even if the vendee failed to pay
in full the initial payment for the property. The failure of the buyer to pay the purchase price
within the stipulated
period does not by itself bar the transfer of ownership or possession
of the property sold, ipso facto rescind the contract. Such failure will merely give the vendor
the option to rescind the contract of sale judicially or by notarial demand as provided for by
Article 1592 of the New Civil Code.
Under 1590 of the New Civil Code, a vendee may suspend the payment of the price of the
property sold (Arra Realty Corp. v. Guarantee Dev't. Corp. and Insurance Agency, GR No.
142310, 20 September 2004).
Cases: 1) Cruz v. Filipinas Investment, 23 SCRA 791, 27 May 1968
- Should the vendee or purchaser of a personal property default in the payment of two or more of
the agreed installments, the vendor or seller has the option to avail of any one of these three remedies
either to exact fulfillment by the purchaser of the obligation, or to cancel the sale, or to foreclose the
mortgage on the purchased personal property, if one was constituted. These remedies have been
recognized as alternative, not cumulative, that the exercise of one would bar the exercise of the others. It
may also be stated that the established rule is to the effect that the foreclosure and actual sale of a
mortgaged chattel bars further recovery by the vendor of any balance on the purchaser's outstanding
obligation not so satisfied by the sale.
FACTS:
Ruperto Cruz bought a bus from Far East Motor Corp which was payable on installments of
P1,487.20/month for 30 months with 12% interest. Cruz executed a PN in the sum of the purchase price. To
secure the paypent of the PN, Cruz executed a chattel mortgage on the bus. Since no downpayment was
made, Far East required Cruz to execute another security and for the a REM was executed on the land and
building of Mrs. Reyes which at that time was mortgaged to DBP. Far East then assigned all its rights and
indorsed the PN to Filipinas Investment and Financing Corp. Cruz defaulted in payment of the PN with only
P500 being ever paid. Filipinas had the chattel mortgage foreclosed and it was the highest bidder at the
foreclosure sale. However, the proceeds were not sufficient to cover the balance so it paid the
indebtedness of Mrs. Reyes and requested that it be sold at foreclosure sale as well.Thus Cruz and Mrs.
Reyes filed an action with the CFI to have the REM constituted on her land cancelled. The CFI ruled in favor
of Cruz and Reyes finding that the extrajudicial foreclosure barred further action for recovery thus the case
at bar.
ISSUE:
W/N recovery from an additional security is included in the prohibition thus allowing Filipinas to recover the
balance
HELD:
NO. Art. 1484 provides that when in a (1) a sale of personal property and (2) payable on installments there
was default in payment of 2 or more installments, the remedies of the seller are:
1. To exact fulfillment of the obligation, should the vendor fail to pay
2. Cancel the sale,
3. Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendees
failure to pay cover 2 or more installments. In this case, he shall have no further action against the
purchaser to recover any unpaid balance of the price. x x x
It has been held that these remedies are alternative thus the exercise of one bars the exercise of the
others. This is so to prevent he abuses committed in connection with foreclosure mortgages wherein the
mortgagees would seize the mortgaged property and buying them at a very low price at the sale and then
bringing suit for collection of the unpaid balance resulting in the mortgagor still liable to pay his original
debt plus losing the property.
To allow Filipinas to recover thru the additional security would result in a circumvention of the law. Should
the guarantor be compelled to pay the balance then the guarantor would be entitled to recover from the
debtor-vendee. In the end, it would still be the debtor-vendee who would bear the payment of the purchase
price. Also, the word action in Art. 1484 covers all types of legal demand of ones right whether judicial
or extrajudicial thus the barring effect applies to an extrajudicial foreclosure.
Luneta Motor Co. v. Dimagiba, 3 SCRA 884, 30 December 1961

- Vendor cannot avail of the three remedies under Art. 1484 at the same time.
Facts:
Angel Dimagiba bought from the Luneta Motor Company a truck for a price which was compromised at
P16,126.12 payable in 18 monthly installments to guarantee which he executed a chattel mortgage on the
same truck on May 7, 1956, and as a further security thereto on Natividad Noriel also executed on the
same date a chattel mortgage on another truck which belonged to the latter. It also appears that when
Dimagiba failed to pay several installments as he agreed in the promissory note he executed to cover the
price of the truck he purchased,the company instituted an action not only to recover the balance of his
obligation but to secure the seizure of the two trucks mortgaged with a prayer that the proceeds that may
be realized after the sale of said trucks be applied to the payment of the judgment that may be rendered
in the case. Because of the vague nature of the allegations contained in the complaint, as well as in its
prayer, the court a quo, as well as the Court of Appeals, considered the action taken as one of both
replevin and foreclosure of mortgage.
Issue:
WON the scheme of the company is a flagrant violation of Art. 1484 of the Civil Code.
Held: YES
As ruled by CFI which the CA affirmed: While it is true that Exhibit 4 on its face appears to be a
compromise, there is no question that by virtue of said compromise, the truck of Angel Dimagiba was once
more sold to him on the installment plan by Luneta Motor Co. and Angel was made to assume the balance
of the account including parts and tires all on credit; the Court does not see that this being the case, the
case can be taken out of the operation of Article 1484 of the New Civil Code; the law is quite emphatic
when it declares that any agreement to the contrary would be null and void; and the evidence having
established the fact that the consideration of the two promissory notes, Exhibits G to I were casings
and inner tubes also as the Court understands incorporated into the truck and covered as plaintiff itself
alleges in paragraph 3 of its complaint, in the chattel mortgage, Exhibit C, the only effect should be as
the Court understands Art. 1484 that when plaintiff chose to foreclose the chattel mortgage, it submitted
itself to the consequences of the law with the result that having seized the truck of Angel Dimagiba, it
could no longer secure any judgment for the balance of the account of Angel and for the reason that
Natividad was only a mortgagor in the chattel mortgage to guarantee the fulfillment of the first promissory
note, and her liability being only secondary, neither should she be required anymore to pay the balance
due unto plaintiff from Angel Dimagiba, so that the result would be that with respect to the money liability
prayed for in the complaint, the same will have to be a dismissal.
Said article prescribes three remedies which a vendor may pursue in a contract of sale of personal
property the price of which is payable in installments, to wit: (1) exact fulfillment of the obligation; (2)
cancel the sale; and (3) foreclose the mortgage on the thing sold. If he chooses the third remedy, the
article provides that he shall have no further action against the purchaser to recover any unpaid balance of
the purchase price. It even adds that any agreement to the contrary shall be void.
But in the instant case the vendor was not content in choosing any of the three remedies, but chose to
avail itself of the first and third remedies. More than that, plaintiff even went to the extent of suing for
replevin, in other words, it filed an action containing three remedies: to collect the purchase price, to seize
the property purchased, and to foreclose the mortgage executed thereon. Plaintiff even went to the extent
of selling first the property of Noriel, who is not the vendee, out of court, and after doing so, it asked the
court for judgment in the balance. Such a scheme is not only irregular but is a flagrant circumvention of
the prohibition of the law
Cagayan Communities, Inc. v. Sps. Nanol, GR No. 176791, 14 Nov. 2012

- Until and unless the seller complies with the twin requirements of notarized notice of cancellation
and refund of the cash surrender value, the contract to sell between the parties remain valid and
subsisting.
Facts:
Sometime in 1994, respondent-spouses Arsenio and Angeles Nanol entered into a Contract to Sell
with petitioner Communities Cagayan, Inc., (CCI) whereby the latter agreed to sell to respondent-spouses a
house and Lots 17 and 19 located at Block 16, Camella Homes Subdivision, Cagayan de Oro City, for the
price of P368,000.00 (P368T). They obtained a loan from Capitol Development Bank (CDB), using the
property as collateral. To facilitate the loan, a simulated sale over the property was executed by petitioner
in favor of respondent-spouses. Accordingly, titles (TCT Nos. 105202 and 105203) were transferred in the
names of respondent-spouses and submitted to CDB for loan processing. The bank collapsed and closed
before it could release the loan.
On November 30, 1997, respondent-spouses entered into another Contract to Sell with petitioner
over the same property for the same price. This time, they availed of petitioners in-house financing thus,
undertaking to pay the loan over four years, from 1997 to 2001.
Respondent Arsenio demolished the original house and constructed a three-story house allegedly
valued at P3.5 million, more or less. (Respondent Arsenio died, leaving his wife, herein respondent
Angeles, to pay for the monthly amortizations.)
On September 10, 2003, petitioner sent respondent-spouses a notarized Notice of Delinquency and
Cancellation of Contract to Sell due to the latters failure to pay the monthly amortizations. Petitioner filed
before the Municipal Trial Court in Cities, an action for unlawful detainer against respondent-spouses.
In her Answer, respondent Angeles averred that the Deed of Absolute Sale is valid.
Issues
1) Whether petitioner is obliged to refund to respondent-spouses all the monthly installments paid; and
2) Whether petitioner is obliged to reimburse respondent-spouses the value of the new house minus the
cost of the original house.
Ruling
The petition is partly meritorious.
Respondent-spouses are entitled to the cash surrender value of the payments
on the property equivalent to 50% of the total payments made under the Maceda Law.
Respondent-spouses are entitled to reimbursement of the improvements
made on the property.
In view of the special circumstances obtaining in this case, we are constrained to rely on the
presumption of good faith on the part of the respondent-spouses which the petitioner failed to rebut. Thus,
respondent-spouses being presumed builders in good faith, we now rule on the applicability of Article 448
of the Civil Code. Article 448 on builders in good faith does not apply where there is a contractual relation
between the parties, such as in the instant case. We went over the records of this case and we note that
the parties failed to attach a copy of the Contract to Sell. As such, we are constrained to apply Article 448
of the Civil Code, which provides viz:
ART. 448. The owner of the land on which anything has been built, sown or planted in good faith, shall have
the right to appropriate as his own the works, sowing or planting, after payment of the indemnity provided
for in Articles 546 and 548, or to oblige the one who built or planted to pay the price of the land, and the
one who sowed, the proper rent. However, the builder or planter cannot be obliged to buy the land if its
value is considerably more than that of the building or trees. In such case, he shall pay reasonable rent, if
the owner of the land does not choose to appropriate the building or trees after proper indemnity. The
parties shall agree upon the terms of the lease and in case of disagreement, the court shall fix the terms
thereof.
The rule that the choice under Article 448 of the Civil Code belongs to the owner of the land is in
accord with the principle of accession, i.e., that the accessory follows the principal and not the other way
around. Even as the option lies with the landowner, the grant to him, nevertheless, is preclusive. The
landowner cannot refuse to exercise either option and compel instead the owner of the building to remove
it from the land. The raison detre for this provision has been enunciated thus: Where the builder, planter
or sower has acted in good faith, a conflict of rights arises between the owners, and it becomes necessary
to protect the owner of the improvements without causing injustice to the owner of the land. In view of the
impracticability of creating a state of forced co-ownership, the law has provided a just solution by giving
the owner of the land the option to acquire the improvements after payment of the proper indemnity, or to
oblige the builder or planter to pay for the land and the sower the proper rent. He cannot refuse to exercise
either option. It is the owner of the land who is authorized to exercise the option, because his right is older,
and because, by the principle of accession, he is entitled to the ownership of the accessory thing.
In conformity with the foregoing pronouncement, we hold that petitioner, as landowner, has two
options. It may appropriate the new house by reimbursing respondent Angeles the current market value
thereof minus the cost of the old house. Under this option, respondent Angeles would have "a right of
retention which negates the obligation to pay rent." In the alternative, petitioner may sell the lots to
respondent Angeles at a price equivalent to the current fair value thereof. However, if the value of the lots
is considerably more than the value of the improvement, respondent Angeles cannot be compelled to
purchase the lots. She can only be obliged to pay petitioner reasonable rent.
VIII.
Extinguishment of Contracts of Sale
Q: What are the causes for extinguishment of sale?

A: A contract of sale is extinguished by:
1. Same causes as all other obligations, namely:
a. Payment or performance
b. Loss of the thing due

c. Condonation or remission of the debt
d. Confusion or merger of the rights of creditor and debtor
e. Compensation
f. Novation
g. Annulment
h. Rescission
i. Fulfillment of resolutory condition
j. prescription
2. Causes stated in the preceding articles;
3. Conventional Redemption; or
4. Legal redemption
(Arts. 1600 to 1623)

Article 1600. Sales are extinguished by the same causes as all other obligations, by those stated in the
preceding articles of this Title, and by conventional or legal redemption. (1506)
SECTION 1
Conventional Redemption
Article 1601. Conventional redemption shall take place when the vendor reserves the right to repurchase
the thing sold, with the obligation to comply with the provisions of article 1616 and other stipulations
which may have been agreed upon. (1507) ARTICLE 1602. The contract shall be presumed to be an
equitable mortgage, in any of the following cases:
(1) When the price of a sale with right to repurchase is unusually inadequate;
(2) When the vendor remains in possession as lessee or otherwise;
(3) When upon or after the expiration of the right to repurchase another instrument extending the period
of redemption or granting a new period is executed;
(4) When the purchaser retains for himself a part of the purchase price;
(5) When the vendor binds himself to pay the taxes on the thing sold;
(6) In any other case where it may be fairly inferred that the real intention of the parties is that the
transaction shall secure the payment of a debt or the performance of any other obligation.
In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or
otherwise shall be considered as interest which shall be subject to the usury laws. (n)
Article 1603. In case of doubt, a contract purporting to be a sale with right to repurchase shall be
construed as an equitable mortgage. (n)
Article 1604. The provisions of article 1602 shall also apply to a contract purporting to be an absolute
sale. (n)
Article 1605. In the cases referred to in articles 1602 and 1604, the apparent vendor may ask for the
reformation of the instrument.
Article 1606. The right referred to in article 1601, in the absence of an express agreement, shall last four
years from the date of the contract.
Should there be an agreement, the period cannot exceed ten years.
However, the vendor may still exercise the right to repurchase within thirty days from the time final
judgment was rendered in a civil action on the basis that the contract was a true sale with right to
repurchase. (1508a)
Article 1607. In case of real property, the consolidation of ownership in the vendee by virtue of the failure
of the vendor to comply with the provisions of article 1616 shall not be recorded in the Registry of Property
without a judicial order, after the vendor has been duly heard. (n)
Article 1608. The vendor may bring his action against every possessor whose right is derived from the
vendee, even if in the second contract no mention should have been made of the right to repurchase,
without prejudice to the provisions of the Mortgage Law and the Land Registration Law with respect to
third persons. (1510)
Article 1609. The vendee is subrogated to the vendor's rights and actions. (1511)
Article 1610. The creditors of the vendor cannot make use of the right of redemption against the vendee,
until after they have exhausted the property of the vendor. (1512)
Article 1611. In a sale with a right to repurchase, the vendee of a part of an undivided immovable who
acquires the whole thereof in the case of article 498, may compel the vendor to redeem the whole
property, if the latter wishes to make use of the right of redemption. (1513)
Article 1612. If several persons, jointly and in the same contract, should sell an undivided immovable
with a right of repurchase, none of them may exercise this right for more than his respective share.
The same rule shall apply if the person who sold an immovable alone has left several heirs, in which case
each of the latter may only redeem the part which he may have acquired. (1514)
Article 1613. In the case of the preceding article, the vendee may demand of all the vendors or co-heirs
that they come to an agreement upon the repurchase of the whole thing sold; and should they fail to do
so, the vendee cannot be compelled to consent to a partial redemption. (1515)
Article 1614. Each one of the co-owners of an undivided immovable who may have sold his share
separately, may independently exercise the right of repurchase as regards his own share, and the vendee
cannot compel him to redeem the whole property. (1516)
Article 1615. If the vendee should leave several heirs, the action for redemption cannot be brought
against each of them except for his own share, whether the thing be undivided, or it has been partitioned
among them.
But if the inheritance has been divided, and the thing sold has been awarded to one of the heirs, the action
for redemption may be instituted against him for the whole. (1517)
Article 1616. The vendor cannot avail himself of the right of repurchase without returning to the vendee
the price of the sale, and in addition:
(1) The expenses of the contract, and any other legitimate payments made by reason of the sale;
(2) The necessary and useful expenses made on the thing sold. (1518)
Article 1617. If at the time of the execution of the sale there should be on the land, visible or growing
fruits, there shall be no reimbursement for or prorating of those existing at the time of redemption, if no
indemnity was paid by the purchaser when the sale was executed.
Should there have been no fruits at the time of the sale and some exist at the time of redemption, they
shall be prorated between the redemptioner and the vendee, giving the latter the part corresponding to
the time he possessed the land in the last year, counted from the anniversary of the date of the sale.
(1519a)
Article 1618. The vendor who recovers the thing sold shall receive it free from all charges or mortgages
constituted by the vendee, but he shall respect the leases which the latter may have executed in good
faith, and in accordance with the custom of the place where the land is situated. (1520)
SECTION 2
Legal Redemption
Article 1619. Legal redemption is the right to be subrogated, upon the same terms and conditions
stipulated in the contract, in the place of one who acquires a thing by purchase or dation in payment, or by
any other transaction whereby ownership is transmitted by onerous title. (1521a)
Article 1620. A co-owner of a thing may exercise the right of redemption in case the shares of all the
other co-owners or of any of them, are sold to a third person. If the price of the alienation is grossly
excessive, the redemptioner shall pay only a reasonable one.
Should two or more co-owners desire to exercise the right of redemption, they may only do so in
proportion to the share they may respectively have in the thing owned in common. (1522a)
Article 1621. The owners of adjoining lands shall also have the right of redemption when a piece of rural
land, the area of which does not exceed one hectare, is alienated, unless the grantee does not own any
rural land.
This right is not applicable to adjacent lands which are separated by brooks, drains, ravines, roads and
other apparent servitudes for the benefit of other estates.
If two or more adjoining owners desire to exercise the right of redemption at the same time, the owner of
the adjoining land of smaller area shall be preferred; and should both lands have the same area, the one
who first requested the redemption. (1523a)
ARTICLE 1622. Whenever a piece of urban land which is so small and so situated that a major portion
thereof cannot be used for any practical purpose within a reasonable time, having been bought merely for
speculation, is about to be re-sold, the owner of any adjoining land has a right of pre-emption at a
reasonable price.
If the re-sale has been perfected, the owner of the adjoining land shall have a right of redemption, also at a
reasonable price.
When two or more owners of adjoining lands wish to exercise the right of pre-emption or redemption, the
owner whose intended use of the land in question appears best justified shall be preferred. (n)
Article 1623. The right of legal pre-emption or redemption shall not be exercised except within thirty days
from the notice in writing by the prospective vendor, or by the vendor, as the case may be. The deed of
sale shall not be recorded in the Registry of Property, unless accompanied by an affidavit of the vendor
that he has given written notice thereof to all possible redemptioners.
The right of redemption of co-owners excludes that of adjoining owners.

Sales Isv Notes Part II

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1 | S A L E S : P O S T M I D T E R M : AT T Y I G N A C I O : I S V N o t e s

IMPLIED OBLIGATIONS OF THE PARTIES

Obligations of the Seller

Deliver the thing,

OBLIGATIONS OF THE BUYER

PERFORMANCE BY THE SELLER OF HIS OBLIGATIONS

TO DELIVER A DETERMINATE THING

Aviles v. Arcega, 44 Phil 924, 18 Sep. 1922

Which of the two purchasers acquired title to the property?

When is there a double sale?

1.Same subject matter

What is the rule on double sale?

b. no inscription, first to possess in good faith

To Transfer ownership of a thing

Other issues raised:

Concurring opinion by J. Teehankee:

Sale By A Person Not The Owner.

(6) Where seller subsequently acquires title.

Sale by person having a voidable title

Buyer in good faith

SELLER NEED NOT TO DELIVER THING SOLD

RISK OF LOSS BY FORTUITOUS EVENT AFTER PERFECTION BUT BEFORE DELIVERY.

Q: What is the effect of a breach of warranty?

Q: What are the kinds of warranties? Distinguish.

Q: What are express warranties?

Q: What are the requisites of express warranties?

Q: What is the liability of the seller for breach of express warranties?

IMPLIED WARRANTIES (Arts. 1564, 1561)

Q: What are implied warranties?

2. Warranty against eviction

3. Warranty against encumbrances (non apparent)

4. Warranty against Hidden Defects

c. Defect Exists at the time of the sale

Q: When is implied warranty not applicable?

What are the effects of waiver of an implied warranty?

WARRANTIES OF THE SELLER

WARRANTY AGAINST EVICTION

Q: What is covered by a warranty against eviction?

Q: What is the effect of a breach of warranty against eviction?

Q: What are the rights of buyer in case of partial eviction?

WARRANTY AGAINST HIDDEN DEFECT

Q: What is a redhibitory defect?

Q: What is a redhibitory defect on animals?

Q: When is the sale of animal void?

Q: When is a vendor responsible for hidden defects?

Q: Up to what extent does the seller warrant against hidden defects?

Q: What is the effect of a breach of warranty against hidden defects?

IMPLIED WARRANTIES IN CASE OF SALE OF GOODS

Q: What does the principle of caveat emptor mean?

Q: In what particular sale transactions does caveat emptor apply?

Q: Is caveat emptor applicable in sales of registered land?

Q: Does caveat emptor apply in judicial sales?

Q: What are the remedies of the buyer in case of breach of warranty?

Q: Are the remedies of the buyer in case of breach of warranty absolute?

PERFORMANCE BY THE BUYER OF HIS OBLIGATIONS

Pay a price certain in money or its equivalent (Arts. 1458, 1582)

Inspection of the good sold (Art. 1584 [1])

Acceptance of the goods sold (Arts. 1586-1588)

Breach by the Seller and Remedies of the Buyer