Title VI.

- SALES

Chapter 1
Nature and Form of the Contract

Art. 1458
I. Nature and Characteristics.
A. Definition By the contract of sale, one of the contracting parties obligates himself to transfer
ownership of and to deliver a determinate thing and the other to pay therefor a price certain
in money or its equivalent. (See Art. 1458).
Note that in harmony with Art. 1164, ownership of the thing sold does not pass to the buyer
until delivery. See Arts. 1475, 1477, 1496. Essential requisites are consent, object and
price. No special form is required. (Art. 1483)
B. The characteristics of the contract of sale are that this contract is
a. Consensual, since it is perfected by consent;
b. Bilateral, since the parties are bound to reciprocal prestations;
c. Onerous, since there is an exchange of equivalent values;
d. Nominate, since it has a special designation;
e. Principal, since the contract may exist alone; and
f. Commutative, since fulfillment is predetermined in advance.
C. Distinctions: Sale is distinguished from -
a. Barter in that the latters consideration consists in the giving of another thing rather
than a price in money (See 1468, 1638)
b. Dation in payment - in that the latter involves a pre-existing debt which is thereby
extinguished (1245)
c. Lease of things - in that delivery in this latter contract does not involve a transfer of
ownership
d. Lease of services - See infra
e. Donation - in that this latter contract is gratuitous and requires special formalities
D. Promise to Sell: when binding (1479)
a. If bilateral (promise to sell a determinate thing coupled with a correlative promise to
buy at a specified price): it is binding as an executory agreement.
b. If unilateral (promise to sell with the promise at liberty to buy or not at his option; or
vice versa); it must have a separate consideration, independent of the price (option
contract)
E. The Contract of Sale may be
a. Absolute; or
b. Conditional, which may in turn be
1) An executed contract, which property (ownership) in the thing is transferred from
seller to buyer, and nonpayment of the price is a negative resolutory condition;
or
2) An executory contract (an agreement or contract to sell) when ownership does
not pass until
i) Some future time, or
ii) The fulfillment of some condition, such as full payment of the purchase
price when said payment then becomes a positive suspensive condition
3) Distinctions

Executed Contract Executory Contract

Property (ownership) is conveyed No property is conveyed

If buyer defaults, seller may sue for the If buyer defaults, seller is only entitled to
price damages

Risk of loss is generally borne by the buyer Risk of loss is generally borne by the seller
 Contract to sell vs. contract of sale:
Ong vs. CA, G.R. No. 97347, July 6, 1999:

In a contract of sale, the title to the property passes to the vendee upon the delivery of the
thing sold; while in a contract to sell, ownership is, by agreement, reserved in the vendor and
is not to pass to the vendee until full payment of the purchase price. In a contract to sell, the
payment of the purchase price is a positive suspensive condition, the failure of which is not a
breach, casual or serious, but a situation that prevents the obligation of the vendor to convey
title from acquiring an obligatory force.

Carrascoso vs. CA, G.R. No. 123672, December 14, 2005

In a contract of sale, the title passes to the vendee upon the delivery of the thing sold;
whereas in a contract to sell, ownership is not transferred upon delivery of the property but
upon full payment of the purchase price. In the former, the vendor has lost and cannot
recover ownership until and unless the contract is resolved or rescinded; whereas in the
latter, title is retained by the vendor until the full payment of the price, such payment being a
positive suspensive condition and failure of which is not a breach but an event that prevents
the obligation of the vendor to convey title from becoming effective.

Conditional contract of sale vs. contract to sell (Carrascoso case, supra)

In a conditional contract of sale, if the suspensive condition is fulfilled, the contract of sale is
thereby perfected, such that if there had already been previous delivery of the property
subject of the sale to the buyer, ownership thereto automatically transfers to the buyer by
operation of law without any further act having to be performed by the seller. Whereas in a
contract to sell, upon fulfillment of the suspensive condition, ownership will not automatically
transfer to the buyer although the property may have been previously delivered to him. The
prospective seller still has to convey title to the prospective buyer by entering into a contract
of absolute sale.

Arts. 1459 1465

I. Object
A. Qualities The object must be:
a. Existing, or Future or Contingent (1462)
1) Potential existence is sufficient (1461) (Emptio rei speratae)
2) Things under resolutory condition (potential destruction) may be objects of a
valid sale (1465)
3) Sale of a mere hope or expectancy (1461) is valid unless the hope is vain
(Emptio spei)
b. Lawful the thing must be licit and the vendor must have a right to transfer the
ownership thereof at the time it is delivered (1459)
1) What sales are forbidden:
i) Of cattle with contagious diseases (1575)
ii) Of future inheritance (1347)
c. Transferability of ownership by the vendor is required at the time of delivery (1459)
1) It need not exist at the perfection of the contract
2) Subsequent acquisition of title by a vendor without title, validates the sale and
title passes to the vendee by operation of law (1434)
3) Acquisition by the buyer may depend on a contingency (1462)
d. Determinate or indeterminate (1460) (by description or segregation)
1) Undivided interest (1463) may be the object of sale; or
2) Undivided share in a mass of fungible goods (1464)
i) This results in proportional ownership. If the mass contains less than the
quantity sold, the buyer is to make good the deficiency
Note: Goods are corporeal movables other than money. (1636)

Arts. 1466 1468

I. Criteria--
A. To differentiate sale from
a. Agency to sell (1466)
This is a matter of intent: the entire contract and its essential clauses should be
construed
b. Lease of service or contract for a piece of work (1467)
 Whether manufactured for the general market or on special order is the point of
inquiry. In the former case, it is a sale. In the latter, it is a contract for a piece of
work.
c. Barter (1468)
1) When the consideration is partly in money:
Intent governs first; if the intention is not clear, it is barter if the thing given as
part of the consideration is proportionately greater in value than the money
given; otherwise, it is sale.

Arts. 1469- 1474

I. Price
A. Requisites:
a. The price must be real (1471): The sale is void if the price is simulated.
b. In money or its equivalent (1458)
c. Certain or Ascertainable (determinable)
1) How determined:
i) By a third person (1469, pars. 1, 2, 4)
aa) If the third person is unable or unwilling to fix the price, the contract
is inefficacious unless the parties come to an agreement

ii) By the Courts (1469, par. 3) if there is bad faith or mistake of the third
party fixing the price
iii) By reference to a definite day, a particular exchange or market (1472)
iv) By reference to invoices
v) By reference to the application of known factors, e.g. in proportion to
variations in calories and ash content of coal
vi) But never by one party to the contract (1473) unless the price is
separately accepted by the other party.
2) Effect of indeterminability: the contract is inefficacious (1474) (as when the third
party is unable to or refuses to fix the price)
3) Inadequacy of price does not affect the contract, but may show vice of consent
(1470). Refer to inadequacy of cause in general, Art. 1355.
B. Effect of earnest money (1482)
a. It is considered part of the price, unless the contract is otherwise
b. It is proof of perfection of the contract

Arts. 1475-1488
I. Rules in Ordinary Sales
A. Form
a. Generally consensual No particular form is required (1483)
b. But the Statute of Frauds applies if the thing sold is
1) Realty (immovables) or an interest therein (1403, 2f) but if through an agent,
see 1874
2) Goods, chattels and choses in action, worth P500 or more (1403)
c. Exceptionally, form is essential to validity inter partes (solemn contract) in
1) Sale of large cattle (1581) (See PD______ ); which is invalid unless registered
and a certificate of transfer obtained
2) Sale of land through an agent (1874) (the agents authority must be in writing)
B. Perfection
a. General Rule: by consent (1475) upon the subject matter and price, even if neither is
delivered.
1) The buyer has the right to a reasonable opportunity for examination before
acceptance (1584) except when a carrier delivers C.O.D.
2) Sale by description and/or sample (1481): The bulk of the goods must
correspond to either or both.
b. Place of Perfection:
1) Where the offer was made (1319, last par.)
c. Effect of Loss of the Thing Sold:
1) At the time of perfection:
i) Total loss: the contract is inoperative (1493)
ii) Partial loss: the buyers option (1494) is to avoid or accept the remainder
iii) Deterioration is equivalent to loss (1494) when all or a material part has
substantially changed in character.
2) After perfection and before delivery (risk of loss)
 i) By the fault of one party: the party at fault is liable (1480, 1538)
ii) By fortuitous event: There are conflicting provisions (1480, 1504, 1538)
but if the title has passed, the risk is upon the owner (buyer)
iii Reconciliation: 1504 should be treated as a specific provision (exception).
Therefore:
aa) In sales of goods (corporeal movables) the risk is on the seller
(1504) before title passes
bb) In sales of other property (realty or choses in action) the risk is on
the buyer (1480)
cc) Where delivery is delayed by fault the risk is on the party at fault
(1504)
dd) Where the sale is conditional: the risk is on the buyer(1538)

iv) According to Tolentino (Vol. V Tolentino pp. 28-29, copyright 1992): the
vendor should bear the loss and the vendee should not be bound to pay
the price, for the following reasons:
aa) It is fundamental in the NCC, expressed in 1477 and 1496, that
ownership is transferred by delivery; hence, before delivery the
vendor owns the thing and should suffer its loss; res perit domino.
If he is allowed to recover the price, he suffers no loss, which is
imposed upon the vendee who has not yet acquired ownership.
bb) The obligations of vendor and vendee are reciprocal, and, therefore,
one depends upon the other. If the obligation of the vendor to
deliver is extinguished, the correlative obligation of the vendee to
pay, which depends upon it, cannot remain subsisting.
cc) 1480, par. 3, is not an exception but is an expression of the general rule
that the risk is not imputed to the vendee until after delivery. That
paragraph considers the delivery completed only when the fungibles
have been weighed, counted, or measured, because it is only then
that the thing becomes determinate. Before such completion of
delivery, the vendor bears the risk.
dd) Purchase and sale is an onerous contract, where the cause, with
respect to the vendee, is the thing. If he cannot have the thing, it is
juridically illogical and unjust to make him pay its price.
C. Expenses -
a. Of Execution and Registration of the sale (1487) are borne by the Seller
b. Of putting the goods in a deliverable state (1521, last par.) are also borne by the Seller
II. Rule in Special Sales
A. Sales at Auction (1476) --
a. For separate lots, each lot is a separate sale (par. 1)
b. Upon the fall of the hammer (or other customary method) bids are no longer
retractable (par. 2)
c. The seller may bid (par. 3) if the right is expressly reserved, unless the law or
stipulation provides the contrary
1) If notice be not given that the right to bid is reserved (par. 4) the seller may not
lawfully bid or cause a bid to be made in his behalf.
i) Exception: The Pledgor may bid at the foreclosure sale (2113) of the thing
pledged.
d. The seller may reject any and all bids unless the auction has been announced as
without reserve
B. Sales by Sample and/or Description (1481)
a. The bulk of the goods must correspond to either or both
b. The buyer must have an opportunity to compare
c. Effect: the contract may be rescinded at the option of the buyer
C. Sale of Personalty payable by Installments (Recto Law)
a. Alternative remedies in case of non-payment (1484)
1) To exact fulfillment of the obligation
2) Cancel the sale should the vendee fail to pay two or more installments
i) This is an exception to 1191
3) Foreclose the chattel mortgage (if one was constituted) should the vendee fail to
pay two or more installments. But there may be no further action to recover the
unpaid balance. A contrary stipulation is void.

Recto Law:
 Magna Financial Services Group, Inc. vs. Colarina, G.R. 158635, December 9, 2005

In its Complaint, Magna Financial Services Group, Inc. made the following prayer:

WHEREFORE, it is respectfully prayed that judgment render ordering defendant:

1. To pay the principal sum of P131,607.00 with penalty charges at 4.5% per
month from January 1999 until paid plus liquidated damages.

2. Ordering defendant to reimburse the plaintiff for attorneys fee at 25% of the
amount due plus expenses of litigation at not less than P10,000.00.

3. Ordering defendant to surrender to the plaintiff the possession of the Multicab

described in paragraph 2 of the complaint.

4. Plaintiff prays for other reliefs just and equitable in the premises.

It is further prayed that pendent lite, an Order of Replevin issue commanding the
Provincial Sheriff at Legazpi City or any of his deputies to take such multicab into
his custody and, after judgment, upon default in the payment of the amount
adjudged due to the plaintiff, to sell said chattel at public auction in accordance
with the chattel mortgage law.

Held:
It is, however, unmistakable from the Complaint that petitioner preferred to avail itself
of the first and third remedies under Article 1484, at the same time suing for replevin.
For this reason, the Court of Appeals justifiably set aside the decision of the RTC.
Perusing the Complaint, the petitioner, under its prayer number 1, sought for the
payment of the unpaid amortizations which is a remedy that is provided under Article
1484(1) of the Civil Code, allowing an unpaid vendee to exact fulfillment of the
obligation. At the same time, petitioner prayed that Colarina be ordered to surrender
possession of the vehicle so that it may ultimately be sold at public auction, which
remedy is contained under Article 1484(3). Such a scheme is not only irregular but is a
flagrant circumvention of the prohibition of the law. By praying for the foreclosure of
the chattel, Magna Financial Services Group, Inc. renounced whatever claim it may
have under the promissory note.

Article 1484, paragraph 3, provides that if the vendor has availed himself of the right to
foreclose the chattel mortgage, he shall have no further action against the purchaser
to recover any unpaid balance of the purchase price. Any agreement to the contrary
shall be void. In other words, in all proceedings for the foreclosure of chattel
mortgages executed on chattels which have been sold on the installment plan, the
mortgagee is limited to the property included in the mortgage.

b. Compare these remedies with the resolution of reciprocal obligations (1191)

c. A stipulation that installments (or rent) already paid is not returnable is valid, unless
unconscionable (1486)
d. Waiver of benefit of these articles is void
D. Leases of Personalty with Option to Buy:
a. The rules in 1484 are applicable where the lessor deprives the lessee of possession or
enjoyment of the thing (1485)
b. 1486 (retention of payments) is also applicable
E. Sale of real property on installments (Maceda Law [RA 6552])
a. Applicability:
Sale of real property on installment, including residential condominium apartments but
excluding industrial lots
b. When the buyer has paid at least two years of installments
1) Rights of buyer:
ii) Default in payment
aa) To pay without additional interest, the unpaid installments (cash
surrender value) within the grace period
bb) Grace period is one month for every year of installment payments
made
Limitation: The right can be exercised only once every 5 years
ii) Cancellation of sale
 aa) Up to 5 years installments, refund of 50% of payments
bb) After 5 years of installments, additional 5%/year but shall not
exceed 90% of total payments made

When cancellation takes effect:

aa) After 30 days from receipt by the buyer of (notarized) notice of
cancellation; or
bb) After 30 days from receipt by the buyer of notarial demand for
rescission
*In both cases after full payment of cash surrender value
c. When the buyer has paid less than two years installments
1) The buyer has at least 60 days grace period within which to pay the installment
due
2) After the grace period, contract may be cancelled as in B above
(If the buyer fails to pay the installments due at the expiration of the grace
period, the seller may cancel the contract after thirty days from receipt by the
buyer of the notice of cancellation or the demand for rescission of the contract by
a notarial act.)

Maceda Law:
Fabrigas vs. San Francisco del Monte, Inc., G.R. 152346, November 25, 2005 :

The cancellation of the contract under Section 4 is a two-step process. First, the seller
should extend the buyer a grace period of at least sixty (60) days from the due date of
the installment. Second, at the end of the grace period, the seller shall furnish the
buyer with a notice of cancellation or demand for rescission through a notarial act,
effective thirty (30) days from the buyers receipt thereof. It is worth mentioning, of
course, that a mere notice or letter, short of a notarial act, would not suffice.

While the Court concedes that Del Monte had allowed petitioners a grace period longer
than the minimum sixty (60)-day requirement under Section 4, it did not comply,
however, with the requirement of notice of cancellation or a demand for rescission.
Instead, Del Monte applied the automatic rescission clause of the contract. Contrary,
however, to Del Montes position which the appellate court sustained, the automatic
cancellation clause is void under Section 7[18] in relation to Section 4 of R.A. 6552

F. Expropriation (1488) is governed by special law

Chapter 2
Capacity to Buy or Sell

Arts. 1489 1492

I. Parties and their Consent
A. Capacity in general (1489). A person capacitated to contract is also generally capacitated to
buy or sell.
a. The sellers incapacity to alienate the thing sold does not avoid the contract, but may
prevent performance and entitle the buyer to rescind.
B. Special Disqualifications to buy:
a. Husband and wife (14900) while under the community regime (absolute or relative)

b. Persons in trust relations (1491), public or private (agents, guardians, administrators,

public officers, judges, attorneys, etc.)
1) Transactions included in the disqualification (1492): redemption, compromise,
arbitration, leases (1646)
2) Includes persons expressly disqualified by law in similar cases (ejusdem generic)
i) Under the Constitution, aliens may not acquire residential lands - such
sales are void
aa) This prohibition was suspended during the Japanese occupation
bb) Under the provisions of 1412, however, neither party may set aside
the contract since both are in pari delicto
cc) But subsequent naturalization of the alien buyer as a Filipino citizen
before the sale is attacked validates such acquisition, retroacting to
the date of the conveyance
ii) Krivenko ruling applied to unregistered religious organizations
 c. In auctions, the seller may not bid, unless notice is given (1476, par 4) reserving such
right.
d. The seller cannot buy in resale (after rescission or stoppage in transitu) where directly
or indirectly (1533)
C. Incapacity to Sell:
a) Homesteaders: can not sell within 5 years from issuance of the patent or grant (Public
Land Act, C.A. 141, Sec. 118)
b. Sale by one who is not the owner: see 1505
D. When an incompetent buys (1489, par. 2): He must pay a reasonable price for necessaries
delivered to him.
a. The above rule seems to be founded on quasi-contract
E. Effect of forbidden sales:
a. Between husband and wife under the community regime, the sale is void
1) But strangers cannot assail the transfer
b. Between persons in trust relations, as regards
1) Those based on public trust
i) Public officers, employees, government experts (1491, par. 4), and
ii) Judges, Justices, Prosecutors, Clerks of Court, lawyers (1491, par. 5) -
such sales are void (1409, No. 7)
2) Those based on private trust -
i) Guardians (1491, par. 1)
ii) Agents (1491, par. 2)
iii) Executors and administrators (1491, par. 3) - such sales are voidable,
not void

Chapter 3
Effects Of The Contract When The Thing Sold Has Been Lost

Arts. 1493-1494
I. Distinction
A. 1493 and 1494 refer to loss, deterioration, or injury at the time the contract is perfected
1480 and 1504 refer to such loss, deterioration, or injury after perfection but before delivery

Chapter 4
Obligations Of The Vendor

Arts. 1495-1506
I. General Obligations:
A. To preserve the thing with the proper diligence of a good father of a family (1163)
a. Deterioration, loss or improvement (Theory of Risks): supra
1) If the title has passed, the risk is upon the buyer, whether there has been actual
delivery or not
B. To deliver the thing sold with its accessions and accessories (1537)
a. Form (Manner) of Delivery
1) Physical or Real or actual (1497) placing the thing sold in the control and
possession of the vendee
2) Legal or Constructive
i) Real Property: by execution of a public instrument evidencing the sale
(1498)
aa) Provided no actual impediment to physical delivery (e.g. when a
third party is in lawful possession) or contrary stipulation exists
bb) Except: registered property (Act 496). Registration is the operative
act of transfer (but the contract is binding between the parties).
ii) Personal property:
aa) symbolical tradition such as the delivery of the keys of the place
where the movable sold is being kept (1498, par. 2) (Symbolic)
bb) Common agreement (1499)
aaa) traditio longa manu consent or agreement if the movable
sold cannot yet be transferred to the possession of the buyer
at the time of the sale
 bbb)tradition brevi manu if the buyer already had possession of the
object even before the sale
cc) By negotiable document of title (1513, 1514)
iii) Incorporeal property (1501): By execution of a public instrument, delivery
of title, or the exercise by the vendee of his rights with the vendors
consent (Quasi-tradition) (cf. 1498)
3) De Constituto (constitutum possessorium): By retention of the thing by the seller
under another right (1500) subordinate to the right of the buyer.
C. Transfer of Ownership to the Buyer
a. Generally, ownership is transferred upon delivery to (1477, 1496) and acceptance by
the buyer (1585) express or implied.
Exceptions:
1) When the buyer refuses to accept without justification (1588) title passes when
the goods are placed at the disposal of the buyer
2) Delivery to the carrier is delivery to the buyer, unless title is reserved (1523,
par.1)
3) In sales, F.A.S.,
4) In sales C.I.F., or F.O.B., see infra
b. When delivery does not transfer title:
1) In delivery on approval, trial or satisfaction (1502, pars. 2-5), title passes
i) Upon the buyers signifying approval or acceptance;
ii) Upon the buyers doing an act signifying adoption of the contract;
iii) Upon retention by the buyer beyond the time fixed (or reasonable time)
without notice of rejection
2) In case of express reservation of title in the seller, made so that title does not
pass -
i) Until payment (1478) or
ii) Until fulfillment of the condition (1503, par. 1) notwithstanding delivery
3) Implied reservation of title arises when -
i) Goods are deliverable to the order of the shipper or agent (1503, par. 2)
aa) But where the goods are deliverable to the order of the buyer or his
agent and the seller retains the bill of lading (1503, par. 3) title
passes subject to the lien of the seller for security purposes.
ii) If a bill of lading is transmitted with a draft attached (1503, par. 4), in
which case title passes upon acceptance; if the draft is dishonored, the
buyer should return the bill of lading.
iii) But if the bill provides that the goods are deliverable to the buyer, or the
order of the buyer, or if it is indorsed in blank, the bill transfers title to the
buyer for value and without notice that the draft was not honored.
4) Sale to two different persons by the same seller (See 1544)
5) When the seller is not the owner (1505): The buyer has no better title, except in
case of:
i) Estoppel of the owner to deny the sellers title (1438);
ii) Recording laws;
iii) Statutory power to sell or order of the court to the officer (to sell);
iv) Sales in merchants stores, fairs, or markets (Code of Commerce, Arts. 85-
86)
aa) Compare this with the rule that possession of movables in good faith
is equivalent to title (Art. 559, NCC)
bb) When the seller has a voidable (not void) title (1506), the sale is
good if bought for value and without notice before the sellers title is
avoided.
c. Revesting of title that has passed to the buyer
1) Stoppage in transitu (1530) and its effects (see infra) (do not elaborate)
i) When are the goods held to be in transit (1531): while they are in the
possession of the carrier or bailee, before the carrier acknowledges that he
holds the goods for the buyer.
ii) How the right to stoppage is exercised (1532):
aa) Repossession (actual)
bb) Notice of claim to the carrier
iii) Rights after stoppage:
aa) Resale (1533)
bb) Rescission (1534)
 iv) Sale by the buyer does not affect stoppage (1535) unless agreed to, or a
negotiable document is outstanding
2) Delivery to the buyer on sale or return(1502, 1st par.)
3) In case of danger of loss of the thing and the price after delivery, in which case
the seller may rescind (1591)

Arts. 1507-1520 - Documents Of Title To Goods

I. Defined (1636, No. 1) any document used in the ordinary course of business in the sale or
transfer of goods, as proof of the possession or control of the goods, or authorizing the possessor of
the document to transfer or receive, either by indorsement or by delivery, goods represented by
such document

II. Kinds
A. Negotiable
a. Defined see. 1507 (A document of title in which it is stated that the goods referred to
therein will be delivered to the bearer, or to the order of any person named in such
document.)
1) Effect if the words not negotiable or non-negotiable are placed or stamped
thereon. Its negotiability is not affected. (1510)
b. Negotiation
1) Defined the act by which a negotiable document is put into circulation by being
passed by one of the original parties to another person, or by the latter to a
subsequent person.

Ex.
I place a good in a warehouse for safekeeping and X the warehouseman issued a
receipt (the contract entered into is a contract of deposit). The warehouse receipt
is a proof of the deposit and that the said deposit was received.

The document is negotiable if:

(a) the goods are deliverable to bearer (deliver to bearer);
(b) or if the goods are deliverable to the order of a certain person.

There are two forms of negotiating a negotiable document of title:

(a) mere delivery;
(b) indorsement PLUS delivery.

2) Ways
i) By delivery (1508, par. 1)
aa) Forms of documents negotiated by delivery:
aaa) Cases
I. When by its terms the goods are deliverable to bearer
(1505, No. 1)
II. When although goods are deliverable to the order of a
specified person the same is indorsed in blank or to
bearer (1508, No. 2)
bbb) Right of the holder
I. He may indorse the document to himself or to a
specified person (1508, par. 2)

Mere delivery (handing over) is sufficient

(a) If deliverable to bearer.
(b) (b) If deliverable to the order of a certain person AND that person has
indorsed it in blank merely (put his name at the back) or indorsed it to
bearer (at the back, he placed deliver to bearer and then he signed his
name).
ii) By indorsement (1508, par. 1)
aa) Form of documents negotiated in this manner -
aaa) When by its terms the goods are deliverable to the order of a
specified person named therein (1509)
bb) Kinds (1509) or indorsements -
aaa) In blank;
bbb)To bearer;
ccc) To a specified person, in which case -
 I. It may again be indorsed as above (1509)
cc) Liability of the indorser
aaa) He is not liable for failure of the bailee or previous indorser to
fulfill their respective obligations (1517)
3) Validity of negotiation (1518)
i) It is not affected
aa) By the fact that negotiation was a breach of duty on the part of the
person making the negotiation (1518)
bb) By the fact that the owner of the document was deprived of the
possession of same by loss, theft, fraud, accident, mistake, duress or
conversion (1518) Cf. 559

Q: A document of title contained the words deliver to bearer. The

document was stolen by T; Tsubsequently indorsed it to S, a
purchaser in good faith. Is the negotiation to Svalid?
A:Yes, notwithstanding the theft by T. Reason: S is a purchaser for
value in good faith; that is, S did not know that the document had
been stolen by T.
ii) Provided the holder -
aa) Paid value therefor,
bb) Paid in good faith,
cc) Was without notice of the breach of duty or loss, etc. (1518)
4) Who may negotiate (1512)
i) The owner of the document (1512, No. 1);
ii) The person entrusted with the possession or custody of the document
(1512, No. 2) subject to the following requisites -
aa) The bailee issuing the document undertakes under its terms to
deliver the goods to the order of the person to whom the possession
of the document has been entrusted, or
bb) The document is in such a form that it may be negotiated by delivery

Who Bears Loss in Case of Unauthorized Negotiation

If the owner of a negotiable document of title (deliverable to bearer)
entrusts the document to a friend for deposit, but the friend betrays
the trust and negotiates the document by delivering it to another
who is in good faith, the said owner cannot impugn the validity of
the negotiation. As between two innocent persons, he who made the
loss possible should bear the loss, without prejudice to his right to
recover from the wrongdoer.
5) Warranties of the person negotiating: see 1516
(1) That the document is genuine;
(2) That he has a legal right to negotiate or transfer it;
(3) That he has knowledge of no fact which would impair the validity or
worth of the document; and
(4) That he has a right to transfer the title to the goods and that the
goods are merchantable or fit for a particular purpose, whenever such
warranties would have been implied if the contract of the parties had
been to transfer without a document of title the goods represented
thereby. (n)
B. Non-negotiable
a. Defined a document of title in which it is stated that the goods will be delivered to the
depositor or to any other specified person (not to his order)

III. Rights acquired by transferee of a document of title

A. Under a negotiable document of title -
a. Which has been duly negotiated (1513):
1) Such title to the goods as the person negotiating, or the person to whose order
the goods were deliverable, had or could convey to a purchaser in good faith for
value (1513, No. 1);
2) The direct obligation of the bailee issuing the document to hold possession of the
goods for him as fully as if such bailee had contracted with him directly (1513,
No. 2)
b. Which has been transferred (not duly negotiated) (1514):
 1) Form of negotiable document that can be transferred
i) One which can be negotiated only by indorsement (1511)
2) The rights of the transferee are
i) Where the document is merely transferred
aa) To acquire title to the goods as against the transferor, subject to the
terms of the agreement with the transferor (1514, par. 1)
ii) Where the document is transferred for value by delivery only
aa) To compel the transferor to indorse the document (negotiation by
indorsement) (1515)
B. Under a non-negotiable document
a. Rights of the transferee (1514, par. 2)
1) To acquire title to the goods as against the transferor, subject to the terms of the
agreement with the transferor (1514, par.1)
2) To notify the bailee who issued the document of the transfer thereof;
3) To hold such bailee liable for the possession of the goods according to the terms
of the document.
i) Exceptions:
aa) If prior to notification the goods were levied on attachment of or
execution by a creditor of the transferor ( 1514, par. 3)
bb) If prior to notification, the bailee is notified by the transferor of the
subsequent sale of the goods (1514, par. 3)

The transferee does not acquire directly the obligation of the bailee
to hold for him. To acquire the direct obligation of the bailee, the
transferee (or transferor) must notify the bailee.
b. Effect of indorsement
1) The transferee acquires no additional rights (1511)
IV. Levy, or garnishment or goods covered by a document of title
A. When covered by a negotiable document:
a. General rule
1) The goods cannot be attached by garnishment or levied upon under execution
(1519) unless the document is surrendered or its negotiation enjoined.
i) Remedy of the creditor of a holder (1520)
aa) To seek aid from the court
aaa)By injunction;
bbb)By attaching the negotiable document
ccc) By satisfying the claim by any means allowed by law or equity
2) Exceptions:
i) When the negotiable document is surrendered; or
ii) When negotiation is enjoined by the court (1519)
b) Rights of the bailee
1) He cannot be compelled to deliver possession of the goods until the document is
surrendered to him or impounded by the court (1519)
The bailee (or depositary or carrier) cannot be compelled to surrender the goods
except:
1) if the document is surrendered to him;
2) or the document is impounded by the court.
B. When covered by a non-negotiable document of title
a. The goods may be levied upon (1514, par. 3)
1) Requisites
i) The person levying must be a creditor of the transferor
ii) The levy is prior to the notification to the bailee of the transfer of the goods
(1514, par. 3)

Arts. 1521- 1524

I. Time And Place Of Delivery
A. Time
a. As stipulated
b. If there is no stipulation, at a reasonable time and hour (which is a question of fact)
(Art. 1521)
B. Place
 a. As stipulated or established by usage (1521)
b. In the absence of stipulation or usage:
1) At the place of business or residence of the seller
2) If the thing (specific) was elsewhere, and the parties knew it, where the thing
was at the time of sale (applying the rule of Art. 1251) (Art. 1251 2nd par. -
There being no express stipulation and if the undertaking is to deliver a
determinate thing, the payment shall be made wherever the thing might
be at the moment the obligation was constituted. )
i) The possessor (if a third person) must acknowledge holding the goods for
the buyer

c. If it is stipulated that the seller will send the goods to the buyer (1523):
1) The seller must arrange the transportation on reasonable terms, to the place of
business or residence of the buyer (par. 2)
2) The seller must insure the goods if stipulated (C.I.F.) or required by usage;
3) Otherwise, the seller must give notice so the buyer may insure. If no notice is
given, the goods travel at the sellers risk (par. 3)
II. Delivery to the carrier is deemed delivery to the buyer (but carrier must acknowledge holding the
goods for the buyer) (1523)
A. Unless the contrary intent appears (1503, 1st par.), or title is reserved, expressly or impliedly
(1503, 2nd & 3rd pars.), or stoppage in transitu is exercised
B. Subject to the sellers duty to notify the buyer under 1523 for insurance purposes
III. Expenses of delivery are borne by the seller (1247) (1521, last par.)
A. In sales C.I.F. the price includes insurance and freight to the place of destination but goods
travel at the risk of the buyer
B. In sales F.O.B. (free on board) or F.A.S. (free alongside ship) the goods are delivered at
the specified place at no expense to the buyer, and title to the goods is presumed to pass at
that place.

Arts. 1525-1535 Rights Of The Unpaid Seller

I. Definition of unpaid seller (1525, par. 1)
A. An unpaid seller is one
a. To whom the whole price has not been paid or tendered; or
b. Who has been conditionally paid by a negotiable instrument which has been dishonored
(1525)
B. An unpaid seller may be one
a. Whose goods are in his possession and property (ownership) in the goods has not
passed to the buyer; or
b. Whose goods are in his possession but property (ownership) in the goods has passed to
the buyer; or
c. Whose goods are not in his possession but property (ownership) in the goods has not
passed to the buyer; or
d. Whose goods are not in his possession and property (ownership) in the goods has
passed to the buyer
C. The term seller includes any person in the position of a seller, such as
a. An agent to whom a bill of lading has been indorsed;
b. A consignor or agent who has paid or is directly responsible for the price (1525, par. 2)
II. Rights of an unpaid seller (1526)
A. A Lien on the goods or right to retain them (1526, par. 1)
a. When the lien exists:
1) Cases (1527) when it arises
i) Where the sale is without stipulation as to credit;
ii) Where the sale is on credit, but the term of credit has expired;
iii) When the buyer becomes insolvent (Cf. 1198)
2) It may be exercised notwithstanding the sellers possession as agent or bailee for
the buyer (1527, par. 2)
3) Effect on the right if there has been partial delivery:
i) The lien may be exercised on the remainder (1528)
aa) Exception:
aaa) When by such partial delivery, the intention was to waive the
lien or right of retention (1528)
b. When the lien is lost
1) Instances (1529)
 i) When the seller delivers the goods to the carrier or other bailee for
transmission to the buyer without reserving the ownership in the goods;
ii) When the buyer or his agent lawfully obtains possession of the goods;
iii) By waiver thereof.
2) Effect of a judgment for the price of goods obtained by the seller
i) The lien is not lost )1529, par. 2)
Note: The insolvency referred to by law may be before or after the sale, provided it is
discovered after the perfection of the contract. It must be a judicially declared
insolvency, or one inferred from such acts as petitioning for suspension of payments, or
as a result of all his properties having been attached in a civil or criminal proceedings.
Anything short of this will not be sufficient to exempt the vendor from making the
delivery of the thing. (Tolentino, Commentaries & Jurisprudence on the Civil Code, 147,
Vol. II, p. 862, citing Manresa, pp. 140-142)
B. Right to stop in transit (1626, No., 2) (Stoppage in transitu)
a. Requisites for the exercise
1) The buyer is or becomes insolvent (1526, No. 2 and 1530)
i) When the buyer is said to be insolvent: See 1636, No. 2 (does not require
judicial proceeding)
2) The goods are in transit (1530)
i) When goods are deemed to be in transit
aa) From the time they are delivered to the carrier or bailee for
transmission to the buyer until the buyer takes delivery.
bb) If the buyer rejects them and the carrier continues in possession
ii) When the goods are no longer in transit (1531, par. 4)
aa) If the buyer or his agent obtains delivery;
bb) If at destination the carrier or bailee acknowledges holding them for
the buyer;
cc) If the carrier or bailee wrongfully withholds possession from the
buyer.
b. Effect of partial delivery
1) Right to stop in transit may be exercised on the remainder
i) Exception: where the seller agrees to give up the goods in their entirety
(1531, par. 4)
c. How stoppage in transit is exercised (1532)
1) By obtaining actual possession of the goods (1532, par. 1)
2) By giving notice of the claim (1532, par. 1)
i) To whom must notice be given
aa) To the person in actual possession of the goods;
bb) To his principal
aaa) Notice must be given at such time as to insure that the
principal, by exercising reasonable diligence, may prevent
delivery to the buyer
ii) Obligation of the carrier or bailee in possession of goods
aa) To re-deliver the goods to the seller
aaa) If the goods are covered by negotiable document of title
aa. The document must be surrendered (1532, par. 2)
iii) Obligation of the seller
aa) To pay the expenses of re-delivery (1532, par. 2)
C. Right of Resale (1533)
a. Requisites for the exercise of the right
1) The unpaid seller has a right of lien or has stopped the goods in transit (1532,
par. 1)
2) Resale may be made only in the following cases:
i) Where the goods are of a perishable nature; or
ii) When the seller expressly reserves the right of resale in case the buyer
should make default; or
iii) Where the buyer has been in default in the payment of the price for an
unreasonable time
b. Notice of resale to the buyer
1) General rule:
i) Notice is not essential to the validity of a resale (1533, par. 3)
2) Exception:
i) Where the right is exercised because the buyer has been in default in the
payment of the price for an unreasonable time.
 aa) Giving or failure to give notice shall be relevant as to whether the
buyer has been in default for an unreasonable time (1533, par. 3)
Cf. 1169)
c. Manner of resale
1) The resale may be either private or public
2) Obligations of the seller
i) He must exercise reasonable care and judgment in making the resale
ii) He cannot, directly or indirectly, buy the goods (1533)
d. Resale does not make the seller liable for profits realized, but he may recover damages
from the buyer in case of loss
D. Right to rescind the sale (1526, No. 4)
a. Requisites
1) The unpaid seller has the right of lien or has stopped the goods in transit.
2) Rescission may be exercised only in the following cases:
i) Where the seller has expressly reserved the right to rescind in case the
buyer should make default; or
ii) Where the buyer has been in default in the payment of the price for an
unreasonable time
b. Notice of intention to rescind. Rules --
1) Where the seller has made express reservation
i) Such notice (or other overt act) is required; but such overt act need not be
communicated to the buyer.
2) Where the buyer has been in default for an unreasonable period of time in the
payment of the price
i) Such notice is relevant to the issue of the buyers default for an
unreasonable time. Cf. 1169
c. Effect of rescission
1) The seller ceases to be liable to the buyer upon the contract
2) The seller may recover damages for any loss occasioned by the breach of
contract
Note: Resale and rescission by the seller requires no previous action in court (exception to
1191)
III. Effect of sale or other disposition of the goods by the original buyer on the right of the unpaid seller.
A. General Rule
a) Where a negotiable document of title has been issued for the goods
1) The right of any purchaser for value in good faith, whether negotiation is prior or
subsequent to the notification to the carrier, is superior to the unpaid sellers
right of lien or stoppage in transit (1535, par. 2)
b) Where the seller assented to such disposition (1535, par. 1)

Arts. 1536-1543
I. Completeness of Delivery
A. Real Estate:
a. Where it is sold per unit or number
1) If the deficiency is not less than 1/10 (i.e., 1/10 or more) the remedy is reduction
of price or rescission (1539)
2) If the deficiency is less than 1/10 the remedy is reduction only (1539), unless
the vendee would not have purchased if he had known the inferior area
3) In case of excess: the remedy is to reject the excess; or accept all and pay the
excess at the agreed rate (1540)
b. Where it is sold for a sump sum or a single price (1542), no increase or decrease
results on account of area
1) But the seller must deliver all within the boundaries; if not, reduction or
rescission may be had by the buyer
c. Prescription of the action is 6 months (1543)
B. Movables:
a. If there is deficiency in quantity or quality, the buyer (1522) may reject the whole or
accept the short delivery
1) Paying (the agreed price) in proportion, if he knows that the seller cannot
perform in full
2) But if he does not know, the buyer has to pay only a fair price
b. If there is an excess: the buyer may reject or accept the excess at the contract rate.
C. Delivery in installments may be made (1583) only if agreed:
 a. If agreed, it is a question of fact if failure in one installment justifies repudiating the
whole.
D. Delivery is to include fruits from the perfection of the contract (1537, par. 2) (applying 1164)

II. The seller is excused from delivering (1527) -

A. In cash sales (1524): if no payment is tendered (unless a period for payment is fixed);
B. In sales on credit (1536) if the right to the period is lost under 1198;
Art. 1198. The debtor shall lose every right to make use of the period:
(1) When after the obligation has been contracted, he becomes insolvent, unless he gives a
guaranty or security for the debt;
(2) When he does not furnish to the creditor the guaranties or securities which he has
promised;
(3) When by his own acts he has impaired said guaranties or securities after their
establishment, and when through a fortuitous event they disappear, unless he immediately
gives new ones equally satisfactory;
(4) When the debtor violates any undertaking, in consideration of which the creditor agreed
to the period;
(5) When the debtor attempts to abscond.

C. An unpaid seller has a lien or right of retention over the goods in his possession (1526, 1527)
even if title has passed to the buyer.

Art. 1544
I. Sales to two different persons (1544) by the same seller
A. Rules as to immovables. Ownership is transferred
a. To the one who registers the sale in good faith
b. To the first in possession in good faith (or to whom possession is first transferred by
public instrument)
c. To the one who presents the oldest title, if in good faith
B. Rule as to movables: ownership is transferred to the first in possession in good faith (1544)
C. Good faith requires the buyers lack of notice and payment of the full and fair price:
a. But the buyer is presumed to know what he could find out with due diligence
D. The rules do not apply to:
a. Conflicts between a vendee and a mortgagee (not being a double sale);
b. Nor to sales of the same land by different vendors
c. Nor to conflicts between the vendee and an attaching creditor
d. Nor to fictitious sales
E. But the rules of 1544 apply to double donations (744)

Sps. Ong vs. Sps. Olasiman, G.R. No. 162045, March 28, 2006
(Sale by two different vendors)

Paula sold, by public instrument, a parcel of land to Bernandita. Bernandita took initial steps to
register the land but failed to complete the registration process. When Paula died, her brother,
Demetrio, executed an Extrajudicial Settlement by Sole Heir and Sale and sold the sale lot to
Carmelita. Carmelita subsequently caused the issuance of a new tax declaration in her name. A few
months after, Bernandita sold the same lot to the Olasiman spouses.

Issue:
Who between Carmelita and the Olasiman spouses have a better right over the land?

Held:
The Olasiman spouses.
When Paula sold to Bernandita by Deed of Absolute Sale dated June 1, 1992 the parcel of
land of which the questioned lot formed part, ownership thereof was transferred to the latter in
accordance with Article 1496 of the Civil Code reading:

ART. 1496. The ownership of the thing sold is acquired by the vendee from the moment
it is delivered to him in any of the ways specified in articles 1497 to 1501, or in any
other manner signifying an agreement that the possession is transferred from the
vendor to the vendee,

in relation to Article 1498 of the Civil Code reading:

 ART. 1498. When the sale is made through a public instrument, the execution thereof
shall be equivalent to the delivery of the thing which is the object of the contract, if from
the deed the contrary does not appear or cannot clearly be inferred.

xxxx

The Deed of Absolute Sale in favor of Bernandita contains nothing contrary to an intent to transfer
ownership.

When Paula died on November 26, 1992, she no longer owned the questioned lot and, therefore,
her brother petitioner Verzano could not have inherited it. The Extrajudicial Settlement by Sole
Heir and Sale did not thus confer upon Verzano ownership of the questioned lot; hence, he could
not have conveyed it to petitioners spouses Ong.

Arts. 1545-1547
I. Conditions (precedent). (See 1179 et seq.)
A. Concept: a condition is a future and an uncertain event which may or may not happen, upon
which depends the rising or extinction of an obligation.
a. Conditions may be:
1) suspensive one the fulfillment of which gives rise to the birth of the obligation
2) resolutory one the fulfillment of which extinguishes a subsisting obligation

B. Consequence of non-fulfillment of a condition precedent (suspensive) (1545):

a. the party whose obligation is dependent upon it need not perform, i.e., he may refuse
to proceed with the contract; or
b. he may waive the performance (fulfillment) of the condition (and just proceed with the
contract)
C. Effect if condition is in the nature of a promise that it should happen the non-fulfillment of
the condition is considered breach of warranty if the natural tendency of such affirmation or
promise is to induce the buyer to purchase and who relying thereon actually made the
purchase
a. Example:
When the seller warrants that the machinery purchased was already on its way, the
non-arrival of the machinery constitutes a breach of warranty, and the buyer is entitled
to damages for the breach.
II. Warranties (stipulations promissory):
A. Concept:
A warranty is a promise that fact is true; a collateral undertaking in a sale of either realty or
personalty, express or implied, that if the property sold does not possess certain incidents or
qualities, the purchaser may either consider the sale void or claim damages for breach of
warranty.
B. Kinds -
a. Express (1546): affirmation of fact, or promise by the seller relating to the thing,
inducing the buyer to purchase in reliance thereon.
b. Implied (1547 and 1562):
Concept one that is not expressly made in the contract of sale; it is inherent in the
contract and deemed incorporated therein
1) Warranties:
aa) that the seller has a right to sell includes the warranty of having the
capacity to deliver; in other words, the seller warrants his title to the goods
- this is otherwise known as warranty against eviction
bb) that there are no hidden defects or encumbrances otherwise known as
warranty against hidden defects or encumbrances
cc) that the goods are of merchantable quality and fit for a known purpose
(warranty of merchantability)
c. A statement of the sellers opinion (or of the value of the thing) is not warranty, unless
he is an expert and was relied upon. (1546) (See also 1341)
C. Effect of non-fulfillment

Arts. 1548-1559 - Warranty Against Eviction

I. Concept judicial process by virtue of which the vendee is deprived of the ownership of the whole
or part of the thing he purchased by final judgment or by an act imputable to the vendor
A. Requisites -
a. Eviction (dispossession) of the buyer (1548) (this is applicable to a judgment debtor in
judicial sales unless the judgment provides otherwise, 1552):
1) The vendee is deprived of the whole or a material part of the thing purchased.
2) By a final judgment (1557) (the buyer need not appeal, 1549)
- final judgment refers to a judgment which is already final and executory
- failure of the vendee to appeal does not relieve the vendor from liability
(1549)
3) Based on a right anterior (prior) to the sale, including
i) Adverse possession completed before the sale (1550)
- if the adverse possession had been commenced before the sale but the
prescriptive period completed after the transfer, the vendor shall not
be liable for eviction (1550)
- however, if the time left for the interruption is too short as to give the
vendee the full opportunity to perform acts of interruption, justice
dictates that the vendor shall remain liable, unless there is waiver
*** acts of interruption:
aa) filing of action in court
bb) written or extrajudicial demand
cc) written acknowledgment of the debt by the debtor (1155)
ii) Sale for tax delinquency not notified to the buyer (1551)
b. There has been no express waiver by the buyer with knowledge of the risk (1554)
c. The seller (vendor) is duly summoned in the suit against the buyer (1558) and made
co-defendant (1559).
1) The following sellers are not liable for eviction:
i) sheriff
ii) auctioneer
iii) mortgagee
iv) pledgee
v) other person professing to sell by virtue of authority in fact or law(1547)
B. Kinds of deprivation or trespass
a. deprivation in law - disturbance which requires that a person must seek judicial
intervention in claiming the thing purchased or a part thereof and laying the legal basis
therefor
- here, the warranty of eviction is applicable
b. deprivation in fact disturbance which constitutes a mere trespass in fact on the
property; the vendee has the right of direct action against the trespasser and he should
initiate action against the latter
- here, there is no warranty against eviction
C. Effect of warranty (1555)
a. The seller in good faith must -
1) Return the value (not the price) at the time of eviction;
2) Return the income or fruits that the buyer had to surrender; plus
3) Costs of the suit; and
4) Expenses of the contract.
b. The seller in bad faith is subject to the liabilities of the seller in good faith under
1) The rules of the preceding paragraph (par. a);
2) Plus payment of damages, interest and ornamental expenses (useful expenses
are to be recovered from the party causing the eviction, not from the seller).
c) Loss of an important part (1556) (Partial Eviction). The Remedies are
1) Indemnity OR rescission, at the buyers option
- if rescission is opted, the buyer shall return the thing without other
encumbrances than those which it had when he acquired it
D. Waiver of warranty against eviction by the buyer (vendee):
a. Must be express (not implied).
1) If made without knowledge of the risk, the vender is to return the value, without
liability for damages (1554).
2) If with knowledge of the risk, the vendor is not liable at all (1554).
b. Kinds of waiver:
1) Consciente pro forma or simple waiver
Effect: the vendor remains liable to the vendee but the liability consists only in
the payment of the value of the thing at the time of eviction (1554)
2) Intencionada full or total waiver; this is made with knowledge of the danger
and risk of eviction
 Effect: in case of eviction, the vendee is not entitled to the return of the
purchase price
c. The stipulation (waiver) is void if the seller is in bad faith (1553).
E. Buyer must return the property without new encumbrances.

Art. 1560
I. Warranty against hidden encumbrances (1560) (applicable to movables or immovables)
A. Requisites (1560)
a. The encumbrance must be important (the vendee would not have purchased had he
known of their existence).
b. The encumbrance is not recorded unless the property was expressly warranted as free
from burdens.
c. The warranty is claimed in due time (1586) (notice must be given within a reasonable
time from discovery).
B. Example of non-apparent easement easement of covered aqueduct
C. Effects: Buyers action may be for
a. Rescission or damages, within 1 year from the sale (execution of the deed) (1560, par.
3)
b. Damages only thereafter, until 1 year from discovery of the burden (par. 4) (which may
be less than 2 years from the sale).

Arts. 1561-1571 Warranty Against Hidden Defects of or Encumbrance Upon the Thing Sold

I. Warranty against Redhibitory (Hidden, Physical) Vices (of movables)

A. Requisites The vices must be
a. Not visible or could not be known to the buyer, even if an expert (1561);
b. They must be serious (as to render the thing unfit) (1561) because of the implied
warranty of quality (1562) or of fitness for a purpose known to the seller;
Except: Sales under a patent or trade name (1563) where no implied warranty exists.
c. They were not known to the buyer;
d. They existed prior to the sale;
e. They must be notified to the seller within a reasonable time from discovery (1586);
f. Action must be within 6 months (1571) or 40 days (from delivery) in case of animals
(1577) (prescription);
g. No stipulation against the warranty has been agreed
B. The vice need not be known to the vendor (1566)
C. Effects of warranty against defects or vices:
a. The vendee may elect between (1567)
1) Withdrawal from the contract; or
2) Reduction of the price (with damages in case of bad faith).
b. If the thing is lost due to hidden vice (1568)
1) If the Vendor is aware of the vice: he must
i) Return the price (not the value); and
ii) Refund the expenses of the contract; and
ii) Pay damages
2) If the Vendor is not aware of the vice: he must
i) Return the price with interest; and
ii) Refund expenses (without damages).
c. If the thing is lost by fortuitous event or by the fault of the buyer -
1) If the vendor is in good faith: He must return the price less the value when lost.
2) If the vendor is in bad faith: He must -
i) Return the price less the value; and
ii) Pay damages.
D. Period to bring action for breach of warranty 6 months from date of delivery

Arts. 1572-1581
Concept:
Redhibitory vice (hidden vices of animals)
Redhibition -
I. Warranty against hidden vices of animals (Redhibitory vices)
A. No warranty (1574) exists in
a. Sales at fairs or public auctions;
b. Sales of condemned livestock;
c. If the animals were examined by an expert, unless the vice is undiscoverable (1576);
 1) The negligent or unskillful expert is liable to the buyer
d. When the vice is not declared Redhibitory by law or local custom (1577);
e. If the animals are unfit for the use stated in the contract (the sale is void) (1575)
f. If the animals suffer from contagious diseases (the sale is void) (1575)
B. It is presumed that the vice is Redhibitory (covered by the warranty) if:
a. The disease causes death within 3 days from the purchase and
b. The disease existed at the time of contract (1578).
C. Effects of breach of warranty (buyers option):
a. The vendee may elect between
1) Reduction of the price (1580) (1567) or
2) Rescission of the sale (plus damages in case of bad faith)
i) In case of rescission, the buyer must return the animal and answer for
injuries due to his fault (1579)
b. In case of sale of two or more animals sold together
1) the redhibitory defect of one shall only give rise to its redhibition
i) Exception: if the vendee would not have purchased the sound
animal/animals without the defective one
D. The action must be brought within 40 days from delivery (1577)

Arts. 1582-1593 Obligations of the Vendee

I. To accept delivery:
A. If there was no previous examination, the buyer must have a reasonable opportunity to
examine (1584, pars. 1 & 2)
a. The seller must allow the buyer to examine, if the buyer so demands
b. Except in case of a stipulation that the goods are not to be delivered by the carrier
unless paid for (C.O.D.) (the buyer is not entitled to an examination unless the contract
or usage to the contrary permits examination) (1584, par. 3)
c. Effect of acceptance by the buyer
i) It does not discharge the seller from liability in damages or other legal remedy
for breach of any promise or warranty
aa) Except:
If, after acceptance, the buyer fails to give notice to the seller within
reasonable time from knowledge of the breach (1586)
B. Unjustified refusal of the buyer to accept does not bar transfer of title (and risk) (1588)
a. But the seller may make consignation (1256)
C. The buyer justifiably refusing to accept need not return the thing (1587) but only has to
notify the seller.

II. Payment of Price and Interest:

A. Time and Place (1528) (1582 & 1521?)
a. According to stipulation (unless the buyer loses the benefit of the period).
b. At the time and place of delivery, if there is no contrary stipulation (simultaneity).
B. Suspension of payment by the buyer (1590) after delivery.
a. Grounds
1) Actual disturbance of possession or ownership; or
2) Reasonable ground to fear a disturbance caused by
i) Vindicatory action;
ii) Foreclosure of mortgage (which grounds are exclusive)
b. There is no right to suspend payment if:
1) The stipulation provides for payment despite risk of disturbance; or
2) The vendor caused the disturbance to cease; or
3) The vendor gives security for the return of the price; or
4) The disturbance is my mere act of trespass.
C. Payment of Interest on the Price: (1598 [1589?]). The duty arises
a. Even before default, if
1) The stipulation so provides; or
2) The thing produces fruits which pertain to the buyer under 1164.
b. After default (moratory interest) from the time of the sellers tender or performance
(1169, last par. on reciprocal obligations)
D. Legal Guaranties for Payment of the Price:
a. Suspension of delivery (retention) by the seller
1) In cash sales, if the payment is not tendered (1524);
2) In sales on credit, if the buyer loses the benefit of the term under 1198 (1536) or
the buyer is insolvent (1527)
b. Sellers lien on the goods in his possession (1526).
c. Stoppage in transitu, if the buyer is insolvent and the price is unpaid (1530)

d. Resale of goods (1533) (without bringing an action).

e. Rescission
1) In case of goods (corporeal movables)
i) Extrajudicial rescission (1534), or
ii) Judicial (1191), if --
aa) The buyer fails to accept at the stipulated time, without just reasons.
bb) The buyer fails to tender the price upon receipt, if no period was
stipulated (1593)
No notice or demand is required (Cf. 1534) unless the goods have not been
delivered (1597)
2) In case of real property (1592). The buyer may pay until given judicial or
notarial demand for rescission, despite a stipulation to the contrary (pacto
comisorio)
Article 1504 requiring demand by suit or notarial act in case the vendor or realty
wants to rescind, does not apply to a contract to sell or promise to sell, where
title remains with the vendor until fulfillment to a positive suspensive condition,
 such as full payment of the price (except contracts covered by the Maceda Law)

Exceptions:
i) The rule does not apply where title was reserved by the seller
ii) In case of danger of loss of the thing and price, after delivery (1591), the
seller may sue immediately for rescission even if the price is not yet due.
Example:
If the vendee appears to be insolvent and cannot pay the price, and at the
same time he uses hi rights in such a manner that the thing might be lost,
such as when he destroys the building, or cuts down the forest or
woodlands, he may bring his action for resolution under 1591. (V Tolentino
p. 138-139, c.1999)
iii) Neither does the rule apply to a mere contract to sell
Article 1592 of the Civil Code which requires rescission either by judicial action or
notarial act is not applicable to a contract to sell where title remains with the
vendor until fulfillment of a positive suspensive condition
3) Action for the Price and Damages, see Post.

Arts. 1594-1599

I. Action for the price (of personal property) (1595).

A. Grounds
a. After ownership has passed, and price is not paid, if no period for payment was given.
b. Failure to pay, where it is stipulated to be payable, irrespective of delivery or transfer of
title, although title has not passed(?).
1) Defenses of the buyer:
i) That the seller at any time before judgment, manifested either
aa) Inability to perform; or
bb) Intention not to perform.
c. Refusal of the buyer to accept delivery of the goods, if:
1) The goods were offered and refused; and
2) The goods can not readily be resold; and
3) The buyer did not notify repudiation before the goods were placed in a fully
deliverable state (if 1596, par. 4 is not applicable); and
4) The seller notifies the buyer that he holds the goods as bailee for the buyer.
Then the seller may treat the goods as the buyers and sue for the price.

II. Action for damages for non-acceptance (1596) of the goods

A. Grounds --
a. The buyers wrongful failure to accept and pay (the goods may be resold).
b. The buyers repudiation or countermand before the goods are placed in a deliverable
state.
B. Measure of damages
a. Generally
1) The loss naturally and directly resulting (in the ordinary course) from the breach.
b. When there is an available market
1) The difference between the contract price and the market price at the time when
acceptance should be made.
i) If no time was fixed for acceptance, then the market price at the time of
refusal.
c. When repudiation is made or notified before the seller completes preparations for
fulfillment
1) The liability is for expenses incurred, and
2) The profit the seller would have obtained under the contract.
III. Action for Total Rescission (1597) by the seller (against the buyer).
A. Requisites:
a. The goods were not delivered.
b. The buyer either
1) Repudiates; or
2) Manifests inability to perform; or
3) Commits breach of contract
c. The seller gives notice of his election to rescind.
IV. Buyers Action for Sellers Specific Performance (1598)
A. The seller has no option to retain the goods by paying damages.
B. The judgment may be absolute or conditional as the court deems fit.
V. Buyers Actions for Breach of Warranty (1599) (express or implied).
A. Buyers choices:
a. To accept or keep the goods and set off damages against the price;
b. To accept the goods and sue for damages;
c. To refuse or return the goods and sue for damages;
d. To rescind the contract, refuse or return the goods and recover the price.
B. The options are alternative, but the buyer may ask for rescission after asking for specific
performance, if the latter is impossible. (1191, par. 2)
C. The buyer can not rescind, if
a. He knew of the breach of warranty when he accepted the goods; or
b. He fails to notify the seller in due time of the election to rescind; or
c. he fails to return the goods in substantially the same condition.
1) Unless the deterioration was due to the breach of warranty.
D. Effects of Buyers Election to Rescind (1599, par. 4)
a. The buyer ceases to be liable for the price upon tender or return of the goods.
b. The may recover the price paid
1) Concurrently with the return, or
2) Immediately after the tender.
c. If the seller refuses to accept the return; the buyer holds the goods as bailee. In which
case, the buyer
1) Has a lien on the goods to secure repayment of the price; and
2) Has a right of stoppage in transitu and resale, as the seller has under Article
1526.
E. Loss in Case of Breach of Warranty of Quality (1599, par. 5)
a. The liability consists in the difference in value at the time of delivery and the value if
the warranty were not broken.
1. Unless special circumstances show greater damage.

Chapter 7
Extinguishment Of Sale

Art. 1600
I. Causes of Extinguishment --
A. General causes (1231)
a. Payment or performance
b. Loss of the thing due
c. Condonation or remission
d. Confusion or merger
e. Compensation
f. Novation
g. Annulment
h. Rescission
i. Fulfillment of the resolutory condition
j. Prescription
B. Special causes
a. Redemption
1) Conventional
2) Legal

Section 1 - Conventional Redemption

(Sales with Pacto de Retro)

Arts. 1601-1618
I. Concept
A. Defined (1601) one which takes 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
B. Nature: Conventional redemption is
a. An accidental element (must be stipulated);
b. An express condition;
 c. A potestative resolutory condition;
d. A real right which may be sold or assigned and enforced against a third person claiming
under the purchaser
II. Conventional redemption includes transactions presumed to be equitable mortgages.
A. Equitable mortgage defined - One in which although it lacks some formality, form of words
or other requisites, prescribed by a statute, show the intention of the parties to charge a real
property as security for a debt and contains nothing impossible or contrary to law.
B. The following are presumed to be equitable mortgages
a. Contracts of sale with right to repurchase in the following cases (1602)
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 the period of redemption is extended;
4) When the vendee retains part of the price;
5) When the vendor binds himself to pay taxes;
6) Other cases where it may be inferred that the intention of the parties is that the
transaction is to secure the payment of a debt or the performance of any other
obligation
b. Contracts of absolute sale in the cases mentioned in Art. 1602 (1604).
c. When a transaction purporting to be a contract of sale with right to repurchase is of
doubtful interpretation (1603).
1) A stipulation that in case of failure of the vendor-a-retro as lessee to pay rentals,
the lease shall automatically terminate and the right of ownership of the vendee
shall become absolute is valid, not contrary to law nor oppressive. It is a
clause common to pacto de retro and has received court sanction.
2) Although pactum commissorium (a stipulation for automatic vesting of title over
the security in the creditor in case of debtors default) is void, such a clause in a
contract is conclusive proof that it is a mortgage and not a sale with pacto de
retro.
C. Effect when the transaction is deemed an equitable mortgage.
a. Fruits, money or other benefit received as rents by the vendee are considered as
interest which shall be subject to the usury laws. (1602, last par.)
b. The apparent vendor may ask for the reformation of the instrument (1605)
Pacto de retro sale vs. equitable mortgage
Ramos vs. Sarao, G.R. 149756, February 11, 2005
In a pacto de retro, ownership of the property sold is immediately transferred to the vendee a
retro, subject only to the repurchase by the vendor a retro within the stipulated period. The
vendor a retros failure to exercise the right of repurchase within the agreed time vests upon
the vendee a retro, by operation of law, absolute title to the property. Such title is not
impaired even if the vendee a retro fails to consolidate title under Article 1607 of the Civil
Code.
On the other hand, an equitable mortgage is a contract that -- although lacking the formality,
the form or words, or other requisites demanded by a statute -- nevertheless reveals the
intention of the parties to burden a piece or pieces of real property as security for a debt. The
essential requisites of such a contract are as follows: (1) the parties enter into what appears
to be a contract of sale, but (2) their intention is to secure an existing debt by way of a
mortgage. The nonpayment of the debt when due gives the mortgagee the right to foreclose
the mortgage, sell the property, and apply the proceeds of the sale to the satisfaction of the
loan obligation.
III. Period of Repurchase or Redemption
A. When no period is agreed upon -
a. Four years from the date of the contract (1606, par. 1)
B. When a period is agreed upon (which includes a stipulation of redemption at any time)
a. Within the period stipulated, which cannot exceed 10 years (1606, par. 2)
C. The period may be extended to 30 days after final judgment was rendered in a civil case
claiming that the contract was a true sale with right to repurchase (1606, par. 3)
a. Pendency of litigation suspends the period of redemption
b. The thirty day extension is applicable even should the case be filed after the expiration
of the redemption period, if the parties dispute its nature as a pacto-de-retro sale with
the allegation that it does not express their true agreement
D. The period during which vendor can not redeem when added to the period of permitted
redemption must not total more than 10 years
E. Rulings on the period within which to make a repurchase
 a. The legal period of 4 years may be extended by stipulation, provided that the new
period stipulated does not exceed 10 years
b. A stipulation that the vendor cannot redeem the property until after 3 years should be
construed to allow redemption within 4 years, after the lapse of the 3 years, counted
from such lapse
c. An agreement granting the vendor the right to repurchase when he as established a
certain business is not a period. In such a case the vendor may redeem within 4
years.
d. Where there is an agreed period, the period in excess of 10 years is void
e. A stipulation granting the vendors the right to redeem at any time the vendors have
the money should be construed to allow redemption within 10 years
f. The stipulated period of redemption is suspended by the filing of an action brought in
good faith relating to the validity of a sale with pacto-de-retro (it being claimed to be
an equitable mortgage) and again commences to run only after decision declaring it to
be a sale has become final
g. Where the courts are functioning regularly, the redemption term is not suspended or
extended by war
IV. Who may redeem or exercise the right of redemption -
A. The vendor in whose favor the right is reserved. The following are included:
a. When vendors are co-owners selling jointly and in the same contract an undivided
immovable.
1) Right of each co-owner.
i) To redeem only his share (1612, par. 1)
2) Right of the vendee
i) He may compel all the co-owners to redeem the whole (1613). Also when
the whole property is adjudicated to the vendee in partition (1611).
b. When a co-owner sells his share of an undivided immovable separately (1614).
1) Right of the vendor co-owner
i) He may only redeem his share (1614).
ii) He can not be compelled to redeem the whole (1614)
B. Heirs of the vendor (1612, par. 2)
a. Right of each heir.
1) Each can redeem only the part which he may have acquired.
b. Right of the vendee
1) He may compel all the heirs to redeem the whole (1613)
Note: The rule of the Code is one sale, one redemption; except in case of death of the buyer
a retro.
C. Creditors of the vendor (1610)
a. Requisite
1) The creditors must have already exhausted the properties of the vendor (1610).
V. From whom or against whom may redemption be made -
A. The vendee
B. The heir or heirs of the vendee
a. If there is more than one heir (1615):
1) Against each of the heirs for his respective share
i) Exception:
aa) When the thing sold is awarded to only one heir
C. Every possessor whose right is derived from the vendee (1608)
a. Without prejudice to the provisions of the Mortgage Law and Act No. 496 (Land
Registration Act)
VI. Obligations of the vendor-a-retro
A. The vendors obligations are (1616):
a. To return the price of the sale
b. To return the expenses of the contract and any other legitimate payments made by
reason of the sale;
c. To reimburse the necessary and useful expenses made on the thing sold, after their
amount is determined
B. Effect of the vendors failure to comply with his obligation
a. General rule:
1) Ownership is consolidated in the vendee
b. Exception:
1) When the subject matter consists of real property (1608)
 i) Requisites
aa) Consolidation of ownership must be by virtue of a judicial order, after
hearing the vendor (1607)
In equitable mortgage:
Vasquez vs. CA, G.R. 144882, February 4, 2005
Applying the principle of pactum commissorium specifically to equitable mortgages, in
Montevergin v. CA, the Court enunciated that the consolidation of ownership in the
person of the mortgagee in equity, merely upon failure of the mortgagor in equity to
pay the obligation, would amount to a pactum commissorium. The Court further
articulated that an action for consolidation of ownership is an inappropriate remedy on
the part of the mortgagee in equity. The only proper remedy is to cause the
foreclosure of the mortgage in equity. And if the mortgagee in equity desires to obtain
title to the mortgaged property, the mortgagee in equity may buy it at the foreclosure
sale.
VII. Obligations of the vendee-a-retro
A. To return the thing sold free from all charges and mortgages constituted by the vendee
(1618)
1) Exception:
i) Lease contracts in good faith and according to custom, which must be respected
VIII. Rights of the vendee-a-retro
A. To compel the vendor of a part of an undivided immovable to redeem the whole property
upon the vendee acquiring the entire immovable (1611) in partition proceedings.
B. To be subrogated to the vendors rights and actions (1609)
IX. Rules on pro-rating of fruits existing at the time of redemption
A. If there are visible fruits at the time of the execution of the sale -
a. No reimbursement or pro-rating (1617, par. 1) is required
1) Exception:
i) If indemnity for fruits was paid by the vendee when the sale was executed
(1617, par. 1)
B. If no visible fruits at the time of the sale existed
a. Fruits must be pro-rated (1617, par. 2)
1) Share of the vendee:
i) That portion corresponding to the time he possessed the land in the last
year counted from the anniversary of the date of the sale. (Cf. Art. 545)