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Double Sales – 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.
General Rule – Prior tempore, prior jure - (“First in time, priority in
right”) applies.
CONCEPT: exist when the same determinate thing should have been
sold validly on different occasions by the same vendor to different
vendees in good faith. Art. 1544- lays down the rule of preference
between or among the purchasers of the same property, movable or
immovable.
Carbonell v. CA 69 SCRA 99 (1976
FACTS: Jose Poncio was the owner of the parcel of land located in
Rizal.The said lot was subject to mortgage in favor of the Republic
Savings Bank for the sum of P1,500.00. Carbonell and respondent
Emma Infante offered to buy the said lot from Poncio. Poncio offered to
sell his lot to Carbonell excluding the house on which he and his family
stayed. Carbonell accepted the offer and proposed the price of P9.50/sq.
m.. Poncio accepted the price on the condition that from the purchase
price would come the money to be paid to the bank.January 27, 1995:
The parties executed a document in the Batanes dialect which is
translated as: CONTRACT FOR ONE HALF LOT WHICH I (Poncio)
BOUGHT FROM. Carbonell asked a lawyer to prepare the deed of sale
and delivered the document, together with the balance of P400, to Jose
Poncio. (Note: Carbonell already paid P200 for the mortgage debt of
Poncio + obligated herself to pay the remaining installments.)
However, when she went to Poncio, the latter informed her that he could
no longer proceed with the sale as the lot was already sold to Emma
Infante and that he could not withdraw with the sale.Poncio admitted that
on January 30, 1995, Mrs. Infante improved her offer and he agreed to
sell the land and its improvements to her for P3,535.00.
HELD: Carbonell was in good faith when she bought the lot
Carbonell’s good faith did not cease when she was informed by
Poncio about the sale to Emma Infante.
Where immovable was sold twice, the one with superior title should
refund the sum paid by other vendee to redeem mortgage on the
land.—While petitioner Carbonell has the superior title to the lot,
she must however refund to respondents Infantes the amount of
P1,500.00, which the Infantes paid to the Republic Savings Bank to
redeem the mortgage.)
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Requisites for Double Sale
1) 2 or more valid sales;
2) The 2/more sales transactions must pertain to exactly the
same subject matter;
3) 2 or more buyers with conflicting interests over the rightful
ownership of the thing sold;
4) The 2 or more buyers must each have bought from the very
same seller.
-Art. 1544 does not apply to a case where there is a SALE to one
party of the land itself while the other contract is a MERE PROMISE
TO SELL the land. In the said case, one of the two transactions made
by the owner of the land is not a contract of sale but merely a contract
to sell. Accordingly, there is no double sale of the same land in that case.
(San Lorenzo Dev. Corp vs. CA)
For instance, the subject property was sold first, to respondent sps by
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virtue of Deed of Absolute Sale and the second, to the petitioner, in a
foreclosure sale of real estate mortgage. The court ruled in favor of the
sps (Deed of Absolute Sale) as record reveals that they were well aware
of the earlier sale to respondent sps. ( Express Credit Financing Corp
v. Veslasco)
Sigaya v, Mayuga- The court held that the law on double sales
contemplate a situation where a single vendor sold one and the same
IMMOVABLE property to two or more buyers, court held that for the rule
to apply, it is necessary that the conveyance must have been made by
a party who has an existing right in the thing and the power to dispose
it. The rule cannot be invoked where the 2 diff contract of sale are made
by 2 diff person, one of them not being the owner of the property sold.
(IN THIS CASE LAW ON DOUBLE SALES WILL NOT APPLY)
-Art. 1544 contemplates a situation where a single vendor sold one and
the same immovable property to two or more buyers.
Cheng v. Genato 300 SCRA 722 (1998)
FACTS: Respondent Genato entered a contract to sell to spouses Da
Jose pertaining to his property in Bulacan. The contract made in public
document states that the spouses shall pay the down payment and 30
days after verifying the authenticity of the documents, they shall pay the
remaining purchase price.Da Jose spouses was not able to finish
verifying the documents and as such asked for a 30 day extension.
Pending the extension and without notice to the spouses, Genato made
a document for the annulment of the contract. Cheng expressed interest
over the property and paid 50K check with the assurance that the
contract between Genato and the spouses Da Jose will be annulled. Da
Jose spouses protested with the annulment and persuaded Genato to
continue the contract. Genato returned the check to Cheng and hence,
this petition.
HELD: Art.1544 should apply because for not only was the
contract between herein respondents first in time; it was also registered
long before petitioner's intrusion as a second buyer (PRIMUS
TEMPORE, PORTIOR JURE). (Spouses made annotation on the title of
Genato). Since Cheng was fully aware, or could have been if he had
chosen to inquire, of the rights of the Da Jose spouses under the
Contract to Sell duly annotated on the transfer certificates of titles of
Genato, it now becomes unnecessary to further elaborate in detail the
fact that he is indeed in bad faith in entering into such agreement.
This provision connotes that the following circumstances must concur:
(a) The two (or more) sales transactions in the issue must pertain to
exactly the same subject matter, and must be valid sales transactions.
(b) The two (or more) buyers at odds over the rightful ownership of the
subject matter must each represent conflicting interests; and
(c) The two (or more) buyers at odds over the rightful ownership of the
subject matter must each have bought from the very same seller.
The rule exacted by Article 1544 of the Civil Code for the second
buyer to be able to displace the first buyer are:
(1) that the second buyer must show that he acted in good faith
(i.e. in ignorance of the first sale and of the first buyers rights) from the
time of acquisition until title is transferred to him by registration or failing
registration, by delivery of possession;
(2) the second buyer must show continuing good faith and
innocence or lack of knowledge of the first sale until his contract ripens
into full ownership through prior registration as provided by law.
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Who is purchaser in good faith
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. Buyers
in good faith buy property with the belief that the person from whom they
receive the thing is the owner who can convey title abd such buyer do
not close their eyes to the facts that should put a reasonable person on
guard and still claim that they are acting in goof faith.
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-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.
-Every person dealing with registered land may safely rely on the
correctness of the certificate of title issued therefor and the law will in no
way oblige him to go beyond the certificate to determine the condition
of the property.
A purchaser may rely on what appears on the face of the certificate of
title.(Mirror doctrine) Hence he may be considered a purchaser of good
faith even if he simply examines the latest certificate of title. EXCEPT
when:*There exist important facts that would create SUSPICION in an
otherwise REASONABLE MAN to go beyond the present title and to
investigate those that preceded it.
*One who falls within the exception can neither be denominated as an
innocent purchaser for value nor does a purchaser in GOOD FAITH,
hence, not merit the protection of the law.
*Also when the party has actual knowledge of facts and circumstances
that would impel a reasonably cautious man to make such inquiry and
the purchaser has knowledge of a defect or lack of title in his vendor.
IF circumstances exist that require a prudent man to investigate and he
does not, he is deemed to have acted in mala fide, and his mere refusal
to believe that a defect exists or his willful closing of his eyes to the
possibility of the existence of a defect will not make him an innocent
purchaser of value.
Agricultural and Home Extension v. CA 213 SCRA 536 (1992)
FACTS: Andres Diaz and Josefa Mia sold to Bruno Gundran a 19-
hectare parcel of land in Las Piñas, Rizal,. The owner’s duplicate copy
of the title was turned over to Gundran. However, he did not register the
Deed of Absolute Sale because he said he was advised in the Office of
the Register of Deeds of Pasig of the existence of notices of lis pendens
on the title.
On November 20, 1972, Gundran and Agricultural and Home
Development Group, entered into a Joint Venture Agreement for the
improvement and subdivision of the land. This agreement was also not
annotated on the title.
the spouses Andres Diaz and Josefa Mia again entered into another
contract of sale of the same property with Librado Cabautan, the
herein private Respondent.
an order of the Court of First Instance of Rizal, a new owner’s copy of
the certificate of title was issued to the Diaz spouses, who had
alleged the loss of their copy. On that same date, the notices of lis
pendens annotated on TCT No. 287416 were canceled and the Deed
of Sale in favor of private respondent Cabautan was recorded. A
new TCT No. S-33850/T-172 was thereupon issued in his name in lieu
of the canceled TCT No. 287416.
Gundran instituted an action for reconveyance before the Court of First
Instance of Pasay City * against Librado Cabautan and Josefa Mia
seeking, among others, the cancellation of TCT No. 33850/T-172 and
the issuance of a new certificate of title in his name.
HELD: The petitioner invokes the ruling of the lower court in that case to
the effect that the registration of the sale in favor of the second
purchaser and the issuance of a new certificate of title in his favor did
not in any manner vest in him any right of possession and ownership
over the subject property because the seller, by reason of their prior
sale, had already lost whatever right or interest she might have had in
the property at the time the second sale was made.
The language of Article 1544 is clear and unequivocal. In light of its
mandate and of the facts established in this case, we hold that
ownership must be recognized in the private respondent, who bought
the property in good faith and, as an innocent purchaser for value, duly
and promptly registered the sale in his favor.
DOCTRINE: — A purchaser in good faith is defined as "one who buys
the property of another without notice that some other person has a right
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to or interest in such property and pays a full and fair price for the same
at the time of such purchase or before he has notice of the claim or
interest of some other person in the property."
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PRIORITY OF REGISTRATION OVER POSSESSION
Sale of Movables – Arts. 1544 , 1497 to 1501
-Sale of Movables Ownership shall be transferred to the person
who may have first taken possession in good faith.
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 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.
ARTICLE 1501. With respect to incorporeal property, the provisions of
the fi rst paragraph of Article 1498 shall govern. In any other case
wherein said provisions are not applicable, the placing of the titles of
ownership in the possession of the vendee or the use by the vendee of
his rights, with the vendor’s consent, shall be understood as a delivery.
Rivera v. Ong 37 Phil 355 (1917)
FACTS: The Lichauco Brothers had a yard sale. Rivera alleged that on
Jan 8 he purchased according to receipt, two complete steam-boilers,
with chimneys; one steam motor complete; one pair of twin rice hullers
complete, and a feeding pump (donkey) for boilers for 5,500 php and
received a receipt from Crisanto Lichauco. He did not take possession
of the property.
On Feb 9, Ong bought from the Lichauco Brothers a lot of old iron,
machinery and junk for 1,100 php. He immediately took possession of
the materials he bought. Later on, Rivera took possession of the things
he supposed himself to be the purchaser and found many of the
accessory and auxiliary parts were missing, upon investigation, he found
our that these articles were held by Ong, by virtue of the sale that took
place on Feb 9.
Who has better title to the articles? ONG. Ong Che, was a purchaser
of these articles in good faith. It is furthermore uncontroverted that
he acquired possession by virtue of his purchase. He, therefore,
undoubtedly has, under CC 1473 (NCC 1544), a better title than the first
purchaser, who has never had possession at all. Where two different
agents of the same owner successively negotiated sales to two different
purchasers, and it is obvious that, under the article of the Civil Code
cited above, the second purchaser having acquired possession first
must be declared the true owner
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Sale of Immovables – Art.1 1544 par. 2
Applicable Provision: Art. 1544, par. 2 *TITLE: defined as the lawful cause or ground of possessing that which
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.
*Ownership belongs to person who:
-To the person acquiring it who in good faith first recorded it in the
Registry of property;
-In default thereof, to the person who in good faith was first in
possession; and
-In default thereof, to the person who presents the oldest title provided
there is good faith.
Prior tempore, prior jure - (“First in time, priority in right”) applies.
First Rule: the requirement of the law then is 2-fold: ACCQUISITION IN
GOOD FAITH and REGISTRATION IN GOOD FAITH.
Good faith must concur with the registration. If it would be shown that a
buyer was in bad faith, the alleged registration he made amounted to no
registration at all.
*If the thing sold twice is an immovable, the one which acquires it and
first records it in the Registry of Property, both made in GOOD FAITH,
shall be deemed the owner. The act of registration must be coupled
with good faith, that is the registrant must have no knowledge of
the defect or lack of title of his vendor or must not have been aware
of facts which should have put him upon such inquiry and
investigation as might be necessary to acquaint him with the
defects in the title of his vendor.
*If a vendee in double sales registers the sale after he has acquired
knowledge of a previous sale, the registration constitutes a registration
in bad faith and does not confer upon him any right.
* The primary consideration in determining ownership of an immovable
property in double sale is the good faith or bad faith of the buyer and not
of the seller. To determine whether the buyer is in good faith and
registers the sale first with the RD in good faith falls within the power of
the court to settle an actual controversy.
2nd Rule: Speaks of POSSESSION IN GOOD FAITH. *The application
of this rule presupposes that none of the buyers have registered the sale
in good faith.
*The possession in Art. 1544 is interpreted as both actual physical
delivery and constructive delivery. Actual delivery of a thing sold occurs
when it is placed under the control and possession of the vendee.
Constructive delivery takes place in another manner which is
indicative of the intention to deliver the thing for purposes of ownership,
which include the ffg:
-Delivery by the execution of a public instrument;
-Traditio symbolica;
-Traditio longa manu;
-Traditio Brevi manu;
-Traditio contitutum possessorium
-When goods are in the possession of a 3rd person who acknowledges
that he holds them on behalf of the buyer; -Delivery through a carrier or
courier.
NOTE: Between two purchasers, the one who registered the sale in his
favor has a preferred right over the other who has not registered his title,
even if the latter is in actual possession of the immovable property.
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3rd Rule: relates to title. The title use in Art. 1544 is different form a
certificate of title.
is ours. It is that which is the foundation of ownership of property, real or
personal. That which constitutes a just cause of exclusive possession,
or which is the foundation of ownership of property.
*CERTIFICATE OF TITLE: is a mere evidence of ownership; it is not the
title to the land itself. Under the Torren system, a certificate of title may
be an OCT, or a TCT, issued subsequent to the original registration.
*The buyer acquires title to the subject property, not from the issuance
of the TCT, but from the purchase of the same from its owner through
the execution of the deed of sale. The acquisition of title must likewise
be coupled with
GOOD FAITH.
LAND, In general. The governing law that governs and relates to
registration PRD. PD no. 1529
*REGISTRATION: The Land Registration Administration distinguishes
the two systems of land registration: one is the TORRENS SYSTEM for
registered lands under the Property Registration Decree, and the other
is the SYSTEM OF REGISTRATION OF UNREGISTERED LAND under
SEC. 113 of the Property Registration Decree.
*EFFECT OF REGISTRATION:
It is the operative act to which gives validity to the transfer or creates a
lien upon the land. If not registered the contract is binding only as
between the parties. A deed or instrument operates only as a contract
between the parties and as evidence of authority to the RD to make the
registration. Registration is constructive notice to the whole world.
Spouses Tanglao v. Spouses Parungao, G.R. No. 166913
(2007)
FACTS:
Buyer 1: Lorenzo and Corazon Parungao
Buyer 2: Mariano and Corazon Tanglao
Seller: Spring Homes Subdivision
 In 1992, spouses Lorenzo and Corazon Parungao purchased
several lots from Spring Homes Subdivision for a total price of
P1,364,460.00. They made a down payment of P536,000,
leaving a balance of P828,460.00, exclusive of interest.
 Sometime in November 1992, they introduced improvements
on the lots consisting of a concrete perimeter fence with
cyclone wires on top, a heavy steel gate, and two fish
breeding buildings. They also elevated the ground level of the
lots by filling them with earth and “adobe.”
 Under the terms of the Contracts to Sell signed by spouses
Parungao and Spring Homes, the balance was to be paid by
them within one year from its execution; and that should they
apply for a loan as payment for the balance, they would
continue to pay the monthly installment until their obligation is
fully paid.
 Spouses Parungao failed to pay the installments. They also
failed to secure a loan because Spring Homes refused to
deliver to them the TCTs required in their application for a loan
secured by a real estate mortgage. Apparently, spouses
Parungao had requested Spring Homes to furnish them
copies of the Contracts to Sell, the TCTs, receipts of real
estate taxes paid, tax declarations, and the survey and vicinity
plans of the lots they purchased. However, Roy Madamba,
salesman-representative of Spring Homes, gave respondents
only copies of the Contracts to Sell. But respondents returned
these copies to Spring Homes for correction of the lot
numbers and the names of the vendees.
 On April 1997, Spring Homes executed two separate Deeds
of Absolute Sale in favor of Mariano and Corazon Tanglao,
wherein the former sold to the latter two lots previously sold
to Spouses Parungao.
 In a letter dated September 1997, Spouses Parungao
demanded that Spring Homes deliver to them the corrected
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Contracts to Sell, as well as the TCTs covering the lots they
purchased.
 Meanwhile, Spouses Tanglao took possession of the two lots
they bought. They forcibly opened the steel gate as well as
the doors of the buildings and entered the premises.
 When informed of these events, Spouses Parungao
demanded an explanation from Spring Homes. Bertha Pasic,
its treasurer, apologized and promised she would settle the
matter with petitioners. However, the controversy was not
settled.
 On July 15, 1999, Spouses Parungao filed with the Housing
and Land Use Regulatory Board (HLURB) a complaint for
annulment of deed of sale and/or return of investment for the
seven lots and costs of improvements.
HLURB Arbiter
 Dismissed the complaint filed against Spouses Tanglao for
lack of merit
 Ordered Spring Homes to pay complainants the refund of
payments, among others
HLURB Board of Commissioners
 Reversed HLURB Arbiter’s decision
 Declared as valid and subsisting the contract to sell between
Spouses Parungao and Spring Homes
 Directed Spouses Parungao to immediately update their
account and directed Spring Homes to accept payment and
to deliver title to complainants upon full payment of the
purchase price
 Declared as invalid the deed of absolute sale in favor of
Spouses Tanglao
 HLURB Board of Commissioners found that at the time of the
sale of the two lots, the contracts between Spouses Parungao
and Spring Homes were still subsisting. Moreover, the fence
and existing structures erected on the premises should have
forewarned Spouses Tanglao that there are adverse
claimants of the two lots.
Court of Appeals
 Dismissed the appeal by Spouses Tanglao
 It held that there was a perfected contract to sell between
Spouses Parungao and Spring Homes as early as 1992. As
this contract was subsisting at the time of the second sale,
Spouses Parungao have a superior right over the lots in
question.
ISSUE: Who has a better right to the lots in question?
DECISION: Spouses Parungao
Spouses Parungao’s contention is the same as that of the HLURB Board
of Commissioners and the Court of Appeals.
HELD
In double sales of immovable property, the governing principle is prius
tem pore, prius jure (first in time, stronger in right). Thus, in
Payongayong vs. Court of Appeals, the Court held that under Article
1544, preferential rights shall be accorded to: (1) the person acquiring it
who in good faith first recorded it in the Registry of Property, (2) in default
thereof to the person who in good faith was first in possession, and (3)
in default thereof, to the person who presents the oldest title, provided
there is good faith. In all of these cases, good faith is essential, being
the basic premise of the preferential rights granted to the person
claiming ownership of the immovable.
In Occena vs. Esponilla, the Court laid down the following rules in the
application of Article 1544: (1) Knowledge by the first buyer of the
second sale cannot defeat the first buyer’s rights except when the
second buyer first registers in good faith the second sale; and (2)
Knowledge gained by the second buyer of the first sale defeats his rights
even if he is first to register, since such knowledge taints his registration
with bad faith. Differently put, the act of registration by the second buyer
must be coupled with good faith, meaning, the registrant must have no
knowledge of the defect or lack of title of his vendor or must not have
been aware of facts which should put him upon such inquiry and
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investigation as might be necessary to acquaint him with the defects in
the title of his vendor.
Applying the foregoing doctrines, the pivotal question before us is
whether petitioners Tanglao, the second buyers, are purchasers in good
faith. A purchaser in good faith or innocent purchaser for value is one
who buys property and pays a full and fair price for it at the time of the
purchase or before any notice of some other person’s claim or interest
in it.
In the case at bar, the HLURB Arbiter, the HLURB Commission, the
Office of the President, and the Court of Appeals found that at the time
of the second sale to Spouses Tanglao by Spring Homes, there were
already occupants and improvements on the two lots in question. These
facts should have put Spouses Tanglao on their guard. Settled is the
rule that a buyer of real property in possession of persons other than the
seller must be wary and should investigate the rights of those in
possession, for without such inquiry, the buyer can hardly be regarded
as a buyer in good faith and cannot have any right over the property.
As Spouses Tanglao cannot be considered buyers in good faith, they
cannot rely upon the indefeasibility of their TCTs in view of the doctrine
that the defense of indefeasibility of a torrens title does not extend to
transferres who take the certificate of title in bad faith.
Considering that respondents Parungao who, in good faith, were first in
possession of the subject lots, we rule that the ownership thereof
pertains to them.
Sales; In double sales of immovable property, the governing
principle is prius tempore, prius jure (first in time, stronger in
right).—In double sales of immovable property, the governing principle
is prius tempore, prius jure (first in time, stronger in right). Thus,
in Payongayong v. Court of Appeals, 430 SCRA 210 (2004), this Court
held that under Article 1544, preferential rights shall be accorded to: (1)
the person acquiring it who in good faith first recorded it in the Registry
of Property, (2) in default thereof to the person who in good faith was
first in possession, and (3) in default thereof, to the person who presents
the oldest title, provided there is good faith. In all of these cases, good
faith is essential, being the basic premise of the preferential rights
granted to the person claiming ownership of the immovable.
Same; Double Sales; The act of registration by the second buyer
must be coupled with good faith, meaning, the registrant must have
no knowledge of the defect or lack of title of his vendor or must not
have been aware of facts which should put him upon such inquiry
and investigation as might be necessary to acquaint him with the
defects in the title of his vendor.—In Occeña v. Esponilla, 431 SCRA
116 (2004), this Court, speaking through then Associate Justice (now
Chief Justice) Reynato S. Puno, laid down the following rules in the
application of Article 1544: (1) Knowledge by the first buyer of the
second sale cannot defeat the first buyer’s rights except when the
second buyer first registers in good faith the second sale; and (2)
Knowledge gained by the second buyer of the first sale defeats his rights
even if he is first to register, since such knowledge taints his registration
with bad faith. Differently put, the act of registration by the second buyer
must be coupled with good faith, meaning, the registrant must have no
knowledge of the defect or lack of title of his vendor or must not have
been aware of facts which should put him upon such inquiry and
investigation as might be necessary to acquaint him with the defects in
the title of his vendor.
Same; Same; Purchasers in Good Faith; Burden of Proof; The
burden of proving the status of a purchaser in good faith lies upon
him who asserts that status and it is not sufficient to invoke the
ordinary presumption of good faith, that is, that everyone is
presumed to have acted in good faith; Settled is the rule that a
buyer of real property in possession of persons other than the
seller must be wary and should investigate the rights of those in
possession, for without such inquiry the buyer can hardly be
regarded as a buyer in good faith and cannot have any right over
the property.—A purchaser in good faith or innocent purchaser for
value is one who buys property and pays a full and fair price for it at the
time of the purchase or before any notice of some other person’s claim
on or interest in it. The burden of proving the status of a purchaser in
good faith lies upon him who asserts that status and it is not sufficient to
invoke the ordinary presumption of good faith, that is, that everyone is
presumed to have acted in good faith. In the instant case, the HLURB
Arbiter, the HLURB Commission, the Office of the President, and the
Court of Appeals found that at the time of the second sale to petitioners
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by Spring Homes, there were already occupants and improvements on
the two lots in question. These facts should have put petitioners on their
guard. Settled is the rule that a buyer of real property in possession of
persons other than the seller must be wary and should investigate the
rights of those in possession, for without such inquiry the buyer can
hardly be regarded as a buyer in good faith and cannot have any right
over the property.
Same; Land Titles; Indefeasibility of Torrens Title; The defense of
indefeasibility of a Torrens title does not extend to transferees who
take the certificate of title in bad faith.—As the petitioners cannot be
considered buyers in good faith, they cannot rely upon the indefeasibility
of their TCTs in view of the doctrine that the defense of in-defeasibility
of a Torrens title does not extend to transferees who take the certificate
of title in bad faith.
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Sale by virtue of execution and attachment – Art. 1544
-Art. 1544 does NOT apply in cases where the first sale of an
unregistered immovable occurred prior to an execution sale and the
second sale occurred by virtue of an execution sale. This is because a
buyer of unregistered land at an execution sale only steps into the shoes
of the judgment debtor (the person who sold the property prior to the
execution sale). The second buyer merely acquires the latter's interest
in the property sold as of the time the property was levied upon.
Book Case- Uy. V Sps. Medina- The settled rule is that levy on
attachment, duly registered, takes over a prior unregistered sale. This
result is a necessary consequence of the fact that property involved was
duly covered by the Torrens System which works under the fundamental
principle that registration is the operative act which gives validity to the
transfer or creates a lien upon the land. The preference created by the
levy on attachment is not diminished even by the subsequent
registration of the prior sale.
• Carumba v. CA 31 SCRA 558 (1970)
Ponente: Reyes, J.B.L.
Vendor: Spouses Amado Canuto & Nemesia Ibasco
Vendee: (1) Spouses Amado Carumba & Benita Canuto; (2) Santiago
Balbuena
Point: Case exception to the rule that in the case of a double sale,
registration in good faith prevails over possession.
Facts:
1. Subject land: a parcel of “partly residential, partly coconut”
land (with periphery area of 359.09 square meters) in
Camarines Sur
2. April 12, 1955 – VENDOR sold subject land to VENDEE1 by
virtue of a "Deed of Sale of Unregistered Land with Covenants
of Warranty" for the sum of P350.00. The deed of sale was
never registered in the Office of the Register of Deeds of
Camarines Sur, and the Notary, Mr. Vicente Malaya, was not
then an authorized notary public in the place.
3. January 21, 1957 – a complaint for sum of money was filed by
VENDEE2 against the VENDOR before the Justice of the
Peace Court of Iriga, Camarines Sur. Such complaint ripened
into a civil case of which a decision was later on rendered
dated April 15, 1957 in favour of VENDEE2 against the
VENDOR.
4. Oct 1, 1968 -- the ex-officio Sheriff of Camarines Sur issued a
"Definite Deed of Sale of the property in favour of VENDEE2.
Such instrument of sale was registered before the Office of
the Register of Deeds of Camarines Sur. The aforesaid
property was declared for taxation purposes in the name of
VENDEE2.
CFI: Ruled in favour of VENDEE1. The court, based on its findings,
declared VENDEE1 the owner of the property under a consummated
sale because after the execution of the sale, they immediately took
possession of the land planting thereon bananas, coffee and other
vegetables thereon. Also held as void the the execution levy made by
the sheriff and nullified the sale in favour of VENDEE2.
CA: Reversed CFI and ruled in favour of VENDEE2. There having been
a double sale of the land, VENDEE2’s title was superior to that of
VENDEE1 under Article 1544 of the Civil Code of the Philippines, since
the execution sale had been properly registered in good faith and the
sale to VENDEE1 was not recorded.
Issue/s:
1. Who is the real owner of the land?
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Held + Rationale:
1. VENDEE1 is the real owner.
Article 1544 finds no application in the case at bar, even if VENDEE2,
the later vendee, was ignorant of the prior sale made by his judgment
debtor in favor of VENDEE1.
Under Section 35 of Rule 39 of the Revised Rules of Court, the
purchaser of unregistered land at a sheriff's 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.
While the time of the levy does not clearly appear, it could not have been
made prior to 15 April 1957, when the decision against the former
owners of the land was rendered in favor of Balbuena. But the deed of
sale in favor of Canuto had been executed two years before, on 12 April
1955, and while only embodied in a private document, the same,
coupled with the fact that the buyer (VENDEE1) had taken possession
of the unregistered land sold, sufficed to vest ownership on the said
buyer. When the levy was made by the Sheriff, therefore, the
judgment debtor no longer had dominical interest nor any real right
over the land that could pass to the purchaser at the execution
sale. Hence VENDEE2 must yield to VENDEE1.
Civil law; Sale; Double sale; Article 15UU of Civil Code does not
apply to unregistered land.—The rule in Article 1544 of the Civil Code
applies to lands covered by Torrens title, where the prior sale is neither
recorded nor known to the execution purchaser prior to the levy. But
where the land in question is not registered under Act No. 496, the rule
is different. While under Article 1544 of Civil Code registration in good
faith prevails over possession in the event of a double sale by the vendor
of the same piece of land to different vendees, said article is not
applicable even if the later vendee was ignorant of the prior sale made
by his judgment debtor in favor of another vendee. The reason is that
the purchaser of unregistered land at a sheriff’s 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, as provided in Sec. 35 of Rule 39 of the Revised Rules of Court.
Remedial law; Civil procedure; Execution; Purchaser acquires
interest of judgment debtor as of the time of the levy.—The
purchaser of unregistered land at a sheriff’s 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.
This is specifically provided by Section 35 of Rule 39 of the Revised
Rules of Court.
________________________________________________________
Meaning of “Better Right”
ILUMINADO HANOPOL vs. PERFECTO PILAPILG.R. No. L-19248.
February 28, 1963
FACTS:
Appellant Hanopol claims ownership of a parcel of unregistered land in
Leyte by virtue of a series of purchases effected in 1938 by means of
private instruments, executed by the former owners Teodora, Lucia,
Generosa, Sinforosa and Isabelo, all surnamed Siapo. Additionally, he
invokes in his favor a decision rendered by the Court of First Instance of
Leyte (in Civil Case No. 412) on a complaint he filed on June 16, 1948,
against the same vendors, who, according to his own averments, took
possession of the said property in December, 1945 through fraud, threat
and intimidation, pretending falsely to be the owners thereof and ejecting
the tenants of Hanopol thereon, and since then had continued to
possess the land. Decision declaring him the exclusive owner of the land
in question and ordering therein defendants to deliver possession
thereof was rendered on September 21, 1958.
On the other hand, appellee Pilapil asserts title to the property on the
strength of a duly notarized deed of sale executed in his favor by the
same owners on December 3, 1945, which deed of sale was registered
in the Registry of Deeds of Leyte on August 20, 1948 under the
provisions of Act No. 3344.
ISSUE: Whether or not the registration of the second sale in favor of
Pilapil affects Hanopol's rights as the first vendee
HELD:
Appellant argues that the registration of Pilapil's notarized deed of sale
in 1948 under Act No. 3344 "shall be understood to be without prejudice
to a third party with a better right". He contends that since at the time the
Siapos sold the land in question in 1945 to Pilapil, the former were no
5

longer the owners as they had already sold the same to appellant since
1938, the first sale to him is a better right which cannot be prejudiced by
the registration of the second sale.
We do not think the proviso in Act No. 3344 justifies appellant's
contention. If his theory is correct, then the second paragraph of Article
1544 of the New Civil Code (formerly Article 1473 of the old Code) would
have no application at all except to lands or real estate registered under
the Spanish Mortgage Law or the Land Registration Act. Such a theory
would thus limit the scope of that codal provision. But even if we adopt
this latter view, that is, that Article 1544 (formerly Article 1473) only
applies to registered land, still we cannot agree with the appellant that
by the mere fact of his having a previous title or deed of sale, he has
acquired thereby what is referred to in Act No. 3344 as the "better right"
that would be unaffected by the registration of a second deed of sale
under the same law. Under such theory, there would never be a case of
double sale of the same unregistered property.
It thus appears that the "better right" referred to in Act No. 3344 is much
more than the mere prior deed of sale in favor of the first vendee. In the
Lichauco case mentioned, it was the prescriptive right that had
supervened. Or, as also suggested in that case, other facts and
circumstances exist which, in addition to his deed of sale, the first
vendee can be said to have better right than the second purchaser.
In the case at bar, there appears to be no clear evidence of Hanopol's
possession of the land in controversy. In fact, in his complaint against
the vendors, Hanopol alleged that the Siapos took possession of the
same land under claim of ownership in 1945 and continued and were in
such possession at the time of the filing of the complaint against them in
1948. Consequently, since the Siapos were in actual occupancy of the
property under claim of ownership, when they sold the said land to
appellee Pilapil on December 3, 1945, such possession was transmitted
to the latter, at least constructively, with the execution of the notarial
deed of sale, if not actually and physically as claimed by Pilapil in his
answer filed in the present case. Thus, even on this score, Hanopol
cannot have a better right than appellee Pilapil who, according to the
trial court, "was not shown to be a purchaser in bad faith".
Judgments; When conclusive upon successors-in-interest; Title
should be acquired subsequent to commencement of suit.—Al-
though appellee claims to be the successor-in-interest of the vendors,
he is not bound by the judgment rendered against the latter, because it
appears that he derived his right to the land in question from its sale to
him long before the filing of the complaint against the vendors, and not
subsequent to the commencement of the action as provided in
paragraph (b), Section 44 of Rule 39 of the Rules of Court.
Registration of voluntary instruments; Double sale of land;
Meaning of term “better righ”“ in Act 3344.—The “better right” that
can not be prejudiced by the registration of a second sale of a parcel of
land, referred to in Act No. 3344, is much more than the mere prior deed
of sale in favor of the first vendee. It involves facts and circumstances
— in addition to a deed of sale— which, combined, would make it clear
that the first vendee has a better right than the second purchaser.
________________________________________________________
Unregistered land – PD 1529 sec. 113
Applicable Law: PD 1529 SEC. 113
Section 113. Recording of instruments relating to unregistered lands. No
deed, conveyance, mortgage, lease, or other voluntary
instrument affecting land not registered under the Torrens system shall
be valid, except as between the parties thereto, unless such instrument
shall have been recorded in the manner herein prescribed in the office
of the Register of Deeds for the province or city where the land lies.
-Although the sale of an unregistered land is valid between parties
therein the same cannot affect 3rd parties unless the same is registered
in the Office of the Register of Deeds.
*EXCEPTIONS TO THE REGISTRATION:
-registration is not a requirement for validity of the contract as between
the parties, for the effect of registration serves chiefly to bind 3rd
persons. The principal purpose of registration is merely to notify other
persons not parties to a contract that a transaction involving the property
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had been entered into.. The conveyance shall not be valid against 3rd
person unless registered except 1. Grantor, 2 his heirs and devisees,
and 3. Third persons having actual notice of knowledge thereof.
PURCHASER IN BAD FAITH: Bad faith doesn’t simply connote bad
judgment or negligence, it imports a dishonest purpose or moral obliquity
and conscious doing of a wrong, a breach of known duty through some
motive or interest or ill will that partakes of nature of fraud.
Dagupan Trading v. Macam
DOCTRINE: Where one of two conflicting sales of a piece of land was
executed before the land was registered, while the other was an
execution sale in favor of the judgment creditor of the owner made after
the same property had been registered, what should determine the issue
are the provisions of the last paragraph of Section 35, Rule 39 of the
Rules of Court to the effect that, upon the execution and delivery of the
final certificate of sale in favor of the purchaser of land sold in an
execution sale, such purchaser “shall be substituted to and acquire all
the rights, title, interest and claim of the judgment debtor to the property
as of the time of the levy.”
Quick Summary
-Sammy Maron and his siblings were pro indiviso owners of a parcel of
land which they sold to appellee Macam pending its registration uder Act
No. 496.
-by virtue of the decision in a civil case against Sammy Maron in facor
of Manila Trading and Supply Company, levy was made upon his
interest in the property and it was thereafter sold at a public auction.
Final sale was made in favor of Manila Trading and Supply Co. And the
latter subsequently sold all its rights to the property to Dagupan Trading.
ISSUE: Who has a better right to the share of Sammy Maron to the
roperty?
HELD: Where one of two conflicting sales of a piece of land was
executed before the land was registered, while the other was an
execution sale in favor of the judgment creditor of the owner made after
the same property had been registered, what should determine the issue
are the provisions of the last paragraph of Section 35, Rule 39 of the
Rules of Court to the effect that, upon the execution and delivery of the
final certificate of sale in favor of the purchaser of land sold in an
execution sale, such purchaser “shall be substituted to and acquire all
the rights, title, interest and claim of the judgment debtor to the property
as of the time of the levy.”
FACTS:
1. Sammy Maron and his seven brothers and sisters were pro
indiviso owners of a parcel of unregistered land in
Pangasinan.
2. While their application for registration of said land under Act
No. 496 was pending, they executed two deeds of sale
conveying the property to appellee [Macam] who thereafter
took possession thereof and introduced substantial
improvements therein.
3. One month later, OCT was issued in favor of the Maron’s free
from, lien and encumbrances.
4. By virtue of a final judgment rendered in Civil Case No. 42215
against Sammy Maron in favor of the Manila Trading and
Supply Company, levy was made upon whatever interest he
had in the aforementioned property, and thereafter said
interest was sold at public auction to the judgment creditor.
5. The corresponding notice of levy, certificate of sale and the
Sheriff’s certificate of final sale in favor of the Manila Trading
and Supply Co.
6. On March 1, 1958, the latter sold all its rights, and title to the
property to appellant [Dagupan Trading].
6

ISSUE:
Who has the better right as between to the one-eighth share of Sammy
Maron in the property mentioned heretofore?
HELD:
If the property covered by the conflicting sales were unregistered land,
Macam would have the better right in view of the fact that his claim is
based on a prior sale coupled with public,exclusive and continuous
possession thereof as owner. On the other hand, were the land involved
in the conflicting transactions duly registered land, appellant has the
better right because, in case of conveyance of registered real estate, the
registration of the deed of sale is the operative act that gives validity to
the transfer.
-The present case, however, does not fall within either situation. Here
the sale in favor of appellee was executed before the land subject matter
thereof was registered, while the conflicting sale in favor of appellant
was executed after the same property had been registered.
-What should determine the issue are the provisions of the last
paragraph of Section 35, Rule 39 of the Rules of Court, to the effect
that upon the execution and delivery of the final certificate of sale in favor
of the purchaser of land sold in an execution sale, such purchaser “shall
be substituted to and acquire all the right, title, interest and claim of the
judgment debtor to the property as of the time of the levy.” Now we ask:
What was the interest and claim of Sammy Maron on the oneeighth
portion of the property inherited by him and his coheirs, at the time
of the levy? The answer must necessarily be that he had none, because
for a considerable time prior to the levy, his interest had already been
conveyed to appellee, “fully and irretrievably”.
-Consequently, subsequent levy made on the property for the purpose
of satisfying the judgment rendered against Sammy Maron in favor of
the Manila Trading Company was void and of no effect. The
unregistered sale and the consequent conveyance of title and ownership
in favor of appellee could not have been cancelled and rendered of no
effect upon the subsequent issuance of the Torrens title over the entire
parcel of land.
Dispositive: Macam Won.
Sales; Conflicting sales; One sale before registration of land and
the other an execution sale after registration of land; Law
governing.—Where one of two conflicting sales of a piece of land was
executed before the land was registered, while the other was an
execution sale in favor of the judgment creditor of the owner made after
the same property had been registered, what should determine the issue
are the provisions of the last paragraph of Section 35, Rule 39 of the
Rules of Court to the effect that, upon the execution and delivery of the
final certificate of sale in favor of the purchaser of land sold in an
execution sale, such purchaser “shall be substituted to and acquire all
the rights, title, interest and claim of the judgment debtor to the property
as of the time of the levy.”
Same; Same; Same; Unregistered sale cannot be defeated by
subsequent execution sale and registration of latter.—Where for a
considerable time prior to the levy on execution interest of the owner of
the land levied upon had already been convened to another who took
possession thereof and introduced improvements thereon, the aforesaid
levy is void. The prior sale, albeit unregistered, cannot be deemed
automatically cancelled upon the subsequent issuance of the Torrens
Title over the land.
Same; Same; Same; Right of ownership already fixed under Civil
Law and/or Mortgage Law cannot be overthrown by law.—As
between a right of ownership already fixed and established under the
Civil Law and/or the Spanish Mortgage Law, and a new law or system
which would make possible the overthrowing of such ownership on
admittedly artificial and technical grounds, the former must be upheld.
________________________________________________________
When one sale is forgery
-A forged deed is an absolute nullity and conveys no title. The
registration of the forged deed does not cure the infirmity. Nevertheless,
even if the procurement of a certificate of title may be the source of a
completely legal and valid title in the hands of an innocent purchaser for
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value.
• Espiritu v. Valerio 9 SCRA 761 (1963)
Sales; Same land sold to two different vendees; Vendee first
registering sale has better right under Art. 1544, Civil Code.—
Where the owner of a parcel of unregistered land sold it to two different
parties,—assuming that both sales are valid—the vendee whose deed
of sale was first registered under the provisions of Act 3344 would have
a better right.
Same; Same; Art. 1544, Civil Code, not applicable where one deed
of sale is falsified.—Where the same parcel of land was sold to two
different parties, it is held that, despite the fact that one deed of sale was
registered ahead of the other, Art. 1544 of the Civil Code will not apply
where said deed is found to be a forgery; the result of this being, that the
right of the other vendee should prevail.
*KNOWLEDGE OF THE PRIOR OR SUBSEQUENT SALE:
-If the prior sale is registered first, the first buyer has a BETTER RIGHT
even though he knew of the subsequent sale. The fact that He knew of
the subsequent sale at the time of his registration does not make him
as acting in Bad Faith because the sale to him was ahead in time. Thus
he has a priority in right.
If the subsequent sale is registered first by the 2nd buyer who had
knowledge of the prior sale, the first buyer is still to be preferred because
the 2nd buyer acted in Bad Faith. What creates bad faith in this case of
double sale of land is knowledge of prior sale.
FIRST IN POSSESSION IN GOOD FAITH:
-Applies when no one between the parties has registered his or her
respective DOS with the Registry of Deeds, the ownership should be
transferred to the person who in good faith was in FIRST
POSSESSION thereof.
QUIMSON v ROSETE
Dionisio executed a deed of conveyance in favor of his daughter
Tomasia. He later on sold to Rosete, who took possession in a peaceful
manner even after Dionisio died. Tomasia and Rosete registered the
property in their names on the same day, but Tomasia filed an hour
earlier. SC held that Tomasia is the owner because the execution of the
deed of conveyance is considered symbolic possession. Execution of
the public instrument is equivalent to the delivery of the realty sold and
its possession by the vedee. Under these conditions the sale is
considered consummated and completely transfers to the vendee all of
the thing. the vendee by virtue of this sale has acquired everything and
nothing, absolutely nothing, is left to the vendor.
IMPORTANT PEOPLE
Dionisio Quimson – Vendor, sold land to Tomasia and Francisco
Francisco Rosete, Tomasia Quimson – Both claiming ownership
(Spoiler: Tomasia is the owner)
FACTS (In Spanish! From another digest kasi ang labo ng Google
translation)
The case involves s dispute over a parcel of land sold to two different
persons:Tomasa Quimson and Francisco Rosete.
The property originally belonged to Dionisio Quimson (deceased), who
executed a deed of conveyance in favor of his daughter Tomasa
Quimson. However, he continued possession and enjoyment of the
property.
Dionisio also sold the land to Sps Magno Agustin and Paulina Manzano
with an agreement to repurchase within 6 years. Two years later, it was
also sold to Francisco Rosete, with a pacto de retro, within 5 years.
Dionisio repurchased the property from the Sps with the money that
Rosete paid him for the land.
7

Rosete excercised possession and enjoyment in a peaceful and quiet
manner, even after the death of Dionisio.
When Tomasia and Rosete sought the registration of the property and
inscription of the deed of sale, Tomasa arrived earlier (930am) than
Rosete (1030am).
Tomasa filed a complaint with the Justice of Peace of San Marcelino
Zambalez
 CFI: Tomasa is the rightful owner
 CA: Reversed
ISSUE:
Who owns the property, Tomasa Quimson or Francisco Rosete? -
TOMASA QUIMSON
RATIO:
ART. 1473. 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 first recorded it in the registry.
Should there be no inscription, the ownership shall belong to the person
who in good faith was first in the possession; and, in the absence of this,
to the person who represents the oldest title, provided there is good faith.
Tomasa is the owner because it was sold to her by her father for
P250 and upon the execution of the public instrument, she gained
symbolic possession of the property.
1. The findings that a deed of conveyance was made by Dionisio
Quimson in favor of his daughter could have no other
meaning, in the absence of any qualifying statement, that the
land was sold by the father to his daughter.
 Documents show that Tomasa paid P250 as consideration,
acknowledged before the notary public the notary public
having executed the instruments of his own free will.
2. The possession mentioned in the article 1473 (for determining
who has better right when the same piece of land has been
sold several times by the vendor ) includes not the materials
but also the symbolic possession, which is acquired by the
execution of a public instrument.
 Florendo v Foz: When the sale is made by means of a public
instrument, the execution thereof is tantamount to
conveyance of the subject matter. Such execution by the
vendor is per se a formal or symbolical conveyance of the
property sold, that is, the vendor in the instrument itself
authorizes the purchaser to use the title of ownership as proof
that latter is thenceforth the owner of the property."
 Sanchez v Roman: The proposition that 1473 refers to the
materials possession and excludes the symbolic does not
seem to be founded upon a solid ground. Execution of the
public instrument is equivalent to the delivery of the realty sold
(art. 1462, Civil Code) and its possession by the vedee (art.
438). Under these conditions the sale is considered
consummated and completely transfers to the vendee all of
the thing. the vendee by virtue of this sale has acquired
everything and nothing, absolutely nothing, is left to the
vendor.
3. Re possession: If [the vendor] continues taking material
possession of it, it is simply on account of the vendee's
tolerance and, in this sense, his possession is vendor's
possession.
 Rosete's possession fell far short of having ripened into title
by prescription when the Tomasa commenced her action.
PURCHASE AND SALE; PREFERENCE IN CASE OF DOUBLE
SALE; MATERIAL AND SYMBOLIC POSSESSION.—The possession
mentioned in article 1473 (for determining who has better right when the
same piece of land has been sold several times by the same vendor)
includes not only the material but also the symbolic possession, which
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is acquired by the execution of a public instrument. The doctrine laid
down in Sanchez vs. Ramos (40 Phil., 614), reiterated.
OLDEST TITLE:
-Applies when in case both parties have not registered their DOS and
not acquired possession over the property despite the execution of their
DOS, the ownership should be transferred to the person who can
present the older title, provided there is Good Faith.
DEFINITIONS:
Possession: refers to any of the modes of possession in (Articles 1497-
1501)
Oldest Title: as to 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)]
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. Pencilled entries on
the title are not considered registration.
*WHEN A BUYER IS PRESUMED TO BE IN BAD FAITH: (1)
Annotation of adverse claim: Places any subsequent buyer of the
registered land in bad faith.
*Adverse Claim (SEC. 70 of PD 1529): a statement in writing setting
forth a subsequent right or interest claimed involving a property. It
notifies 3rd persons that rights that may be acquired with respect to a
property are subject to the result of the case involving it.
*Purpose of Annotations of Adverse Claims: to apprise the whole world
of the controversy involving the property. These annotations protect the
adverse claimant’s rights before or during the pendency of a case
involving a property. It notifies 3rd persons that rights that may be
acquired with respect to a property are subject to the results of the case
involving it.
*Claim bases on Future Right: Does not ripen into an adverse claim. A
right still subject to negotiations cannot be enforced against a title holder
or against one that has a legitimate title to the property based on
possession, ownership, lien, or any valid deed of transfer.
The adverse claim shall be effective for a period of 30 days from the
date of registration. After the lapse of the said period, the annotation of
adverse claim may be cancelled upon filing of a verified petition therefor
by the party in interest.
(2) Annotation of Lis Pendens: Buyer cannot be considered an
innocent purchaser for value where it ignored the lis pendens on the
title.
*Lis Pendens: a pending suit or pending litigation.
*Notice of Lis Pendens: is an announcement to the whole world that a
real property is in litigation, serving as a warning that anyone who
acquires an interest over the property does so at his/her own risk, or
that he/she gambles on the result of the litigation over the property.
*Purpose of lis Pendens: to protect the rights of the registrant while the
case is pending resolution or decision.
Doctrine of lis pendens- is founded upon reason of public policy and
necessity, the purpose of which is to keep the subject matter of litigation
within the Court’s jurisdiction until the judgment or the decree have been
entered.
8

The notice of lis pendens, is necessary to protect the right of the party
who caused it to be registered. All persons are charged with the
knowledge of what it contains. Therefore, the settled rule is the one who
deals, with property subject of a notice of lis pendens cannot invoke the
right of a purchase in good faith.
(3) 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.
Lis Pendens vs Annotation of Adverse claim
-May be cancelled even before -May be cancelled only in one
the action is finally terminated instance, i.e., after the claim is
for causes w h i c h m a y n o t b adjudged invalid or
eattributabletothe unmeritorious by the Court.
claimant.
*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.
BURDEN OF ONE WHO ALLEGES GOOD FAITH AND BAD FAITH
Bad faith is never presumed. It is a question of fact that must be proven
by clear and convincing evidence, The burden of proving bad faith relies
rests on the one alleging it.
Burden of proving the status of a purchase in good faith lies upon the
party asserting that status and cannot be discharged by reliance on the
legal presumption of good faith.
CONDITIION TO ASSERT GOOD FAITH
1. The seller is the registered owner of the land
2. The latter is in possession thereof;
3. The time of sale, the buyer was not aware of any claim or interest of
some other person in the property or of any defect or restriction in the
title of the seller or in his capacity to convey title to the property.
________________________________________________________
D. CONDITIONS AND WARRANTIES:
FILINVEST CREDIT CORPORATION vs. COURT OF APPEALS
G.R. No. 82508 September 29, 1989
Facts:
Spouses Sy Bang were engaged in the sale of gravel produced from
crushed rocks and used for construction purposes. In order to increase
their production, they looked for a rock crusher which Rizal
Consolidated Corporation then had for sale. A brother of Sy Bang,
went to inspect the machine at the Rizal Consolidated’s plant site.
Apparently satisfied with the machine, the private respondents signified
their intent to purchase the same.
Since he does not have the financing capability, Sy Bang applied for
financial assistance from Filinvest Credit Corporation. Filinvest agreed
to extend financial aid on the following conditions: (1) that the
machinery be purchased in the petitioner’s name; (2) that it be leased
with option to purchase upon the termination of the lease period; and
(3) that Sy Bang execute a real estate mortgage as security for the
amount advanced by Filinvest. A contract of lease of machinery (with
option to purchase) was entered into by the parties whereby they to
lease from the petitioner the rock crusher for two years. The contract
likewise stipulated that at the end of the two-year period, the machine
would be owned by Sy Bang.
3 months from the date of delivery, Sy Bang claiming that they had
only tested the machine that month, sent a letter-complaint to the
petitioner, alleging that contrary to the 20 to 40 tons per hour capacity
of the machine as stated in the lease contract, the machine could only
process 5 tons of rocks and stones per hour. They then demanded that
the petitioner make good the stipulation in the lease contract. Sy Bang
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stopped payment on the remaining checks they had issued to the
petitioner.
As a consequence of the non-payment, Filinvest extrajudicially
foreclosed the real estate mortgage.
Issue:
WON the real transaction was lease or sale? SALE ON
INSTALLMENTS.
Held:
The real intention of the parties should prevail. The nomenclature of
the agreement cannot change its true essence, i.e., a sale on
installments. It is basic that a contract is what the law defines it and the
parties intend it to be, not what it is called by the parties. It is apparent
here that the intent of the parties to the subject contract is for the so-
called rentals to be the installment payments. Upon the completion of
the payments, then the rock crusher, subject matter of the contract,
would become the property of the private respondents. This form of
agreement has been criticized as a lease only in name.
Sellers desirous of making conditional sales of their goods, but who do
not wish openly to make a bargain in that form, for one reason or
another, have frequently resorted to the device of making contracts in
the form of leases either with options to the buyer to purchase for a
small consideration at the end of term, provided the so-called rent has
been duly paid, or with stipulations that if the rent throughout the term
is paid, title shall thereupon vest in the lessee. It is obvious that such
transactions are leases only in name. The so-called rent must
necessarily be regarded as payment of the price in installments since
the due payment of the agreed amount results, by the terms of
bargain, in the transfer of title to the lessee.
Indubitably, the device contract of lease with option to buy is at times
resorted to as a means to circumvent Article 1484, particularly
paragraph (3) thereof.Through the set-up, the vendor, by retaining
ownership over the property in the guise of being the lessor, retains,
likewise, the right to repossess the same, without going through the
process of foreclosure, in the event the vendee-lessee defaults in the
payment of the installments. There arises therefore no need to
constitute a chattel mortgage over the movable sold. More important,
the vendor, after repossessing the property and, in effect, canceling
the contract of sale, gets to keep all the installments-cum-rentals
already paid.
Even if there was a contract of sale, Filinvest is still not liable because
Sy Bang is presumed to be more knowledgeable, if not experts, on the
machinery subject of the contract, they should not therefore be heard
now to complain of any alleged deficiency of the said machinery. It was
Sy Bang who was negligent, not Filinvest. Further, Sy Bang is
precluded to complain because he signed a Waiver of Warranty.
Contracts, Interpretation Of; Nomenclature of an agreement
cannot prevail over the parties’ intention.—Be that as it may, the
real intention of the parties should prevail. The nomenclature of the
agreement cannot change its true essence, i.e., a sale on installments.
It is basic that a contract is what the law defines it and the parties
intend it to be, not what it is called by the parties.
Same; Same; Sales; Contracts in the form of lease either with an
option to the buyer to purchase for a small consideration at the
end of the term provided all installments are paid or with
stipulation that if the rent throughout the term is paid, title shall
vest in the lessee, are leases in name only; Contracts of this
nature are actually contracts of sale.—It is apparent here that the
intent of the parties to the subject contract is for the so-called rentals to
be the installment payments. Upon the completion of the payments,
then the rock crusher, subject matter of the contract, would become
the property of the private respondents. This form of agreement has
been criticized as a lease only in name. Thus in Vda. de Jose v.
Barrueco, we stated: Sellers desirous of making conditional sales of
their goods, but who do not wish openly to make a bargain in that form,
for one reason or another, have frequently resorted to the device of
making contracts in the form of leases either with options to the buyer
to purchase for a small consideration at the end of term, provided the
so-called rent has been duly paid, or with stipulations that if the rent
throughout the term is paid, title shall thereupon vest in the lessee. It is
obvious that such transactions are leases only in name. The so-called
rent must necessarily be regarded as payment of the price in
installments since the due payment of the agreed amount results, by
the terms of bargain, in the transfer of title to the lessee.
Same; Same; Same; Same; Sale of Movables in Installments;
Remedies of Seller; The remedies of a seller provided for in Art.
1484 are alternative and not cumulative, hence, the exercise of
9

one precludes the exercise of the others; and this limitation
applies likewise to contracts purporting to be leases of personal
property with option to buy.—The seller of movables in installments,
in case the buyer fails to pay two or more installments, may elect to
pursue either of the following remedies: (1) exact fulfillment by the
purchaser of the obligation; (2) cancel the sale; or (3) foreclose the
mortgage on the purchased property if one was constituted thereon. It
is now settled that the said remedies are alternative and not cumulative
and therefore, the exercise of one bars the exercise of the others.
Indubitably, the device—contract of lease with option to buy—is at
times resorted to as a means to circumvent Article 1484, particularly
paragraph (3) thereof. Through the set-up, the vendor, by retaining
ownership over the property in the guise of being the lessor, retains,
likewise, the right to repossess the same, without going through the
process of foreclosure, in the event the vendee-lessee defaults in the
payment of the installments. There arises therefore no need to
constitute a chattel mortgage over the movable sold. More important,
the vendor, after repossessing the property and, in effect, canceling
the contract of sale, gets to keep all the installments-cum-rentals
already paid.
A warranty is a statement or representation made by the seller of
goods, contemporaneously and 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 them.
Warranties by the seller may be express (if explicitly stipulated by the
parties) or implied (under Art. 1547 et seq. of the civil code)
Kinds of Warranties
Art. 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 fi rst 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. *Art. 1545 is applicable only
to a Perfected Contract of Sale.
*In relation to Art. 1182- When the fulfillment of the condition
depends upon the sole will of the debtor, the conditional obligation
shall be void. If it depends upon chance or upon the will of a 3rd
person, the obligation shall take effect in conformity with the provisions
of this code.
*REMEDIES UNDER ART. 1545:
-If the condition imposed in the performance of an obligation of either
part is not performed or cannot be performed, Article 1545 allows the
aggrieved party to choose between refusing to proceed with the
contract, OR waiving the performance of the condition the latter
remedy is tantamount to proceeding with the agreement.
If the other party has promised that the condition should happen or be
performed, the aggrieved party may also treat the non-performance of
the condition as a breach of warranty. This is the transformation of a
condition as a breach of warranty and the non-performance thereof
may be treated as a breach of warranty.
*RECISSION/RESSOLUTION: The action for recission may be
brought only by the aggrieved party. Fernando
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Carrascoso, Jr. v. Court of Appeals and LauroLeviste
December 14, 2005. 477 scra 666
Contract to Sell vs Contract of Sale
Facts:
In March 1972, El Dorado Plantation Inc, through board member
LauroLeviste, executed a Deed of Sale with Carrascoso. The subject
of the sale was a 1825 hectare of land. It was agreed that Carrascoso
is to pay P1.8M. P290K would be paid by Carrascoso to PNB to settle
the mortgage placed on the said land. P210k would be paid directly to
Leviste. The balance of P1.3M plus 10% interest would be paid over
the next 3 years at P519k every 25th of March. Leviste also assured
that there were no tenants hence the land does not fall under the Land
Reform Code. Leviste allowed Carrascoso to mortgage the land which
the latter did.
Carrascoso obtained a total of P1.07M as mortgage and he used the
same to pay the down payment agreed upon in the contract.
Carrascoso defaulted from his obligation which was supposed to be
settled on March 25, 1975. Leviste then sent him letters to make good
his end of the contract otherwise he will be litigated.
In 1977, Carrascoso executed a Buy and Sell Contract with PLDT. The
subject of the sale was the same land sold to Carrascoso by Leviste
but it was only the 1000 sq m portion thereof. The land is to be sold at
P3M. Part of the terms and conditions agreed upon was that
Carrascoso is to remove all tenants from the land within one year. He
is also given a 6 month extension in case he’ll need one. Thereafter,
PLDT will notify Carrascoso if whether or not PLDt will finalize the sale.
PLDT gained possession of the land.
El Dorado filed a civil case against Carrascoso. PLDT intervened
averring that it was a buyer in good faith. The RTC ruled in favor of
Carrascoso. CA reversed the RTC ruling.
ISSUE: What is the nature of each contract?
HELD: The contract executed between El Dorado and Carrascoso was
a contract of sale. It was perfected by their meeting of the minds and
was consummated by the delivery of the property to Carrascoso.
However, El Dorado has the right to rescind the contract by reason of
Carrascoso’s failure to perform his obligation.
A contract of sale is a reciprocal obligation. The seller obligates itself to
transfer the ownership of and deliver a determinate thing, and the
buyer obligates itself to pay therefor a price certain in money or its
equivalent. The non-payment of the price by the buyer is a resolutory
condition which extinguishes the transaction that for a time existed,
and discharges the obligations created thereunder. Such failure to pay
the price in the manner prescribed by the contract of sale entitles the
unpaid seller to sue for collection or to rescind the contract.
The contract between Carrascoso and PLDT is a contract to sell. This
is evidenced by the terms and conditions that they have agreed upon
that after fulfillment of Carrascoso’s obligation PLDT has “to notify
Carrascoso of its decision whether or not to finalize the sale.”
Carrascoso also averred that there was a breach on El Dorado’s
part when it comes to warranty. Carrascoso claimed that there
were tenants on the land and he spent about P2.9M relocating
them. The SC ruled that Carrascoso merely had a bare claim
without additional proof to support it.
Requisites of Express warranty in a Contract of Sale
(1) the express warranty must be an affirmation of fact or any
promise by the seller relating to the subject matter of the sale;
(2) the natural tendency of such affirmation or promise is to
induce the buyer to purchase the thing; and
(3) the buyer purchases the thing relying on such affirmation or
promise thereon.
Obligations and Contracts; Sales; Words and Phrases; Reciprocal
obligations are those which arise from the same cause and in
which each party is a debtor and a creditor of the other, such that
the obligation of one is dependent upon the obligation of the
other; A contract of sale is a reciprocal obligation—the seller
obligates itself to transfer the ownership of and deliver a determinate
thing, and the buyer obligates itself to pay therefor a price certain in its
equivalent.—Reciprocal obligations are those which arise from the
10

same cause, and in which each party is a debtor and a creditor of the
other, such that the obligation of one is dependent upon the obligation
of the other. They are to be performed simultaneously such that the
performance of one is conditioned upon the simultaneous fulfillment of
the other. The right of rescission of a party to an obligation under
Article 1191 is predicated on a breach of faith by the other party who
violates the reciprocity between them. A contract of sale is a reciprocal
obligation. The seller obligates itself to transfer the ownership of and
deliver a determinate thing, and the buyer obligates itself to pay
therefor a price certain in money or its equivalent. The non-payment of
the price by the buyer is a resolutory condition which extinguishes the
transaction that for a time existed, and discharges the obligations
created thereunder. Such failure to pay the price in the manner
prescribed by the contract of sale entitles the unpaid seller to sue for
collection or to rescind the contract.
Same; Same; Warranties; The breach of an express warranty
makes the seller liable for damages; The requisites must be
established in order that there be an express warrant in a contract
of sale.—The breach of an express warranty makes the seller liable
for damages. The following requisites must be established in order that
there be an express warranty in a contract of sale: (1) the express
warranty must be an affirmation of fact or any promise by the seller
relating to the subject matter of the sale; (2) the natural tendency of
such affirmation or promise is to induce the buyer to purchase the
thing; and (3) the buyer purchases the thing relying on such affirmation
or promise thereon.
Same; Same; Actions; Lis Pendens; Words and Phrases; A notice
of lis pendens is an announcement to the whole world that a
particular real property is in litigation, and serves as a warning
that one who acquires an interest over the said property does so
at his own risk, or that he gambles on the result of the litigation
over the said property.—A notice of lis pendens is an announcement
to the whole world that a particular real property is in litigation, and
serves as a warning that one who acquires an interest over said
property does so at his own risk, or that he gambles on the result of the
litigation over said property. Once a notice of lispendenshas been duly
registered, any cancellation or issuance of title over the land involved
as well as any subsequent transaction affecting the same would have
to be subject to the outcome of the suit. In other words, a purchaser
who buys registered land with full notice of the fact that it is in litigation
between the vendor and a third party stands in the shoes of his vendor
and his title is subject to the incidents and result of the pending
litigation. x xx Notice of lis pendens has been conceived and, more
often than not, availed of, to protect the real rights of the registrant
while the case involving such rights is pending resolution or decision.
With the notice of lis pendens duly recorded, and while it remains
uncancelled, the registrant could rest secure that he would not lose the
property or any part of it during the litigation. The filing of a notice of lis
pendens in effect (1) keeps the subject matter of litigation within the
power of the court until the entry of the final judgment so as to prevent
the defeat of the latter by successive alienations; and (2) binds a
purchaser of the land subject of the litigation to the judgment or decree
that will be promulgated thereon whether such a purchaser is a bona
fide purchaser or not; but (3) does not create a nonexistent right or
lien.
Same; Same; Same; Words and Phrases; In a contract of sale, the
title passes to the vendee upon the delivery of thing sold but in a
contract to sell, ownership is not transferred upon the delivery of
the property but upon full payment of the purchase price.—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.
Sales; Same; Conditional Contracts of Sale; 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.—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
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property subject of the sale to the buyer, ownership
thereto automaticallytransfers to the buyer by operation of law without
any further act having to be performed by theseller. 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.
Corporation Law; Evidence; Presumptions; Lis
Pendens; Knowledge of facts acquired or possessed by an officer
of the corporation in the course of his employment, and in
relation to other matters within the scope of his authority, is a
notice to the corporation, whether he communicates them or not;
Self-serving, uncorroborated assertions are indubitably
inadequate to prove that the corporation had notice of an
Agreement to Buy and Sell before the annotation of the notice of
lis pendens on the title.—RespectingCarrascoso’s allegation that
some of the directors and officers of El Dorado had knowledge of his
dealings with PLDT, it is true that knowledge of facts acquired or
possessed by an officer or agent of a corporation in the course of his
employment, and in relation to matters within the scope of his
authority, is notice to the corporation, whether he communicates such
knowledge or not. In the case at bar, however, apart from Carrascoso’s
claim that he in fact notified several of the directors about his intention
to sell the 1,000 hectare portion of the property to PLDT, no evidence
was presented to substantiate his claim. Such self-serving,
uncorroborated assertion is indubitably inadequate to prove that El
Dorado had notice of the July 11, 1975 Agreement to Buy and Sell
before the annotation of the notice of lis pendens on his title.
Contracts; Rescission; Where a contract is rescinded, it is the duty
of the Court to require both parties to surrender that which they
have respectively received and to place each other as far as
practicable in his original situation.—The appellate court’s decision
ordering the rescission of the March 23, 1972 Deed of Sale of Real
Property between El Dorado and Carrascoso being in order, mutual
restitution follows to put back the parties to their original situation prior
to the consummation of the contract. The exercise of the power to
rescind extinguishes the obligatory relation as if it had never been
created, the extinction having a retroactive effect. The rescission is
equivalent to invalidating and unmaking the juridical tie, leaving things
in their status before the celebration of the contract. Where a contract
is rescinded, it is the duty of the court to require both parties to
surrender that which they have respectively received and to place each
other as far as practicable in his original situation, the rescission has
the effect of abrogating the contract in all parts.
Property; Builders in Good Faith; Article 448 of the Civil Code
refers to builders, sowers, or planters who believe themselves to
be owners of the land or, at least, to have a claim of title
thereto.—As regards the improvements introduced by PLDT on the
1,000 hectare portion of the property, a distinction should be made
between those which it built prior to the annotation of the notice of lis
pendens and those which it introduced subsequent thereto. When a
person builds in good faith on the land of another, Article 448 of the
Civil Code governs: 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 a case, he shall pay reasonable rent, if the
owner of the land does not choose to appropriate the building or trees
after the 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 above provision covers cases in which the builders,
sowers or planters believe themselves to be owners of the land or, at
least, to have a claim of title thereto. Good faith is thus identified by the
belief that the land is owned; or that by some title one has the right to
build, plant, or sow thereon.
Same; Builders in Bad Faith; A person who builds in bad faith on
the land of another, loses what is built, planted or sown without
right to indemnity.—When a person builds in bad faith on the land of
another, Articles 449 and 450 govern: Art. 449. He who builds, plants
or sows in bad faith on the land of another, loses what is built, planted
or sown without right to indemnity. Art. 450. The owner of the land on
which anything has been built, planted or sown in bad faith may
demand the demolition of the work, or that the planting or sowing be
11
 SALES-FINALS|ATTY.RRD

removed, in order to replace things in their former condition at the
expense of the person who built, planted or sowed; or he may compel
the builder or planter to pay the price of the land, and the sower the
proper rent.
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.”

Example: S offers to sell B his two newly imported trucks. S expressly

I. A. CONDITION VS WARRANTY
-An uncertain event or
contingency on the happening of
which the obligation or right of
the contract depends.
-Statement of representation
made by the seller.
intimates to B that the taxes and custom duties are already paid. By
virtue of S’s assertion and assurance that all taxes and imported duties
are already settled, B buys the trucks. S’s representation that the taxes
and custom duties are paid shall be considered as a seller’s express
warranty under Art. 1546.

-Pertains to and affects the -Goesintotheperform *REQUISITES: (APIR) (short cut)

existence of the obligation.
-Non-happening does not
amount to breach of contract.
-Must be stipulated.
a n c e o f a n obligation and
may, in itself, be an obligation.
-Non-fulfillment constitutes breach
of contract.
-Stipulation or operation of law.
(1) An affirmation of fact or any promise relating to the thing sold;
(2) The natural tendency of such affirmation or promise is to induce the
buyer to buy;
(3) The buyer buys the thing relying thereon. [Art. 1546]
(4) Made before the sale not upon delivery or any other point
Requisites of an express warranty (Art. 1546): (complete)

-May attach either to the seller’s
duty to deliver thing or some
other circumstance.
-Whether express or implied
relates to the subject matter itself
or to the obligations of the seller
as to the subject matter of the
sale.
*If seller has promised that the condition should happen or be
performed, the buyer may treat the nonperformance of the condition as
a breach of warranty. (Art.1545)
II. SUSPENSIVE VS RESOLUTORY
-When the happening of the
future and uncertain event GIVE
RISE to an obligation, or triggers
of the acquisition of a right.
-Always relates to the subject
matter or the seller’s obligations
as to the subject matter.
-May attach itself either to the
obligation of the seller to deliver
possession and transfer
ownership over the subject
matter of the sale.
-When the happening of the
future and uncertain event
EXTINGUISHES an obligation or
terminates the right that is
already acquired.
(1) There must be an affirmation of fact or any promise by the seller
relating to the thing.
(2) The natural tendency of such affirmation or promise is to induce the
buyer to purchase the same.
(3) the buyer purchase the thing relying thereon.
(4) The affirmation of fact or any promise must be made before the
perfection of the contract of sale.
Note: 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. 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. Even, the usual exaggerations in trade, when the other
party had an opportunity to know the facts, are not in themselves
fraudulent. Hence, the decisive test is whether the vendor assumes to
assert a fact of which the vendee is ignorant.

III. EXPRESS VS IMPLIED CONDITION *An express warranty can be made by and also be binding on the
-Is mutually agreed or stipulated -Is presumed by law in a contract seller even in the sale of a second hand article.
by parties. of sale unless a contrary intention
appears from the contract itself. IV. B. EXPRESS WARRANTY VS DEALER’S TALK

-What is specifically represented -Affirmation of the value of the

as true in said document cannot thing or statement of only the
*WARRANTY: A statement or representation made by the seller
be considered as mere dealer's seller’s opinion is
contemporaneously and as part of the contract of sale, having not a warranty unless:
talk.
reference to the character, quality, or title of the goods, and by which
he promises or undertakes to ensure that certain facts are or shall be
1) The seller made it as an
expert;
as he then represents.
2) It was relied upon by the
buyer. [Art.1546]
*EXPRESS WARRANTY: Is an affirmation of fact or any promise
made by a vendor in relation to the thing sold. As such, a warranty has
3) Ordinarily, what does
not appear on the face of the
a natural tendency to induce the vendee relying on that affirmation or
written instrument
promise to purchase the thing. Article 1546 defines express warranty
as follows:

“Art. 1546. Any affirmation of fact or any promise by the Art. 1340- The usual exaggerations in trade, when the other party had
seller relating to the thing is an express warranty if the naturel an opportunity to know the facts, are not in themselves fraudulent.
tendency of such affirmation or promise is to induce the buyer to

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 SALES-FINALS|ATTY.RRD

Art. 1341- A mere expression of an opinion does not signify fraud,

unless made by an expert and the other part has relied on the former’s
special knowledge. EXPRESS WARRANTY VS FALSE REPRESENTATION
-Concealment of facts does not -When concealment of facts
necessarily a m o u n t t o f a l s comes with an active
e misstatement of fact or a partial
Songco v. Sellner 37 Phil 254 (1917) statement of fact such that
Representation withholding of that unsaid portion
Facts: makes that which is stated
absolutely false
Both Defendant, George C. Sellner and the plaintiff, LambertoSongco -However, buyer who f a i l s t o i
owned a farm which was contiguous to each other’s land. Both n s p e c t condition of property d
properties had the sugar cane ready to be cut. The Defendant bought e s p i t e a m p l e opportunity to
the plaintiff’s cane for P12,000 and executed three promissory notes of do so when there is no
P4,000 each. Two of these notes were paid; and the third was was opposition on the part of seller to
instituted to recover. From a judgement rendered in favor of the
inspect cannot later on allege
plaintiff, the defendant has appealed.
false representation Reason:
The defendant denied all the allegations of the complaint. He said that buyer’s duty to inspect remains
the promissory note was obtained from him by means of certain false despite false representation by
and fraudulent representations therein specified. the seller; he has the duty to
exercise due diligence
It is claimed that the plaintiff estimated that this cane would produce
3,000 piculs of the sugar and that the defendant bought the crop
believing this estimate to be substantially correct. As the crop turned
out it produced 2,017 piculs, gross, and after the toll for milling was
deducted the net left to the defendant was very much less. The court
believed it is fairly shown that the plaintiff knew at the time he made
the representation exaggerated the probable produce of his fields, and
it is impossible to believe that his estimate honestly reflected his true
opinion. He knew what these same fields had been producing over a
long period of years; and he knew that, judging from the customary
yield, the harvest of this year should fall far below the amount stated.

Issue:

Whether or not the plaintiff was guilty of fraudulent representation of

his cane.
Held:
No. Misinterpretation upon a mere matter of opinion is not an
actionable deceit, nor is it a sufficient ground for avoiding a contract as
fraudulent. The law allows considerable latitude to seller’s statements,
or dealer’s talk; and experience teaches that it is exceedingly risky to
accept it at its face value.
Assertions concerning the property which is the subject of a contract of
sale, or in regard to its qualities and characteristics, are the usual and
ordinary means used by defendant to obtain a high price and are
always understood as affording to buyers no ground for omitting to
make inquiries. A man who relies upon such an affirmation made by a
person whose interest might so readily prompt him to exaggerate the
value of his property does so at his peril, and must take the
consequences of his own imprudence.
1. 1.CIVIL PROCEDURE; DENIAL OF EXECUTION OF
WRITTEN INSTRUMENT.—In an action upon a promissory
note, a general denial of the complaint under oath does not
raise an issue as to the genuineness or due execution of the
note, as contemplated in section 103 of the Code of Civil
Procedure. Nor is such an issue raised by an answer under
oath setting up the defense that the note was procured by
fraud.
1. 2.FRAUD; FALSE REPRESENTATION AS TO MATTER OF
OPINION.—The seller of the cane standing in a certain field
made an exaggerated statement concerning the probable
yield of sugar from said cane but.refused to warrant the
amount of the yield. The purchasernevertheless credited the
statement and bought the cane in the belief that it would
produce substantially the amount stated by the seller; but the
yield in fact turned out to be much less. Held: That the
purchaser had no right to rely upon such representation and
the fact that the statement made by the seller may not have
reflected his true opinion furnished no ground for relieving the
purchaser from his contract to pay the price agreed upon.
Art. 1342- Misrepresentation by a 3rd person does not vitiate consent,
unless such misrepresentation has created substantial mistake and
the same mutual.
PHILIPPINE MANUFACTURING CO. (PMC) vs. GO JOCCO
J. Ostrand | January 21, 1926
TOPIC: Express Warranties
Distinguished from False Representation
FACTS
On Oct. 25, 1922, PMC and Go Jocco entered into a contract.
 PMC bought 500 tons of coconut oil for 27.5 cents per kilofrom Go.
 The class of the oil shall not be more than 5% free fatty acid
On Nov. 15, 1922, Go tried to collect the price of the oil from PMC but
was told by Mr. Mason that it would first examine the oil. On the same
day, the quality of the oil was found to be satisfactory. PMC gave Go
its check for P137,500, the full amount of the contract purchase price.
On Nov. 17, 1922, PMC sold the oil to Portsmouth Cotton Oil Refining
Co. at the price of $7.50 per 100 pounds. The contract states that the
quality of the oil is 5% free fatty acid, maximum 7% free fatty acid, 1%
moisture and impurities; provided, however, that any oil which exceeds
5% free fatty acid but does not exceed 7% shall not be rejected but
shall be reduced in price. Upon its arrival, Portsmouth refused to
accept the oil because it was contaminated with cottonseed oil. As
such, the matter was submitted for arbitration. Samples were tested
and were found to be contaminated.
On Mar. 19, 1923, PMC sold to Proctor & Gamble the same oil which
was duly accepted.
On Feb. 3, 1923, PMC wrote Go, notifying Go that the oil delivered by
him contained kapok or cottonseed oil and that the buyers in the USA
are claiming damages. As such, PMC holds Go to incur any resulting
loss or damage.

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After some fruitless correspondence, PMC sued Go on Dec. 27, 1923
asking for P21,263 as damages.
CFI: IN FAVOR OF GO. It was not established that the oil purchased
from Go was contaminated at the time of its delivery to PMC. Evidence
show that the contamination may been caused through the impurity of
the oil manufactured by PMC itself in view of the fact that PMC was
partly engaged in the manufacturing of kapok oil while Go neither dealt
with nor manufactured such oil. The CFI found that PMC, before
closing its contract with Go, examined the oil to its satisfaction and
therefore Par. 1 of Art. 336 of the Code of Commerce was applicable
and PMC’s cause of action extinguished.
ISSUE / RATIO
WON GO has a cause of action? Yes, not based on express
warranty but based on fraud or false representation.
The small quantity of kapok oil alleged to be mixed with the coconut oil
can only be regarded as an impurity and did not change the essential
character of the oil. Compared to the contract between PMC and
Portsmouth, the contract between PMC and Go contains no express
warranty against impurities. Hence, this is not an action on an express
warranty.
There being no express warranty and PMC having lost its right of
action on the implied warranties as to the quality of the oil, PMC must
now necessarily base its cause of action on fraud under Art. 344.
Anson defines fraud as “a false representation of fact, made with a
knowledge of its falsehood, or recklessly, without belief in its truth, with
the intention that it should be acted upon by the complaining party, and
actually inducing him to act upon it. Concealment is sometimes
equivalent to false representations, and it is here argued that Go, in not
disclosing the existence of kapok oil in the oil sold to PMC, was guilty
of fraud.
An intention to deceive or mislead the other party to his prejudice is an
essential element of the fraud here considered. It is true that such an
intention may be imputed upon the principle that the party must be
presumed to intend the necessary consequences of his own acts and
need not necessarily be proven by direct evidence, but in this case,
nothing shows that such intention may be definitely inferred. Had there
been any mixing of other oils with the coconut oil in question, Go would
have been aware thereof, but there is nothing from which we can
presume that Go intended to mislead the PMC to his prejudice. It is not
disputed that at the time the sale was made, kapok oil commanded a
higher price in the market than did coconut oil and Go may well have
been under the impression that a slight admixture of kapok oil did not
substantially impair the general market value of the oil purchased.
Indeed, there is nothing in evidence to show that the coconut oil
suffered any material impairment in value from the mixture and it is to
be observed that Go was not advised that the oil was sold to the
Portsmouth under an express warranty against impurities. That it was
still of good merchantable quality clearly appears from the fact that it
was bought by P&G at current market prices. And when it is further
considered that PMC, before purchasing, examined the oil, it seems
obvious that the evidence is not sufficient to overcome the presumption
of good faith and to establish fraud on the part of Go. In commercial
sales, the fact that the vendor does not volunteer detailed statements
of all he knows, whether important or not, in regard to the goods sold
by him, is not fraud per se.
1. 1.CONTRACT OF SALE; ACTION FOR BREACH; IMPLIED
WARRANTY; EXAMINATION OF MERCHANDISE BY
PURCHASER.—A purchaser of merchandise having fully
examined the same to his satisfaction before the
consummation of the sale, cannot maintain an action for
breach of an implied warranty under article 336 of the Code
of Commerce.
1. 2.ID.; ID.; LATENT DEFECTS; TIME WITHIN WHICH
CLAIM MUST BE PRESENTED.—In order to maintain an
action under article 342 of the Code of Commerce for latent
defects in merchandise purchased, he must present his claim
in regard to such defects within thirty days from the delivery
of the merchandise.
1. 3.ID.; FRAUD; ACTION FOR DAMAGES.—There being no
express warranty and the plaintiff having no cause of action
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SALES-FINALS|ATTY.RRD
on the implied warranties as to the quality of the merchandise,
the recovery of damages, if any, can only be based on fraud
under article 344 of the Code of Commerce.
1. 4.ID.; ID.; INTENTION TO DECEIVE ESSENTIAL.—An
intention to deceive or mislead the purchaser of merchandise
to his prejudice, is an essential element of the fraud referred
to in article 344 of the Code of Commerce.
2. Implied Warranty
Implied warranty is a natural element of a contract of sale that is
deemed included in such contract by operation of law. Neither does it
require the prior knowledge of the parties nor does it need to be
stipulated by them. According to the court in Ang vs CA:
“An implied warranty is that which the law derives by
application or inference from the nature of the transaction or the
relative situation or circumstances of the parties, irrespective of any
intention of the seller to create it. “
In a contract of sale, there is an implied warranty on the part of the
seller that the buyer, from the time ownership passes, shall have and
enjoy the legal and peaceful possession of the thing unless a contrary
intention appears. This warranty presupposes that actual and not mere
constructive elivery of the determinate thing to the buyer by the seller.
This is so because peaceful possession of the thing sold can hardly be
enjoyed in a mere constructive delivery.
This warranty is not applicable to a sheriff, auctioneer, mortgage,
pledge, or other person professing to sell by virtue of authority in fact
or law, for the sale of a thing in which a third person has a legal or
equitable interest.
Art. 1547. In a contract of sale, unless a contrary intention appears,
there is:
(1) An implied warranty on the part of the seller that he has a right
to sell the thing at the time when the ownership is to pass, and that the
buyer shall from that time have and enjoy the legal and peaceful
possession of the thing;
(2) An implied warranty that the thing shall be free from any
hidden faults or defects, or any charge or encumbrance not declared or
known to the buyer.
This article shall not, however, be held to render liable a sheriff,
auctioneer, mortgagee, pledgee or other person professing to sell by
virtue of authority in fact or law, for the sale of a thing in which a third
person has a legal or equitable interest.
*The Implied warranties of the vendor are as follows:
1. Implied warranty that the seller has a right to sell the thing;
2. Implied warranty against eviction;
3. Implied warranty against non-apparent encumbrance or servitude;
4. implied warranty against hidden defects or encumbrances;
5. Implied warranty as to the quality or fitness; and
6. Implied warranty against redhibitory defects on animals.
SELLER HAS RIGHT TO SELL:
In a contract of sale, there is an implied warranty on the part
of the seller that he has a right to sell the thing at the time that its
ownership is to pass to the vendee. The Seller warrants his right to sell
at the time the ownership is to pass. The seller warrants his right to sell
the thing during the consummation stage of the contract since during
this stage that the ownership is transferred to the buyer by delivery.
Example: S, a thief, sells to B a stolen iphone 6. B is without
knowledge of its nature. Afterwards T, the true owner of the iphone 6,
demands the same from B. B must return the iphone6 to T. B can
14

demand the full amount from S as the latter has no right to sell the
iphone6 at the time its ownership is to pass to B.
This warranty is not applicable to a sheriff, auctioneer, mortgage,
pledge, or other person professing to sell by virtue of authority in fact
or law, for the sale of a thing in which a third person has a legal or
equitable interest. The principle that is applicable is caveat emptor
because the buyer acquires no better title than he seller has.
B. Warranty against eviction
Eviction shall take place whenever by a final judgment based on a right
prior to the sale or an act imputable to the vendor, the vendee is
deprived of the whole or of a part of the thing purchase. Stated
differently, there is a breach of the implied warranty against eviction
when there is a final judgment based on either a right prior to the sale
or an act that could be imputed to vendor, and deprive the vendee of
ownership or possession of the determinate thing which is the object of
the sale.
Its requisites are:
(a) Buyer is deprived of the whole or a part of the thing sold;
(b) Eviction is by final judgment
(c) Final judgment based on a right prior to the sale or an act imputable to
the vendor
(d) Seller is summoned and made codefendant in the suit for eviction at the
instance of the buyer.
(e) There is no waiver of warranty by the vendee.
*This warranty presupposes that actual and not mere constructive
delivery of the determinate thing to the buyer by the seller. This is so
because peaceful possession of the thing sold can hardly be enjoyed
in a mere constructive delivery.
Note:
 Warranty against eviction is not applicable when there is no
deprivation of property.
 Warranty against eviction is not applicable when the reason
of the deprivation of property was not deliberately caused by
the seller.
 Warranty against eviction is not applicable when the seller
was not summoned in the suit for the eviction of the buyer.
Art. 1548. Eviction shall take place whenever by a final judgment
based on a right prior to the sale or an act imputable to the vendor, the
vendee is deprived of the whole or of a part of the thing purchased.
The vendor shall answer for the eviction even though nothing has
been said in the contract on the subject.
The contracting parties, however, may increase, diminish or suppress
this legal obligation of the vendor.
Art. 1549. The vendee need not appeal from the decision in order that
the vendor may become liable for eviction.
Art. 1550. When adverse possession had been commenced before
the sale but the prescriptive period is completed after the transfer, the
vendor shall not be liable for eviction.
Art. 1551. If the property is sold for non-payment of taxes due and not
made known to the vendee before the sale, the vendor is liable for
eviction.
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SALES-FINALS|ATTY.RRD
Art. 1552. The judgment debtor is also responsible for eviction in
judicial sales, unless it is otherwise decreed in the judgment.
Art. 1553. Any stipulation exempting the vendor from the obligation to
answer for eviction shall be void, if he acted in bad faith.
Art. 1554. If the vendee has renounced the right to warranty in case of
eviction, and eviction should take place, the vendor shall only pay the
value which the thing sold had at the time of the eviction. Should the
vendee have made the waiver with knowledge of the risks of eviction
and assumed its consequences, the vendor shall not be liable.
Art. 1555. When the warranty has been agreed upon or nothing has
been stipulated on this point, in case eviction occurs, the vendee shall
have the right to demand of the vendor:
(1) The return of the value which the thing sold had at the time of the
eviction, be it greater or less 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 the suit which caused the eviction, and, in a proper case,
those of the suit brought against the vendor for the warranty;
(4) The expenses of the contract, if the vendee has paid them;
(5) The damages and interests, and ornamental expenses, if the sale was
made in bad faith.
Art. 1556. Should the vendee lose, by reason of the eviction, a part of
the thing sold of such importance, in relation to the whole, that he
would not have bought it without said part, he may demand the
rescission of the contract; but with the obligation to return the thing
without other encumbrances than those which it had when he acquired
it.
He may exercise this right of action, instead of enforcing the vendor’s
liability for eviction.
The same rule shall be observed when two or more things have been
jointly sold for a lump sum, or for a separate price for each of them, if it
should clearly appear that the vendee would not have purchased one
without the other.
Art. 1557. The warranty cannot be enforced until a final judgment has
been rendered whereby the vendee loses the thing acquired or part
thereof.
Art. 1558. The vendor shall not be obliged to make good the proper
warranty, unless he is summoned in the suit for eviction at the instance
of the vendee.
Art. 1559. The defendant vendee shall ask, within the time fixed in the
Rules of Court for answering the complaint, that the vendor be made a
co-defendant.
Art. 1560. If the immovable sold should be encumbered with any non-
apparent burden or servitude, not mentioned in the agreement, of such
nature that it must be presumed that the vendee would not have
acquired it had he been aware thereof, he may ask for the rescission
of the contract, unless he should prefer the appropriate indemnity.
Neither right can be exercised if the non-apparent burden or servitude
is recorded in the Registry of Property, unless there is an express
warranty that the thing is free from all burdens and encumbrances.
Within one year, to be computed from the execution of the deed, the
vendee may bring the action for rescission, or sue for damages.
One year having elapsed, he may only bring an action for damages
within an equal period, to be counted from the date on which he
discovered the burden or servitude.
15
 SALES-FINALS|ATTY.RRD

*Waiver of the Warranty against Eviction: RULES -Demand from seller: (VICED) -Rescind within 6 months from
(a) Value of thing sold at time of delivery
eviction (a) If he would not have
(b)Income or fruits, if he has been bought the thing sold
The vendor shall answer for the eviction even though ordered to deliver them to the without the part lost;
nothing has been said in the contract on the subject. This is party who won the eviction suit (c)
because a warranty against eviction is inherent in a contract of (b) BUT he must return the
Costs of eviction suit and in a
thing without other encumbrances
sale, whether or not mentioned in it. However, the contracting proper case, suit against seller for
than those which it had when he
parties may increase, diminish, or suppress this legal obligation warranty
acquired it
of the vendor. (d) Expenses of the contract, if
buyer has paid them
(e)Damagesand
interests, and ornamental
Pertinent rules in case of waiver of the warranty against eviction:
expenses, IF sale was made in bad
-If the seller acted in bad faith, the waiver is void. faith

-If the vendee (buyer) waived the warranty against eviction without the
knowledge of the risks of eviction, the vendor (seller) shall only pay the
value of the thing sold at the time of the eviction.

-If the vendee (buyer) waived the warranty against eviction with
knowledge of the risks of eviction, the vendor (seller) shall not be
liable.
KINDS OF EVICTION:
A. TOTAL EVICTION:
-Art. 1555 provides for the remedy of the vendee (buyer) in case total
eviction, whether the warranty against eviction is agreed upon or not.
The vendee may enforce the vendor’s liability against eviction and
demand to the vendor the following: (VICED)
1. The return of the VALUE which the thing sold had at the time
of the eviction, be it greater or less than the price of the sale;
2. The INCOME/FRUITS, if he has been ordered to deliver them
to the party who won the suit against him;
3. The COST of the suit which caused the eviction, and in a
proper case, those of the suit brought against the vendor for
the warranty;
4. The EXPENSE of the contract, if the vendee has paid them;
5. The DAMAGES and interests, and ornamental expenses, if
the sale was made in bad faith.
B. PARTIAL EVICTION:
-Takes place when the vendee (buyer) loses a part
of the thing sold of such importance, in relation to the whole,
that he would not have bought it without said part.
*REMEDIES OF THE VENDEE IN CASE OF PARTIAL
EVICTION:
A. Enforce the vendor’s liability against eviction and demand
to the vendor the VICED under Art. 1555; OR
B. Demand the rescission of the contract.
Other pertinent rules regarding the warranty against eviction:
(a) Buyer need not appeal from decision to hold seller liable for
eviction
(b) When adverse possession commenced before sale, but
prescription period completed after transfer: seller is not liable
(c) If property sold for nonpayment of taxes due and not made
known to the buyer before the sale: seller liable (d) Judgment debtor
also responsible for eviction in judicial sales, unless it I otherwise
decreed in the judgment
If there is waiver of warranty:
(a) Seller acted in bad faith: Waiver is void, seller liable for
eviction
(b) Buyer made waiver without knowledge of risks of eviction:
Seller liable only for the value of the thing sold at time of eviction
(c) Buyer made waiver with knowledge of risks: Seller not liable;
buyer assumed the consequences
* WA R R A N T Y A G A I N S T N O N - A P PA R E N T
SERVITUDES: (ART. 1560) Requisites for
breach:
(1) Thing sold is an immovable
(2) Burden or servitude encumbering the thing sold is:
(a) Non-apparent to the naked eye
(b) Not mentioned in the agreement
(c) Of such nature that it must be presumed that the buyer would
not have bought it had he been aware of it (d) Not recorded in the
Registry of Property unless there is an express warranty that the thing
is free from all burdens and encumbrances [Art.1560]

*If the vendee chooses the second remedy, he is under a. Applicable to Sale of Immovable Property Only. In case of a
obligation to return the thing without other encumbrances that hidden encumbrance upon a movable property, warranty against
those which it had when he acquired it. HIDDEN DEFECTS is applicable.

*The same rule shall be observed when 2/more things have b. ENCUMBRANCE: A claim or liability that is attached to an
been jointly sold for a lump sum or for a separate price for (immovable) property or some other right and that may lessen its
each of them, if it should clearly appear that the vendee would value, such as a lien or (real estate) mortgage.
not have purchased one without the other.
LIEN: A legal right or interest that a creditor has in another’s
(immovable) property, lasting usually until a debt or duty that it secures
V. TOTAL EVICTION VS PARTIAL EVICTION is satisfied.
-Enforce liability for eviction
-Enforce liability (demand SERVITUDE/EASEMENT: A real right constituted on another’s
VICED) property, corporeal and immovable, by virtue of which the owner of the
same has to abstain from doing or to allow somebody else to do
something on his property for the benefit of another thing or person.

CORONEL|SANCHEZ-JD2A 16

Art. 613. An easement or servitude is an encumbrance imposed upon
an immovable for the benefit of another immovable belonging to a
different owner.
The immovable in favor of which the easement is established is called
the dominant estate; that which is subject thereto, the servient estate.
c. Requisites:
The vendor (seller) shall be liable for breach of implied
warranty against non-apparent encumbrance or servitude when the
following requisites are met:
(1) The immovable sold should be encumbered with any non-apparent
burden or servitude, not mentioned in the agreement:
(2) The nature of the non-apparent encumbrance or servitude is such
that it must be presumed that the vendee (buyer) would not
have acquired it had he been aware thereof:
(3) The non-apparent encumbrance or servitude is not recorded in the
registry of property, unless there is an express warranty that
the thing is free from all burdens and encumbrances.
(4) The action is rought by the vendee (buyer) within the prescriptive
period.
D. Remedies of the vendee (buyer) in case of breach of this
warranty against non-apparent encumbrance or
servitude
The vendee may either bring an action for recission or sue for
damages.
If in case the non-apparent burden is recorded in the Registry of
Property, the vendee cannot bring an action for damages
nor ask for indemnification for damages.
E. Prescriptive Period
The vendee may bring the action for rescission or sue for
damages within 1 year from the execution of the deed.
If the above one (1) year has elapsed, the vendee may only
bring an action for damages within 1 year from the date on
which he discovered the burden or servitude.
*WARRANTY AGAINST HIDDEN ENCUMBRANCE/ DEFECTS:
Requisites for breach:
(1) The defect renders the thing sold unfit for the use for which it
was intended OR diminishes its fitness for such use to such an extent
that had the buyer been aware thereof, he would not have bought it or
would have paid a lower price;
(2) The defect is not patent or visible;
(3) The defect (or encumbrance) exists at the time of sale
(4) The vendee (buyer) is not an expert who, by reason of his
trade or profession, should have known the defect
(5) There is no stipulation to the contrary OR if there is a
stipulation to the contrary, the vendor (seller) is aware of the hidden
defect of (or encumbrance upon) the thing sold.
(6) The vendee noties the vendor of the defect (or encumbrance)
within reasonable time;
(7) The action based on breach of the vendor’s implied warranty
against hidden defects (or encumbrance) must be instituted within six
months from the date of delivery of the thing sold.
Note:
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SALES-FINALS|ATTY.RRD
Non applicability of caveat emptor which literally means “let the
buyer beware,” and which requires the purchaser to take a warranty if
he desired to be protected against the fault, does not apply to the
implied warranty against hidden defects.
Hidden Defect (redhibitory) of the thing
A defect is considered redhibitory if it is hidden, unknown to the buyer
and existing prior to the sale. *** page 439
If thing is lost:
DUE TO HIDDEN DEFAULT VS DUE TO FORTUITOUS EVENT
-If seller aware of defect, buyer -Demand:
may demand: (a) Price paid minus value of
thing when it was lost (b)
Damages, if seller acted in bad
(a) Return of price
faith
(b) Refund of expenses
(c) Damages
-If seller not aware of defect:
Buyer may demand price and
expenses BUT NOT damages
*Prescriptive period: 6 mos from delivery
Art. 1566. The vendor is responsible to the vendee for any hidden
faults or defects in the thing sold, even though he was not aware
thereof.
This provision shall not apply if the contrary has been stipulated, and
the vendor was not aware of the hidden faults or defects in the thing
sold.
Art. 1567. In the cases of Articles 1561, 1562, 1564, 1565 and 1566,
the vendee may elect between withdrawing from the contract and
demanding a proportionate reduction of the price, with damages in
either case.
Art. 1568. If the thing sold should be lost in consequence of the hidden
faults, and the vendor was aware of them, he shall bear the loss, and
shall be obliged to return the price and refund the expenses of the
contract, with damages. If he was not aware of them, he shall only
return the price and interest thereon, and reimburse the expenses of
the contract which the vendee might have paid.
Art. 1569. If the thing sold had any hidden fault at the time of the sale,
and should thereafter be lost by a fortuitous event or through the fault
of the vendee, the latter may demand of the vendor the price which he
paid, less the value which the thing had when it was lost.
If the vendor acted in bad faith, he shall pay damages to the vendee.
Art. 1570. The preceding articles of this Subsection shall be applicable
to judicial sales, except that the judgment debtor shall not be liable for
damages.
Art. 1571. Actions arising from the provisions of the preceding ten
articles shall be barred after six months, from the delivery of the thing
sold.
*NON-APPLICABILITY OF “CAVEAT EMPTOR”:
17
 SALES-FINALS|ATTY.RRD

-Latin maxim which literally means “let the buyer beware,” and which WARRANTY IN SALE OF CONSUMER GOODS: [RA
requires the purchaser to take a warranty if he desired to be protected 7394, Sec 68]
against faults, does not apply to the implied warranty against hidden -If implied warranty accompanies express warranty, both will be of
defects. (APPLIES TO NEW ITEMS) equal duration.

*HIDDEN DEFECT (REDHIBITORY) OF THE THING VI. EXPRESS WARRANTY VS IMPLIED WARRANTY
-A defect is considered redhibitory if it is hidden, unknown to the buyer
and existing prior to the sale. The kind of defect which would entitle the -(1) Demand repair within 30 -(1) Retain the goods and
buyer to annul the sale or demand for a proportionate reduction of days Extendible for causes recover damages or
price is a hidden defect in the manufacture or design of the thing sold beyond the control
which would render it either useless or unfit for the use for which it is of the warrantor
intended.

(1)LOSS IN CONSEQUENCES OF HIDDEN FAULTS: THE VENDOR

SHALL BE LIABLE. -(2) Demand refund of price -(2) Reject the goods, cancel
minus amount directly contract and recover from seller
attributable to the use of the so much of the purchase price as
If the thing sold should be lost in consequence of the hidden faults, the
consumer prior to the discovery has been paid + damages
vendor shall be liable. The extent of his liability will depend on whether
of the nonconformity
he is aware of the idden fault or defect at the time of the sale.

-AWARE OF THE HIDDEN FAULTS/DEFECTS:

1. Bear the loss;
2. Return the price;
3. Refund the expenses of the contract, and
4. Pay damages. *WARRANTY AGAINST REDHIBITORY DEFECT IN THE SALE OF
ANIMALS: [Art. 1572]
-NOT AWARE OF THE HIDDEN FAULTS/DEFECTS:
The vendor (seller) shall: Redhibitory defect – a hidden defect of animals of such nature that
expert knowledge is not sufficient to discover it, even in a case where
1. Return the price and interest theron, and a professional inspection has been made.
2. Reimburse the expenses of the contract which the vendee
might have paid. Requisites:***page 457
(2)LOSS DUE TO FORTUITOUS/FAULT OF THE VENDEE.
-The vendee may demand of the vendor the price which he paid, less (1) The defect must be redhibihtory
the value which the thing had when it was lost.
(2) The defect is one determined by law or local customs or usage.
If the vendor acted in bad faith, he shall pay damages to the vendee.
(3)the sale is not one in fairs, public auction nor does it refer to animals
Hidden encumbrance sold as condemned.

No warranty in case of [Art. 1574]

In relation to this particular implied warranty, an applicable
ENCUMBRANCE: A claim or liability that is attached to an
(immovable) property or some other right and that may lessen its
value, such as a lien or (real estate) mortgage.
LIEN: A legal right or interest that a creditor has in another’s
(immovable) property, lasting usually until a debt or duty that it secures
is satisfied.
Examples:
There is a creditor who has a legal right to or interes in the thing sold.
(1) Animals sold at fairs or public auctions (2)
Livestock sold as condemned
The following sales are void [Art. 1575]
(1) Sale of animals suffering from contagious diseases (2) Sale of
animals unfit for the purpose for which they are acquired as stated in
the contract
Veterinarian is liable if he fails to discover or disclose the hidden defect
through ignorance or bad faith. [Art 1576]
Seller liable if animal dies within 3 days after its purchase due to a
disease that existed at the time of sale. [Art 1578]

There s a debt that was secured bu the thing sold. *Implied Warranty against Redhibitory Defects of Animals:
Remedies
Tere is any other claim, liability or some other right attached to the
thing sold that would lessen its value. (a) Withdraw from contract + damages
(b) Demand a proportionate reduction of the price + damages

If sale is rescinded:
(a) Buyer must return animal in the condition in which it was sold
****ADDITIONAL WARRANTIES FOR CONSUMER PRODUCT page and delivered
460 (b) Buyer shall be liable for injury due to his negligence.

*Prescriptive period: 40 days from delivery

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*IMPLIED WARRANTY AS TO MERCHANTABLE QUALITY AND
FITNESS OF GOODS:
Merchantable Quality
(1) Where the goods are brought by description from a seller who
deals in goods of that description [Art.1562] (2) In a sale by sample, if
the seller is a dealer in goods of that kind and the defect is not
apparent on reasonable examination of the sample [Art.1566]
Warranty of merchantability is warranty that goods are reasonably fit
for the general purpose for which the same are sold.
Warranty of fitness is warranty that goods are suitable for the special
purpose of the buyer which will not be satisfied by mere fitness for
general purposes.
In a sale by sample, there is implied warranty that goods are free from
defects not apparent on reasonable examination of sample and which
render goods unmerchantable.
“Fitness for a particular purpose”: Where the buyer expressly or
impliedly makes known to the seller the particular purpose for which
the goods are acquired AND it appears that the buyer relied on the
seller’s skill or judgment [Art.1562(1)]
*SALE BY SAMPLE: In the case of a contract of sale by sample, if the
seller is a dealer I goods of that kind, there is an implied warranty that
the goods shall be free from any defect rendering them
unemerchantable which would not be apparent on reasonable
examination of the sample.
*SALE OF GOODS BY DESCRIPTION: Where the goods are brought
by description (whether he be the grower or manufacturer or not),
there is an implied warranty that the goods shall be of merchantable
quality.
Art. 1574. There is no warranty against hidden defects of animals sold
at fairs or at public auctions, or of livestock sold as condemned.
Art. 1562 (2) Where the goods are bought by description from a seller
who deals in goods of that description (whether he be the grower or
manufacturer or not), there is an implied warranty that the goods shall
be of merchantable quality.
Art. 1565. In the case of a contract of sale by sample, if the seller is a
dealer in goods of that kind, there is an implied warranty that the
goods shall be free from any defect rendering them unmerchantable
which would not be apparent on reasonable examination of the
sample.
Art. 1481. In the contract 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 by description, it is not sufficient that the bulk of
goods correspond with the sample if they do not also correspond with
the description.
The buyer shall have a reasonable opportunity of comparing the bulk
with the description or the sample.
EFFECTS OF WARRANTIES
(1) Natural tendency is to induce buyer to purchase the subject
matter
(2) Buyer purchases subject matter relying thereon
(3) Seller liable for damages in case of Breach
EFFECTS OF WAIVERS
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Only applicable to waiver of warranty against eviction; parties may
increase or decrease warranty against eviction but the effect depends
on good/bad faith of the seller:
(1) Seller in bad faith and there is warranty against eviction – null
and void
(2) Buyer without knowledge of a particular risk and made
general renunciation of warranty – not waiver but merely limits liability
of seller in case of eviction (pay value of subject matter at the time of
eviction)
(3) Buyer with knowledge of risk of eviction assumed its
consequences and made a waiver – vendor not liable (4) Waiver to a
specific case of eviction – wipes out warranty as to that specific risk but
not as to eviction caused by other reasons
One who purchases real estate with knowledge of defect or lack of title
cannot claim he acquired title thereto in good faith, as against true
owner of land or of interest therein.
The same rule must be applied to one who has knowledge of facts
which should have put him upon such inquiry and investigation as
might be necessary to acquaint him with the defects in the title of his
vendor. A purchaser cannot close his eyes to facts which should put a
reasonable man upon his guard and then claim that he acted in good
faith under the belief that there was no defect in the title of the vendor.
BUYER’S OPTIONS IN CASE OFBREACH OF
WARRANTY: [Art. 1599]
(1) Express Warranty Prescriptive period: Period specified in express
warranty OR 4 years, if no period is specified (following the general
rule on rescission of
contracts)
Remedies
(a) Accept goods + demand diminution/ extinction of price (b) Accept
goods + damages
(c) Refuse to accept goods + damages
(d) Rescind (Refuse to accept or return or offer to return) +
recover price paid
Rescission not available when buyer: (a) Knew of breach of
warranty when he accepted the goods without protest
(b) Fails to notify the seller about election to rescind within a
reasonable period of time
(c) Fails to return or offer to return the goods to the seller in
substantially a good condition as they were when delivered, unless
deterioration was due to breach of warranty
Measure of damages: Difference between value of goods at the time
of delivery and the value they would have had if they had answered to
the warranty
Effects of rescission
(a) Buyer no longer liable for price: Entitled to the return of any
part of price paid, concurrently with or immediately after an offer to
return the goods
(b) If seller refuses to accept offer to return goods: buyer deemed
as bailee for seller and has right of lien to secure payment of part of
price paid
19

Documents of title
Siy Cong Bien vs HSBC (Hongkong Shanghai Bank Corp)
FACTS
 Plaintiff is a corporation engaged in business generally, and that
the Defendant HSBC is a foreign bank authorized to engage in the
banking business in the Philippines.
 On June 25, 1926, Otto Ranft called the office of the Plaintiff to
purchase hemp (abaca), and he was offered the bales of hemp as
described in the contested negotiable quedans.
 The parties agreed to the aforesaid price, and on the same date
the quedans, together with the covering invoice, were sent to Ranft
by the Plaintiff, without having been paid for the hemp, but the
Plaintiff's understanding was
o that the payment would be made against the same
quedans,
o and it appear that in previous transaction of the same
kind between the bank and the Plaintiff, quedans were
paid one or two days after their delivery to them.
 Immediately these Quedans were pledged by Otto Ranft to the
Defendant HSBC to secure the payment of his preexisting debts to
the latter.
 The baled hemp covered by these warehouse receipts was worth
P31,635; 6 receipts were endorsed in blank by the Plaintiff and Otto
Ranft, and 2 were endorsed in blank, by Otto Ranft alone
 On the evening of the said delivery date, Otto Ranft died suddenly
at his house in the City of Manila.
 When the Plaintiff found out, it immediately demanded the return of
the quedans, or the payment of the value, but was told that the
quedans had been sent to the herein Defendant as soon as they
were received by Ranft.
 Shortly thereafter the Plaintiff filed a claim for the aforesaid sum of
P31,645 in the intestate proceedings of the estate of the deceased
Otto Ranft, which on an appeal from the decision of the committee
on claims, was allowed by the CFI Manila.
 In the meantime, demand had been made by the Plaintiff on the
Defendant bank for the return of the quedans, or their value, which
demand was refused by the bank on the ground that it was a holder
of the quedans in due course.
ISSUE
Whether or not the Quedans endorsed in blank gave the HSBC rightful
and valid title to the goods?
HELD
YES. SC ruled in favour of Defendant HSBC.
 It may be noted,
o first, that the quedans in question were negotiable in
form;
o second, that they were pledged by Otto Ranft to the
Defendant bank to secure the payment of his preexisting
debts to said bank;
o third, that such of the quedans as were issued in the
name of the Plaintiff were duly endorsed in blank by the
Plaintiff and by Otto Ranft;
o and fourth, that the two remaining quedans which were
duly endorsed in blank by him.
 The bank had a perfect right to act as it did, and its action is in
accordance with sections 47, 38, and 40 of the Warehouse
Receipts Act
 However, the pertinent provision regarding the rights the
Defendant bank acquired over the aforesaid quedans after
indorsement and delivery to it by Ranft, is found in section 41 of the
Warehouse Receipts Act (Act No. 2137):
o SEC. 41. Rights of person to whom a receipt has been
negotiated. — A person to whom a negotiable receipt
has been duly negotiated acquires thereby:
(a) Such title to the goods as the person negotiating the
receipt to him had or had ability to convey to a
purchaser in good faith for value, and also such title
to the goods as the depositor of person to whose
order the goods were to be delivered by the terms
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of the receipt had or had ability to convey to a
purchaser in good faith for value, and. . . .
 Therefore, the bank is not responsible for the loss; the negotiable
quedans were duly negotiated to the bank and as far as the record
shows, there has been no fraud on the part of the Defendant.
 Moreover, Plaintiff is estopped to deny that the bank had a valid
title to the quedans for the reason that the Plaintiff had voluntarily
clothed Ranft with all the attributes of ownership and upon which
the Defendant bank relied. Subsequently, Plaintiff in this case has
suffered the loss of the quedans, but as far as the court sees it,
there is now no remedy available to the Plaintiff equitable estoppel
place the loss upon him whose misplaced confidence has made
the wrong possible as ruled in National Safe Deposit vs. Hibbs (a
US case)
1. 1.NEGOTIABLE WAREHOUSE RECEIPTS; ENDORSED IN
BLANK.—Plaintiff sold certain quantity of hemp to one by the
name of Otto Ranft by quedans and sent
the quedans, together with the covering invoice, to Ranft,
without having been paid for, but plaintiff's understanding was
that the payment would be made against the quedans. Ranft
on the same day turned over the quedans to the defendant
bank to secure payment of his preexisting debts. Ranft died
on the evening of the day the quedans were delivered to the
bank. Plaintiff brought this action to recover the quedans or
their values. Held:Taking into consideration that
the quedans were negotiable in form and duly endorsed in
blank by the plaintiff and by Otto Ranft, it follows that on
delivery of the quedans to the bank, they were no longer the
property of the indorser unless he liquidated his debts with the
bank.
1. 2.ID.; ID.; AUTHORITY TO NEGOTIATE.—The bank had a
perfect right to accept the quedans in security of preexisting
debts without investigation of the authority of the person
negotiating them. (Sections 47, 38 and 40 of the Warehouse
Receipts Act No. 2137.)
1. 3.ID.; ID.; ESTOPPEL TO DENY VALID TITLE.—Since
plaintiff had voluntarily clothed the person who negotiated
the quedans with all the attributes of ownership and upon
which the bank relied, it is estopped to deny that the bank had
a valid title to the quedans.
ARTICLE 1636 In the preceding articles in this Title governing the sale
of goods, unless the context or subject matter otherwise requires:
(1) "Document of title to goods" includes any bill of lading,
dock warrant, "quedan," or warehouse receipt or order for the delivery
of goods, or any other document used in the ordinary course of
business in the sale or transfer of goods, as proof of the possession or
control of the goods, or authorizing or purporting to authorize the
possessor of the document to transfer or receive, either by
indorsement or by delivery, goods represented by such document.
"Goods" includes all chattels personal but not things in
action or money of legal tender in the Philippines. The term includes
growing fruits or crops.
"Order" relating to documents of title means an order by
indorsement on the documents.
"Quality of goods" includes their state or condition.
"Specific goods" means goods identified and agreed upon at
the time a contract of sale is made.
An antecedent or pre-existing claim, whether for money or
not, constitutes "value" where goods or documents of title are taken
either in satisfaction thereof or as security therefor.
(2) A person is insolvent within the meaning of this Title
who either has ceased to pay his debts in the ordinary course of
business or cannot pay his debts as they become due, whether
insolvency proceedings have been commenced or not.
(3) Goods are in a "deliverable state" within the
meaning of this Title when they are in such a state that the buyer would,
under the contract, be bound to take delivery of them. (n)
-A document used in the ordinary course of business in the sale or
transfer of goods, as proof of the possession or control of the goods,
or authorizing or purporting to authorize the possessor of the
20

document to transfer or receive, either by endorsement or by delivery,
goods represented by such document.
-document of title to goods
-any bill of lading, dock warrant, quedan, or warehouse receipt or order
for the delivery of goods or any other document used in the ordinary
course of business -formal document which is issued by or addressed
to a carrier, warehouseman or other bailee; covers goods referred to
therein; and confers and proves titles to the goods.
ARTICLE 1507- 1522 (SEE CODAL. SAYANG SPACE)
ARTICLE 1503 When there is a contract of sale of specific goods, the
seller may, by the terms of the contract, reserve the right of possession
or ownership in the goods until certain conditions have been fulfilled.
The right of possession or ownership may be thus reserved
notwithstanding the delivery of the goods to the buyer or to a carrier or
other bailee for the purpose of transmission to the buyer.
Where goods are shipped, and by the bill of lading the goods
are deliverable to the seller or his agent, or to the order of the seller or
of his agent, the seller thereby reserves the ownership in the goods.
But, if except for the form of the bill of lading, the ownership would
have passed to the buyer on shipment of the goods, the seller's
property in the goods shall be deemed to be only for the purpose of
securing performance by the buyer of his obligations under the
contract.
Where goods are shipped, and by the bill of lading the goods
are deliverable to order of the buyer or of his agent, but possession of
the bill of lading is retained by the seller or his agent, the seller thereby
reserves a right to the possession of the goods as against the buyer.
Where the seller of goods draws on the buyer for the price
and transmits the bill of exchange and bill of lading together to the
buyer to secure acceptance or payment of the bill of exchange, the
buyer is bound to return the bill of lading if he does not honor the bill of
exchange, and if he wrongfully retains the bill of lading he acquires no
added right thereby. If, however, the bill of lading provides that the
goods are deliverable to the buyer or to the order of the buyer, or is
indorsed in blank, or to the buyer by the consignee named therein, one
who purchases in good faith, for value, the bill of lading, or goods from
the buyer will obtain the ownership in the goods, although the bill of
exchange has not been honored, provided that such purchaser has
received delivery of the bill of lading indorsed by the consignee named
therein, or of the goods, without notice of the facts making the transfer
wrongful. (n)
PURPOSE
1) As evidence of possession or control of goods described therein
(2) As a medium of transferring title and possession over the
goods described therein without having to effect actual delivery thereof
(3) The custody of a negotiable warehouse receipts issued to the
order of the owner, or to bearer, is a representation of title upon which
bona fide purchasers for value are entitled to rely, despite breaches of
trust or violations of agreement on the part of the apparent owner. -a
document of title authorizes the person in possession to receive, hold,
transfer or dispose of such document and/or the goods referred to
therein.
KINDS OF DOCUMENTS OF TITLE
1. BILL OF LADING: form of an acknowledgement receipt of the
goods stated therein by a transportation company or a carrier;
- contract of carriage of goods between the shipper and the
transportation company or a carrier for delivering the goods
referred to therein to the person named therein or to person who
has a right therein
- contract—shipper, consignee, carrier undertake specific
responsibilities and assumes obligation; even though not signed
the acceptance of paper containing the terms and conditions
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constitutes acceptance of the contract in entirety of which the
acceptor has actual or constructive notice
- it is a receipt and a contract
2. DOCK WARRANT OR RECEIPTS: document or receipt issued by
a wharf, dock or port authority that certifies title of any person
named therein to the shipment that is stored in the warehouse or
storage facility; warrant given by dock-owners to the owner of
merchandise imported and warehoused on the dock upon the faith
of the bill of lading as recognition of his title to the goods
3. WAREHOUSE RECEIPTS: document that evidences ownership of
the goods that are stored in a warehouse for safekeeping, and is
issued by the a warehouseman who is a person lawfully engaged
in the business of storing goods for profit; confirms existence and
availability of goods in the specified warehouse
- does not need to be in a particular form but must embody within
its written or printer terms the essential terms enumerated in
Section 2 Act No. 2137 or Warehouse Receipts Law to wit: (a)
The location of the warehouse where the goods are stored; (b)
The date of the issue of the receipt; (c) The consecutive number
of the receipt; (d) A statement whether the goods received will be
delivered to the bearer, to a specified person or to a specified
person or his order; (e) The rate of storage charges; (f) A
description of the goods or of the packages containing them; (g)
The signature of the warehouseman which may be made by his
authorized agent; (h) If the receipt is issued for goods of which
the warehouseman is owner, either solely or jointly or in common
with others, the fact of such ownership; and (i) A statement of the
amount of advances made and of liabilities incurred for which the
warehouseman claims a lien. If the precise amount of such
advances made or of such liabilities incurred is, at the time of the
issue of, unknown to the warehouseman or to his agent who
issues it, a statement of the fact that advances have been made
or liabilities incurred and the purpose thereof is sufficient. A
warehouseman shall be liable to any person injured thereby for
all damages caused by the omission from a negotiable receipt of
any of the terms herein required.
- in the absence of lawful excuse, warehouseman is bound to
deliver upon demand made by the holder or by the depositor
4. QUEDAN: type of warehouse receipt issued for sugar or to several
grains warehouse receipts, tobacco or hemp
NEGOTIABLE AND NON-NEGOTIABLE DOCUMENT
OF TITLE
-Negotiable when a document of title which states that the goods
referred to therein will be delivered to the bearer, or to the order of any
person named in such document -Otherwise or if not the one
described above, it is nonnegotiable such as if it is to be delivered to a
specific person only
*Goods described in a non-negotiable document of title are
deliverable only to a specified person.
*A person to whom a document has been negotiated
acquires:
(1) Title to goods as against the transferor
(2) Right to notify the bailee of the transfer thereof(3) Right,
thereafter, to acquire obligation of the to hold goods for him
-denomination of the instrument that it is non-negotiable but the receipt
provides terms such as “or his order”=negotiable
APPLICABLE PROVISIONS: NEGOTIABLE=Art.1508;
NON-NEGOTIABLE=Art. 1507 and 1514
HOW NEGOTIATED
Terms of the Document How negotiated
21
 SALES-FINALS|ATTY.RRD

by his conduct precluded from denying the seller's authority to sell.

Deliver the goods to Nothing in this Title, however, shall affect:
bearer (1) The provisions of any factors' act, recording laws, or any other
provision of law enabling the apparent owner of goods to dispose of
Deliver the goods to the order of them as if he were the true owner thereof;
a specified person and such
(2) The validity of any contract of sale under statutory power of
person or subsequent endorsee
sale or under the order of a court of competent jurisdiction;
of t h e d o c u m e n t h a s
indorsed it in blank or to the (3) Purchases made in a merchant's store, or in fairs, or markets,
bearer in accordance with the Code of Commerce and special laws. (n)

Deliverable to bearer or indorsed WARRANTIES OF SELLER OR DOCUMENTS OF TITLE

in blank or to bearer, any holder
may indorse the same to himself
or to any specified person and in
such case the document shall
thereafter be negotiated only by
the endorsement of such
endorsee
APPLICABLE PROVISION: Articles 1516-1520
Bydeliveryofthe
document to another (1) The genuineness of document
(2) The legal right to negotiate or transfer
(3) That there is no knowledge of any fact which would impair the
validity or worth of the document
(4) The right to transfer the title to the goods and merchantability
or fitness for a particular purpose, whenever such warranties would
have been implied
He does not warrant that:

(1) Common carrier will fulfill its obligation to deliver the goods
(2) Previous endorsers will fulfill their obligation

Goods in the hands of the carrier covered by a negotiable document

Goods are deliverable to the cannot be attached or levied upon, unless:
order of a specified person;
endorsement may be in blank, to (1) Document is first surrendered to the carrier; or
bearer or to a specified person
(2) Impounded by the court; or
-subsequent negotiations may be
By endorsement and (3) Its negotiation is enjoined

made in the same manner
delivery
RIGHTS ACQUIRED BY TRANSFER
He acquires:

1.Title to the goods, subject to the terms of any
 agreement with the
APPLICABLE PROVISIONS: Arts. 1508, 1509 transferor;

-Where a negotiable document of title is transferred for value by
delivery, and the endorsement of the transferor is essential for
negotiation, the transferee acquires a right against the transferor to
compel him to endorse the document unless a contrary intention
appears. The negotiation shall take effect as of the time when the
endorsement is actually made
-mere delivery without indorsement is sufficient if deliverable to the
bearer
-deliverable to specified person and he indorsed it in blank by simply
signing his name without specifying to whom it is deliverable or
indorsed it to bearer=document may be negotiated by mere delivery
2. (if document is non-negotiable)Right to notify the bailee who issued
the document of the transfer thereof, and thereby to acquire the direct
obligation of such bailee to hold possession of the goods for him
according to the terms of the document.
-Notification is an operative act to transfer the title or possession of the
goods in favor of the transferee. -Prior to the notification to such
bailee by the transferor or transferee of a non-negotiable document of
title, the title of the transferee to the goods and the right to acquire the
obligation of such bailee may be defeated by the transferor’s creditor
by the levy of an attachment or execution upon the goods (Art. 1514,
NCC). -Provision pertains to mere transfer of document of title but not
negotiated

WHO CAN NEGOTIATE RULES ON LEVY/GARNISHMENT OF GOODS


APPLICABLE PROVISIONS: Art. 1512-1513 Goods in the hands of the carrier covered by a negotiable document
cannot be attached or levied upon, unless:
1. Owner
2. Person to whom the possession or custody of the
 document (1) Document is first surrendered to the carrier; or
has been entrusted by the owner (2) Impounded by the court; or

a. If bailee undertakes to deliver the goods to such (3) Its negotiation is enjoined. [Art. 1519-1520]
person; The levy of an attachment of execution upon the goods by a creditor of
b. If document is in such form that it may be the transferor, may defeat the title of the transferee and the right to

negotiated by delivery.
 acquire the obligation of such bailee, when:

RIGHTS ACQUIRED BY NEGOTIATION ARTICLE 1505
Subject to the provisions of this Title, where goods are sold by a
person who is not the owner thereof, and who does not sell them under
authority or with the consent of the owner, the buyer acquires no better
title to the goods than the seller had, unless the owner of the goods is
(1) It was done prior to the notification to such bailee by the transferor
of a non- negotiable document of title or (2) By a notification to such
bailee by the transferor or a subsequent purchaser from the transferor
of a subsequent sale of the goods by the transferor. [Art 1514 (3rd
par)]

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 SALES-FINALS|ATTY.RRD

A creditor whose debtor is the owner of a negotiable document of title

shall be entitled to such aid from courts in regard to property which Function
cannot be readily attached or levied by ordinary legal process [Art
1520]
It operates as proof of the
possession or control of the
EXAMPLE: If the goods are delivered to the bailee by the owner or by
goods.
a person whose act in conveying the title to them to a purchaser in
good faith for value and a negotiable instrument was issued for them,
can the said goods be attached, garnished or levied upon? -GR: No, Authorizes or purports to
the goods cannot be attached, garnished or levied upon while they are authorize the possessor of the
in the bailee’s possession. document to transfer or receive,
It operates as a substitute for either by e n d o r s e m e n t o r
money bydelivery,goods
XPN: 1.When the document is first surrendered; or
represented by such document.
2.When its negotiation is enjoined.


NOTE: The bailee shall in no case be compelled to deliver the actual

possession of the goods until the document is: 1. Surrendered to him;
or


2. Impounded by the court. (Art. 1519, NCC) Rationale for the Governing Law
prohibition is to protect the bailee from liability as the document may
have been negotiated by the holder to subsequent transferees for
value and in good faith. He may be liable for damages if he cannot Governed by the Civil Code and
produce and deliver the goods later in some cases by the Warehouse
Governedbythe Receipt Law and the Code of
RIGHTS OF A CREDITOR WHOSE DEBTOR IS THE Negotiable Instruments Commerce
OWNER OF THE NEGOTIABLE DOCUMENT OF TITLE Laws
He is entitled to such aid from courts of appropriate jurisdiction by:

1. injunction;
Special Endorsement of a Bearer Instrument
2.attaching such document;

3. as regards property which cannot be readily attached or levied upon A bearer instrument is a l w a y s The Special endorsement of a
by ordinary legal process - satisfying the claim by means allowed by a b e a r e r instrument even if a bearer instrument has the effect
law or equity special endorsement is made of converting the bearer
instrument into an order
(Art. 1520, NCC)
instrument.

EFFECTS OF A VALID NEGOTIATION

APPLICABLE PROVISION: Art. 1513 and Art. 1518 Person to whom a
negotiable document of title has been duly negotiated: Placing of Words Non-negotiable on the Instrument or
Document
-acquires title to the goods as the person negotiating the document to
him had or had ability to convey to a purchaser in good faith for value
and also such title to the goods as the person to whose order the Placing of Words Nonn e g o t i a
goods were to be delivered by the terms of the document had or had bleonthe
ability to convey to a purchaser in good faith for value; and -Acquires Document has no effect; it can
the direct obligation of the bailee issuing the document to hold The instrument is no
still be negotiated by the holder
possession of the goods for him according to the terms of the longer negotiable
document as fully as if such bailee had contracted directly with him.

ARTICLE 1518 The validity of the negotiation of a negotiable TRUST RECEIPTS

document of title is not impaired by the fact that the negotiation was a
breach of duty on the part of the person making the negotiation, or by
the fact that the owner of the document was deprived of the
possession of the same by loss, theft, fraud, accident, mistake, duress,
or conversion, if the person to whom the document was negotiated or
a person to whom the document was subsequently negotiated paid
value therefor in good faith without notice of the breach of duty, or
loss, theft, fraud, accident, mistake, duress or conversion.
NEGOTIATION NOT IMPAIRED BY FRAUD
Compared with Negotiable Instruments Law
 delivery to the entruster of a signed document called a "trust receipt"
Negotiable Document of
Negotiable Instrument Title
-transactions are governed by PD 115 or Trust Receipts Law
SECTION 4. What constitutes a trust receipt transaction. A trust receipt
transaction, within the meaning of this Decree, is any transaction by
and between a person referred to in this Decree as the entruster, and
another person referred to in this Decree as entrustee, whereby the
entruster, who owns or holds absolute title or security interests over
certain specified goods, documents or instruments, releases the same
to the possession of the entrustee upon the latter's execution and
wherein the entrustee binds himself to hold the designated goods,
documents or instruments in trust for the entruster and to sell or
otherwise dispose of the goods, documents or instruments with the
obligation to turn over to the entruster the proceeds thereof to the
extent of the amount owing to the entruster or as appears in the trust
receipt or the goods, documents or instruments themselves if they are
unsold or not otherwise disposed of, in accordance with the terms and

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conditions specified in the trust receipt, or for other purposes
substantially equivalent to any of the following:
1. In the case of goods or documents, (a) to sell the goods or procure
their sale; or (b) to manufacture or process the goods with the
purpose of ultimate sale: Provided, That, in the case of goods
delivered under trust receipt for the purpose of manufacturing or
processing before its ultimate sale, the entruster shall retain its title
over the goods whether in its original or processed form until the
entrustee has complied fully with his obligation under the trust
receipt; or (c) to load, unload, ship or tranship or otherwise deal with
them in a manner preliminary or necessary to their sale; or
2. In the case of instruments,
a) to sell or procure their sale or exchange; or
b) to deliver them to a principal; or
c) to effect the consummation of some transactions involving delivery
to a depository or register; or
d) to effect their presentation, collection or renewalThe sale of goods,
documents or instruments by a person in the business of selling
goods, documents or instruments for profit who, at the outset of the
transaction, has, as against the buyer, general property rights in such
goods, documents or instruments, or who sells the same to the buyer
on credit, retaining title or other interest as security for the payment
of the purchase price, does not constitute a trust receipt transaction
and is outside the purview and coverage of this Decree.
-Trust receipt transaction is one where the entrustee has the obligation
to deliver to the entruster the price of the sale or if the merchandise is
unsold, to return the same -failure to comply with any of the two
obligation=liable -trust receipt is not a document of title although
similar to warehouse receipt and contract of sale because true nature
of trust receipt transaction is “the utilization of trust receipts, as a
convenient business device to assist importers and merchants solve
their financing problems”.
CASE: Ng v. PP
-A trust receipt is a written legal document executed, signed and
delivered by the entrustee to the entruster whereby the entruster, who
holds and retains title over certain specified goods, documents or
instruments, will release the possession thereof to the entrustee who
binds himself to do the following: 1) to hold the same goods,
documents or instruments in trust for the entruster; 2) to sell or
otherwise dispose them with the obligation to turn over to the entruster
the proceeds thereof to the extent of the amount owing to the entruster
or as appears in the trust receipt; or 3) to turn over the said goods,
documents or instruments themselves if they were unsold or
undisposed
PLACE AND TIME OF DELIVERY
-as included in the syllabus and Sualog
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.
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Unless otherwise agreed, the expenses of and incidental to putting the
goods into a deliverable state must be borne by the seller. (n)
-Place of delivery is determined in the following order: a)Stipulation—
express or implied
b)Place dictated by usage of trade—provided by a positive law or
established by custom or tradition through continuous observance or
practice c)Place of business of seller
d)Place where seller resides
e)Place where specific goods are
-Time of delivery
a) Agreed Time—express or implied
b) Reasonable Time—question of fact
*demand or tender of delivery may be treated as ineffectual
unless made at a reasonable hour
c) Fixed Time—by parties or court
Article 1197: two step process—determine obligation is
intended to have a period but it is not fixed or is made to
depend upon debtor’s will, and determine period probably
contemplated
Article 1197. If the obligation does not fix a period, but from its
nature and the circumstances it can be inferred that a period
was intended, the courts may fix the duration thereof.
The courts shall also fix the duration of the period when it
depends upon the will of the debtor. In every case, the courts
shall determine such period as may under the circumstances
have been probably contemplated by the parties. Once fixed
by the courts, the period cannot be changed by them. (1128a)
-When goods are with third person, no delivery until third person
acknowledges to the buyer that he holds the goods on the buyer’s
behalf
GR: seller bears expense of and incidental to putting
goods into deliverable state XPN: unless
otherwise agreed upon
-Complete Delivery when thing is placed under control and possession
buyer, actually or constructively, regardless whether accepted or
refused by buyer
INCOMPLETE DELIVERY
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)
Delivery of Wrong Quantity
24

a) less than the goods expected, buyer may choose either:
• reject the goods; or
• accept or retain the goods and pay for them:
1. at their contract rate if he has knowledge that the seller is not
going to perform contract in full; or
2. at their fair value if he has used or disposed before he knew
seller is not going to perform
contract in full
-buyer’s right to reject goods is absolute regardless extent of shortfall
b) larger than expected, buyer may choose either:
• accept the goods included in the contract and reject the rest; or
• accept the whole of the goods delivered and to pay for them at the
contract rate
-object is indivisible=may reject in whole
Delivery of Mixed Goods with Different Description -buyer may
choose any of the following:
a) accept the goods in accordance with contract and reject the rest; or
b) accept or reject whole goods if subject matter is indivisible
Quality of Goods Has Deteriorated
-object has perished in part or have wholly or material part so
deteriorated in quality as to be substantially changed in character,
buyer may at his option treat the sale as:
a) avoided
b) valid in all existing goods or in so much thereof as have not
deteriorated, and buyer must pay at agreed price for all the things
which ownership will pass if divisible
VII. Remedies of an Unpaid Seller
DEFINITION OF UNPAID SELLER ARTICLE 1525 The
seller of goods is deemed to be an unpaid seller within the meaning of
this Title:
(1) When the whole of the price has not been paid or tendered;
(2) 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.
In articles 1525 to 1535 the term "seller" includes an agent of the seller
to whom the bill of lading has been indorsed, or a consignor or agent
who has himself paid, or is directly responsible for the price, or any
other person who is in the position of a seller. (n)
A seller is considered to be an unpaid seller if the whole price has not
been paid or tendered, or when check received as a conditional
payment was dishonored by non- payment or insolvency of the buyer
[Baviera] An seller is unpaid within such definition whether or not title
has been passed. Partial payment of the price does not extinguish the
unpaid seller’s lien. [De Leon]
-Term also includes:
(1) The agent of the seller to whom the bill of lading was
endorsed,
(2) The consignor or agent who had paid the price or is
responsible for the price
(3) Any other person who is in the position of a seller (i.e. buyer
who paid the price and had a right to return the goods). [Baviera]
Unpaid Seller
One is considered as unpaid seller when:
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1. The whole of the price has not been paid or
tendered;
2. 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.
NOTE: The mere delivery of a negotiable instrument does not ipso
facto extinguish the obligation of the buyer to pay because the
instrument which has been delivered may be dishonoured. In which
case, the seller is still an unpaid seller (US v. Bedoya, 14 Phil. 398).
It includes an agent of the seller to whom the bill of lading has been
indorsed, or consignor or agent who has himself paid, or is directly
responsible for the price, or any other person who is in the position of
a seller (Pineda, 2010).
Q: When is a Seller considered unpaid despite the title of the goods
passing to the buyer?
A: Whenever the seller was only paid partially, he remains an unpaid
seller (Pineda, 2010)

ARTICLE 1526-1535 (See Codal sayang space)
-Where ownership in the goods may have passed to the buyer, the
unpaid seller of goods has:
(1) a lien on the goods or right to retain them for the price while he is
in possession of them=POSSESSORY LIEN
(2) a right of stopping the goods in transitu after he has parted with the
possession of them in case of the
insolvency of the buyer=STOPPAGE IN TRANSITU
(3) special right of resale
(4) special right to rescind the sale
-Where the ownership in the goods has not passed to the buyer,
unpaid seller has, in addition to mentioned/other remedies,:
(5) 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
-Other remedies
(6) Remedies under Recto Law
(7) Resolution or Rescission
(8) Action for the Price through an Action for Specific Performance or
Collection of Sum of Money
(9) Action for Damages
POSSESSORY LIEN
Unpaid Seller Lien: a seller has a lien on goods that have been sold by
him so long as they remain in his possession, and the price or any part
of it remains unpaid, unless the contrary intention of the parties
appear. He is entitled to retain possession of the goods until the price
has been paid or tendered in full
APPLICABLE PROVISION: Art. 1535, 1526-1529, 1503
This remedy presupposes that the sale is on credit. It is exercisable
only in following circumstances: a .goods sold without stipulation as to
credit
b. goods sold on credit but term of credit has expired
c.buyer becomes insolvent

-When part of goods delivered, may still exercise right on goods
undelivered
25

-Unpaid Seller loses his possessory lien when:
a) he delivers the goods to a carrier or other bailee for the purpose of
transmission to the buyer without reserving the ownership in the
goods or the right to the possession thereof;
b) buyer or his agent lawfully obtains possession of the
goods;
c) waiver
He does not lose lien by reason only that he has obtained judgement
or decree for the price of the goods
RIGHT OF STOPPAGE IN TRANSITU
-The one who exercises his right of stoppage in transitu resumes the
possession of the goods while they are in transit and he becomes
entitled to the same rights in regard to the goods as he would have
had if he had never parted with the possession.
-entitles unpaid seller to retain the goods stopped until price of the
whole goods sold is paid
Requisites:
a) Seller is Unpaid
b) Buyer is or becomes insolvent
-person is insolvent=ceased to pay his debts in the ordinary course of
business or cannot pay debts as they become due whether insolvency
proceedings have been commenced or not
c) Unpaid seller has parted with the possession of the
goods
d) Goods are in transit
e) Unpaid seller either obtains actual possession of the goods, or
gives notice of his claim to the carrier or other bailee in whose
possession the goods are
Goods are in transit:
a) From the time when they are delivered to a carrier for purpose of
transmission until buyer or his agent takes delivery of them from
such carrier or other bailee
b) If goods are rejected by the buyer and the carrier or other bailee
continues in possession of them, even if the seller refused to
receive them back
Goods are no longer in transit:
a) After delivery to the buyer or his agent
b) If the buyer/agent obtains possession of the goods at a point before
the destination originally fixed;
c) If the carrier or the bailee acknowledges that he holds the goods in
behalf of the buyer/ his agent;
d) If the carrier or bailee wrongfully refuses to deliver the goods to the
buyer or his agent. (Villanueva, p.181)
-if goods are delivered to a ship, freight train or airplane chartered by
the buyer=question of fact whether they are in possession of the
carrier as such or as agent of the buyer
-stoppage may be partial as with the remaining portion undelivered if
part was already in possession of buyer or agent
How Exercised:
The seller may:

a. Take actual possession of the goods

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b. Give notice of his claim to the carrier or other bailee who is
in possession of the goods
Effect of the exercise of this right
1. The goods are no longer in transit
2. Contract of carriage end. The carrier now becomes amere
bailee, and will be liable as such; and
3. Seller would have the same rights to the goods as if he had
never had never parted possession with it (Art.1530 & 1531, NCC).
Seller’s knowledge of the buyer’s insolvency -The seller cannot
exercise the right to stoppage in transit because he is under estoppel.
He assumed the risk.
-Rationale behind the right of stoppage in transitu: To prevent injustice
of allowing the buyer to acquire ownership and possession of the
goods when owing to his insolvency, he cannot pay the price (Pineda,
2010).
Effects of Subsequent Sale of Goods to Unpaid Seller’s
Possessory Lien or Right of Stoppage in Transitu
GR: Right of Lien or Stoppage in Transitu is not affected by any sale or
other disposition of the goods which the buyer may have been made.
XPN: 1) Seller has assented thereto—recognized the title of the
subsequent buyer
2) negotiable document of title issued for the goods is in the
hand of the purchaser for value in GF
-Right of Resale and Right to Rescind are special remedies of an
unpaid seller because the goods may still either be resold or seller can
rescind transfer of title despite their delivery and the transfer of their
ownership can be effected even without the intervention of the court -
ownership revert back to owner even without court proceedings
-ordinary sale: not allowed
RIGHT OF RESALE
An unpaid seller who have a right or lien or have stopped the goods in
transitu may resell the goods under any of the following circumstance:
a) the goods are perishable in nature
b) seller expressly reserves the right of resale in case the buyer should
make a default
c) buyer has been in default in payment of price for an unreasonable
time
Effects of Resale:
1) The unpaid seller shall not be liable to the original buyer upon the
sale or for any profit made by such resale if goods were sold for
more than original price;
2) The unpaid seller may recover from the buyer damages for any loss
occasioned by the breach of the sale including sale for less than
original price;
3) The new buyer acquires title as against the original buyer.
Essentials of Validity of Resale:
a) seller is bound to exercise reasonable care and
judgment in making a resale;
b) resale may either be by private or public sale;
c) unpaid seller cannot directly or indirectly buy the goods.
Not Essentials of Validity of Resale:
26

a) not essential that notice be given to the original buyer XPN: if
right to resell is based on the fact that buyer has been in default for an
unreasonable time
b) not essential that notice as to time and place of resale
be given to original buyer
Notice to the defaulting buyer
 goods could be readily sold
GR: Notice to the defaulting buyer NOT required in the resale of goods
XPN: Where the right to resell is not based on the perishable nature of
the goods or upon an express provision of the sale, meaning it is
based on default of buyer to pay for an unreasonable time
-notice in the last instance is relevant in any issue whether buyer had
been in default for an unreasonable time before resale was made
RIGHT TO RESCIND
An unpaid seller who have a right or lien or have stopped the goods in
transitu may rescind the transfer of title and resume the ownership in
the goods under any of the following circumstances:
a) expressly reserves the right to do so in case the buyer should make
default
b) buyer has been in default in payment of price for an unreasonable
time
Essentials of Validity of Rescission:
-Transfer of the 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
-not essential that overt act should be communicated to the buyer but
notice shall be relevant in any issue whether buyer had been in default
for an unreasonable time before rescission was made
Effects of Rescission:
1) The unpaid seller shall not be liable to the buyer upon the sale
2) The unpaid seller may recover from the buyer damages for any loss
occasioned by the breach of the sale
JUDICIAL REMEDIES OF UNPAID SELLER
(1) Action for the price [Art. 1595] (a) When the ownership of the goods
has
 passed to the buyer and he wrongfully neglects or refuses to
pay for the price
(b) When the price is payable on a certain day and the
buyer wrongfully neglects to pay such price, irrespective of
delivery or of transfer of title
(c) When the goods cannot readily be resold for a
reasonable price, and the buyer wrongfully refuses to accept
the goods even before ownership passed.
Buyer can set up the defense that seller at any time before judgment
could not or did not intend to deliver the goods. Unless the contrary
appears, payment and delivery are presumed to be concurrent acts,
and the obligation of each party to perform the contract is dependent
upon the simultaneous performance by the other party If ownership
has not yet passed to the buyer, the seller cannot maintain an action
for the price, unless it involves (b) or (c). Title to goods passes from
the moment the goods are placed at the buyer’s disposal when refusal
to accept is without just cause.
(2) Action for damages [Art. 1596]
 this Court has construed the word “action” to mean “any judicial or
When ownership has not yet passed and the buyer, without lawful
cause, neglects or refuses to ACCEPT and PAY for the goods
Measure of damages is the ESTIMATED LOSS directly and naturally
resulting in the ordinary course of events from the buyer’s breach. Not
only actual damages, but also unrealized profits. [De Leon] This
consists of:
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(a) 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
Note: If the resale was made with diligence, the resale price
is evidence of market value, taking into account whether or not the
(b) Where labor/expense was necessary for seller to
fulfill his obligation: Labor performed and expenses made by seller
before receiving notice of buyer’s repudiation or countermand
(c) Profit that the seller would have made if sale had
been fully performed

(3) Rescission by giving the buyer notice of the election to rescind [Art.
1597]

When the goods have not yet been delivered to the buyer,
and the buyer repudiated the contract of sale, or manifested his
inability to perform his obligations, or has committed a breach of the
contract of sale.

Under this rule, rescission would bar an action on the
contract because it means cancellation of the contractual obligations
between the parties. [Baviera]

The unpaid seller’s right to rescind for non-performance is not
absolute. Not allowed to rescind when:
 (a) There are 3rd persons
possessing the objects of the contract to whom no bad faith is
imputable

(b) Breachisonslightorcasual

The seller cannot unilaterally and extrajudicially rescind a contract
absent express stipulation to do so, except as provided in Art. 1597.

(4) Special rule for sale of movables by installments – Recto Law [Arts.
1484, 1485]
Applies in cases of:
(a) Sale of movables in installment

The rule is intended to apply to sales of movables, the price of which is
payable in two 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]

(b) Lease of personal property with option to buy

ALTERNATIVE REMEDIES OF THE UNPAID SELLER UNDER
RECTO LAW
(a) Specific Performance
(b) Cancellation of sale: If vendee fails to pay 2 or more
installments. When the seller cancels the sale by repossessing the
property sold, he is barred from exacting payment for its price.

(c) Foreclosure of Chattel Mortgage: If vendee fails to pay 2 or
more installments:
(i) 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
(ii) What Art 1484 (3) prohibits is “further action against
the purchaser to recover any unpaid balance of the price;” and although
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.
27
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The payment of the sum of P1,250 of Sapinoso was a both parties, the vendor is entitled to resell the goods if the purchaser
voluntary act on his part and did not result from a “further action” fails to take delivery and pay the purchase price. If he is obliged to sell
instituted by Northern Motors. [Motors vs. for less than the contract price, he holds the buyer for the difference, if
he sells for as much as or more than the contract price, the breach of
Sapinoso, 1970] contract by the original buyer is damnum absque injuria. In either case
there is no need of an action of rescission to authorize the vendor, who
(iii) The purpose of the law is to remedy the abuses is still in possession, to dispose of the property. (Hanlon vs.
committed in foreclosure of chattel mortgages. It prevents mortgagees Hausserman, 40 Phil. 796, 815-816).
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]
(iv) Remedies are ALTERNATIVE, not
cumulative. [Nonato vs. IAC, 1985]

Where the mortgagor unjustifiably refused to surrender the

chattel subject of the mortgage upon failure of two or more
installments, or if he concealed the chattel to place it beyond the reach
of the mortgagee, that thereby constrained the latter to seek court
relief, the expenses incurred for the prosecution of the case, such as
attorney's fees, could rightly be awarded. [Borbon II v. Servicewide,
1996]

Katigbak v. CA

FACTS: . Artemio Katigbak upon reading an advertisement for the sale

of the winch placed by V. K. Lundberg, went to see Lundberg and
inspected the equipment. The price quoted was P12,000.00. Desiring a
reduction of the price, Katigbak was referred to Daniel Evangelista, the
owner. After the meeting, it was agreed that Katigbak was to purchase
the winch for P12,000.00, payable at P5,000.00 upon delivery and the
balance of P7,000.00 within 60 days. The condition of the sale was that
the winch would be delivered in good condition. Katigbak was apprised
that the winch needed some repairs, which could be done in the shop of
Lundberg. It was then stipulated that the amount necessary for the
repairs will be advanced by Katigbak but deductible from the initial
payment of P5,000.00. The repairs were undertaken and the total of
P2,029.85 for spare parts was advanced by Katigbak for the purpose.
For one reason or another, the sale was not consummated and Katigbak
sued Evangelista, Lundberg and the latter's company, for the refund of
such amount.

Lundberg and Evangelista filed separate Answers to the complaint, the

former alleging non-liability for the amount since the same (obligation for
refund) was purely a personal account between defendant Evangelista

Evangelista, on his part, claimed that while there was an agreement

between him and Katigbak for the purchase and sale of the winch and
that Katigbak advanced the payment for the spare parts, he (Katigbak)
refused to comply with his contract to purchase the same; that as a result
of such refusal he (Evangelista) was forced to sell the same to a third
person for only P10,000.00, thus incurring a loss of P2,000.00, which
amount Katigbak should be ordered to pay, plus moral damages of
P5,000.00 and P700.00 for attorney's fees.

HELD: Notwithstanding the breach of contract committed by him, we

may concede appellee's right to a refund of the sum of P2,029.85, but
equally undeniable is appellant Evangelista's right to recover from him
his loss of P2,000.00, which is the difference between the contract price
for the sale of the winch between him and appellee and the actual price
for which it was sold after the latter had refused to carry out his
agreement. As held in the above-cited case of Hanlon, if the purchaser
fails to take delivery and pay the purchase price of the subject matter of
the contract, the vendor, without the need of first rescinding the contract
judicially, is entitled to resell the same, and if he is obliged to sell it for
less than the contract price, the buyer is liable for the difference. This
loss, which is the subject matter of Evangelista's main counterclaim,
should therefore be set off against the sum claimed by appellee, which
would leave in favor of the latter a balance of P29.85.

Sales; Executory contract of sale; Right of vendor to resell if

vendee fails to take delivery and pay the price; Rescission of
contract not necessary.—In a contract of sale which is executory as to

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