Civil Law

When in a contract between third persons concerning 1. Delay in asserting complainant’s right after he had
immovable property, one of them is misled by a person, knowledge of the defendant’s conduct and after he
with respect to the ownership of real right over the real has opportunity to exercise it;
estate, the latter is precluded from asserting his legal title 2. Injury or prejudice to the defendant in the event
or interest therein, provided all these requisites are relief is accorded to the complainant; (Pineda, 2000)
present: 3. Lack of knowledge or notice on the part of the
1. There must be fraudulent representation or defendant that the complainant would assert the
wrongful concealment of facts known to the party right on which he bases his suit; and
estopped; 4. Conduct on the part of the defendant or one under
2. The party precluded must intend that the other whom he claims, giving rise to the situation
should act upon the facts as misrepresented; complained of.
3. The party misled must have been aware of the true
facts; and Inaction and passivity to recover land subject to an
4. The party defrauded must have acted in accordance invalid sale for more than 34 years
with the misrepresentation.
Action to recover will not prosper. The passivity and
--- inaction for more than 34 years justify the defense of
laches. All of the four (4) elements are present. As a result,
Q: Discuss the three kinds of estoppel. the action of plaintiffs must be considered barred (Miguel
v. Catalino, G.R. No. L-23072, November 29, 1968).
A: There are three kinds of estoppels, to wit: (1) estoppel
in pais; (2) estoppel by deed; and (3) estoppel by laches. Laches v. Prescription
Under the first kind, a person is considered in estoppel if
by his conduct, representations, admissions or silence
LACHES PRESCRIPTION
when he ought to speak out, whether intentionally or
through culpable negligence, "causes another to believe
certain facts to exist and such other rightfully relies and Concerned with the effect of Concerned with the fact of
acts on such belief, as a consequence of which he would delay delay
be prejudiced if the former is permitted to deny the
existence of such facts." Under estoppel by deed, a party Principally a question of
to a deed and his privies are precluded from denying any inequity of permitting a It is a matter of time
material fact stated in the deed as against the other party claimed to be enforced
and his privies. Under estoppel by laches, an equitable
estoppel, a person who has failed or neglected to assert a Not statutory Statutory
right for an unreasonable and unexplained length of time
is presumed to have abandoned or otherwise declined to Applies in equity
assert such right and cannot later on seek to enforce the Applies at law
same, to the prejudice of the other party, who has no
notice or knowledge that the former would assert such Not based on fixed of time Based on fixed of time
rights and whose condition has so changed that the latter
cannot, without injury or prejudice, be restored to his
former state (Jose Go et al., v. BSP, G.R. No. 202262, July 8, NOTE: The doctrine of laches is inapplicable when the
2015) (Bersamin, J.). claim was filed within the prescriptive period set forth
--- under the law (Pineda, 2000).
LACHES (2000, 2002 BAR
(Stale Demands) SALES

The failure or neglect, for an unreasonable length of time,

to do that which by exercising due diligence could or GENERAL PRINCIPLES
should have been done earlier; it is negligence or
omission to assert a right within a reasonable time,
warranting a presumption that the party entitled to assert
Sale
it either has abandoned it or declined to assert it. It is also
known as stale demands (Lim Tay v. CA, 293 SCRA 34, G.R.
Sale is a contract where one party (seller or vendor)
No. 126891, August 5, 1998; Pineda, 2000).
obligates himself to transfer the ownership of and to
deliver a determinate thing, while the other party (buyer
Basis of the doctrine of laches
or vendee) obligates himself to pay for said thing a price
certain in money or its equivalent (NCC, Art. 1458). (2001
It is based upon grounds of public policy which requires
BAR)
for the peace of society, discouragement of stale claims.
The primary consideration in determining the true nature
Elements of Laches (DILC) of a contract is the intention of the parties. If the words of
a contract appear to contravene the evident intention of
the parties, the latter shall prevail. Such intention is
determined not only from the express terms of their

252
 SALES
agreement, but also from the contemporaneous and
subsequent acts of the parties (Heirs of Dela Rosa v.
Tongbacal, et. al., G.R. No. 179205, July 30, 2014).
ELEMENTS OF A CONTRACT OF SALE
1. Essential elements – for validity:
a. Consent – meeting of the minds to transfer
ownership in exchange for the price.
b. Determinate subject matter – determinate
thing which is the object of the contract.
c. Consideration – price certain in money or its
equivalent.
2. Natural elements – those which are inherent in the
contract, and which in the absence of any contrary
provision, are deemed to exist in the contract.
Examples:
a. Warranty against eviction
b. Warranty against hidden defects
3. Accidental elements – dependent on parties’
stipulations;
Examples:
a. Conditions
b. Interest
c. Time & Place of payment
d. Penalty
Effect of absence of any of the essential elements
The contract of sale is void.
Absent proof of the concurrence of all the essential
elements of a contract of sale, the giving of earnest money
cannot establish the existence of a perfected contract of
sale (Manila Metal Container Corp. v. PNB, G.R. No. 166862,
December 20, 2006).
---
Q: A real estate mortgage was executed by Julian as a
security for loan they obtained from Pen. When the
loans have become due and demandable, Julian failed
to pay despite several demands which prompted Pen
to institute foreclosure proceedings. Julian now
alleges that he was required by Pen to sign an
"undated, unfilled, and unnotarized" Deed of Sale,
containing no consideration for the subject property.
Julian offered to pay Pen the amount of P150,000.00
but the latter refused to accept the offer and
demanded that he be paid the amount of P250,000.00.
Upon verification with the Registry of Deeds of
Quezon City, he was informed that the title to the
mortgaged property had already been registered in
the name of Pen. Was there a valid sale?
A: NO. In a sale, the contract is perfected at the moment
when the seller obligates herself to deliver and to transfer
ownership of a thing or right to the buyer for a price
certain, as to which the latter agrees. The absence of the
consideration from Julian's copy of the deed of sale was
credible proof of the lack of an essential requisite for the
sale. In other words, the meeting of the minds of the
parties which is so vital in the perfection of the contract of
sale did not transpire in this case. Even assuming that
Julian’s leaving the consideration blank implied the
authority of Pen to fill in that essential detail in the deed
of sale upon Julian's default on the loan, the deed of sale
253
was a pactum commisorium (Sps. Pen v. Sps. Julian, G.R. No.
160408, January 11, 2016) (Bersamin, J.).
---
STAGES OF A CONTRACT OF SALE
1. Negotiation – begins from the time the prospective
contracting parties manifest their interest in the
contract and ends at the moment of agreement of the
parties;
2. Perfection or birth – takes place when the parties
agree upon the essential elements of the contract;
3. Consummation – occurs when the parties fulfill or
perform the terms agreed upon in the contract
culminating in the extinguishment thereof (Swedish
Match vs. CA, G.R. No. 128120, October 20, 2004).
CHARACTERISTICS OF A CONTRACT OF SALE
1. Consensual – a sale is perfected by mere consent,
manifested by the meeting of the minds as to the offer
and acceptance on the subject matter, price and
terms of payment.
NOTE: Delivery of the thing bought or payment of the
price is not necessary for the protection of the
contract; and failure of the vendee to pay the price
after the execution of the contract does not make the
sale null and void for lack of consideration but results
at most in default on the part of the vendee, for which
the vendor may exercise his legal remedies (Rabuya,
2017).
2. Bilateral – the seller will deliver and transfer a
determinate thing to the buyer and the latter will pay
an ascertained price (or equivalent).
3. GR: Commutative – the thing sold is considered the
equivalent of the price paid and the price paid is the
equivalent of the thing sold.
XPN: Aleatory – the consideration is not equivalent
of what has been received in the case of purchase of
a lotto ticket. If the ticket wins, the prize is much
more than the price of the ticket.
4. Principal – its existence does not depend upon the
existence and validity of another contract.
5. Onerous – the thing sold is conveyed in
consideration of the purchase price, and vice versa.
6. Nominate – it has a specific name given by law
(Pineda, 2010).
NATURE AND FORM OF CONTRACT (2002, 2006 BAR)
The contract of sale is perfected at the moment there is a
meeting of minds upon the thing which is the object of the
contract and upon the price.
From that moment, parties may reciprocally demand
performance, subject to the provisions of the law
governing the forms of contracts.
Formal requirement for the validity of a contract of
sale
GR: A contract of sale may be made in writing, or by word
of mouth, or partly in writing and partly by word of
 Civil Law
mouth, or may be inferred from the conduct of the parties a. Sale of real property;
(NCC, Art. 1483). Contracts shall be obligatory, in b. Sale of personal property
whatever form they have been entered into, provided all 2. Value of the things exchanged:
the essential requisites for their validity are present. a. Commutative sale;
b. Aleatory sale
XPNs: 3. Whether the object is tangible or intangible:
a) If the law requires a document or other special form, a. Sale of property (tangible or corporeal);
the contracting parties may compel each other to
observe that form (NCC, Art. 1357). NOTE: A tangible object is also called chose in
b) Under Statute of Frauds, the following contracts must possession
be in writing; otherwise, they shall be unenforceable:
b. Sale of a right (assignment of a right, or a credit
1. Sale of personal property at a price not less than or other intangibles such as copyright,
P500; trademark, or good will);
2. Sale of a real property or an interest therein;
3. Sale of property not to be performed within a NOTE: An intangible object is a chose in action.
year from the date thereof; 4. Validity or defect of the transaction:
4. When an applicable statute requires that the a. Valid
contract of sale be in a certain form [NCC, Art. b. Rescissible
1403(2)]. c. Voidable
c) Sale of large cattle which requires that the same be d. Unenforceable
recorded with the city/municipal treasurer and that e. Void
a certificate of transfer be issued. Otherwise, the sale 5. Legality of the object:
a. Licit object
is not valid (NCC, Art. 1581).
b. Illicit object
6. Presence or absence of conditions:
NOTE: The contract of sale of REAL PROPERTIES even if
a. Absolute
not complete in form, so long as the essential requisites of
b. Conditional
consent of the contracting parties, object, and cause of the
7. Wholesale or retail:
obligation concur and they were clearly established to be
a. Wholesale
present, is valid and effective between the parties.
b. Retail
8. Proximate inducement for the sale:
Under Art. 1357 of the NCC, its enforceability is
a. Sale by description
recognized as each contracting party is granted the right
b. Sale by sample
to compel the other to execute the proper public
c. Sale by description and sample
instrument so that the valid contract of sale of registered
9. When the price is tendered:
land can be truly registered and can bind third persons
a. Cash sale
(Rabuya, 2017).
b. Sale on installment plan
Instances where the Statute of Frauds is not essential
A contract of sale may be absolute or conditional.
for the enforceability of a contract of sale
Absolute Sale
1. When there is a note or memorandum in writing and
subscribed to by the party or his agent (contains
A sale is absolute when no condition is imposed and
essential terms of the contract);
ownership passes to the vendee upon delivery of the thing
2. When there has been partial performance/execution
subject of the sale (NCC, Art. 1497).
(seller delivers with the intent to transfer title/receives
price);
A contract of sale is absolute when the title to the property
3. When there has been failure to object to presentation
passes to the vendee upon delivery of the thing sold
of evidence aliunde as to the existence of a contract
(Rabuya, 2017).
without being in writing and which is covered by the
Statute of Frauds;
Instance when a deed of sale considered absolute in
4. When sales are effected through electronic commerce
nature
(Villanueva, 2014).
A deed of sale is considered absolute in nature where
NOTE: Rules on forms, and of validity and enforceability
there is neither a stipulation in the deed that title to the
of contracts of sale, are strictly kept within the contractual
property sold is reserved in the seller until the full
relationship of the seller and buyer pursuant to the
payment of the price, nor one giving the vendor the right
characteristic of relativity of every contract, and do not
to unilaterally resolve the contract the moment the buyer
necessarily apply to third parties whose rights may be
fails to pay within a fixed period.
affected by the terms of a sale.
Conditional Sale
KINDS OF CONTRACT OF SALE
It is conditional where the sale contemplates a
As to:
contingency, and in general, where the contract is subject
1. Nature of the subject matter:

254
 SALES
to certain conditions, usually in the case of the vendee, the Sale distinguished from:
full payment of the agreed purchase price and in the case
of the vendor, the fulfillment of certain warranties (De 1. Sale v. Donation
Leon, 2013).
SALE DONATION
Conditional sale v. Absolute sale (2001 BAR) Onerous Gratuitous/onerous
Consensual Formal contract
BASIS CONDITIONAL
ABSOLUTE SALE Law on Sales Law on Donation
SALE
The seller is The title to the
granted the right to property is not 2. Sale v. Barter
unilaterally rescind reserved to the
the contract seller or if the BASIS SALE BARTER
predicated on the seller is not A thing is A thing is
Definition fulfillment or non- granted the right given in given in
fulfillment, as the to rescind the Nature exchange of a exchange of
case may be, of the contract based on price certain in another thing.
prescribed the fulfillment or money or its
condition. non-fulfillment, equivalent.
as the case may
be, of the
prescribed The transaction is
condition. If characterized by the manifest
consideration intention of the parties.
Effect of the non-performance of the condition or if is partly in
the condition did not take place money and If If intention
partly in intention is not is not clear, and
Where the obligation of either party to a contract of sale another thing clear, and the the value of thing
is subject to any condition which is not performed, such value of thing is more than
party may: is equal or less amount of money
than amount of = Barter
1. Refuse to proceed with the contract; or money = Sale
2. Waive performance of the condition.
Applicable Both are governed by law on
Unlike in a non-fulfillment of a warranty which would Law sales.
constitute a breach of the contract, the non-happening of
the condition, although it may extinguish the obligation 3. Sale v. Agency to Sell
upon which it is based, generally does not amount to a
breach of a contract of sale. BASIS SALE AGENCY TO SELL
Buyer Agent not
Instance when a conditional sale considered an pays for price obliged to pay for
Obligation as
absolute sale of object. price; must
Regards the
account for the
Price
A deed of sale is absolute in nature although denominated proceeds of the
a “conditional sale” absent such stipulations reserving sale.
title to the vendor until full payment of the purchase price, Buyer Principal
nor any stipulation giving them the right to unilaterally becomes remains the owner
Transfer of
rescind the contract in case of non-payment. owner of even if the object
Ownership
--- thing. delivered to agent.
Q: A contract of sale of a lot stipulates that the
"payment of the full consideration based on a survey Seller Agent
shall be due and payable in 5 years from the execution warrants. assumes no
of a formal deed of sale". Is this a conditional contract Warranty personal liability
of sale? as long as within
authority given.
A: NO, it is not. The stipulation is not a condition which
affects the efficacy of the contract of sale. It merely Not May be
provides the manner by which the full consideration is to Revocability unilaterally revoked
be computed and the time within which the same is to be revocable. unilaterally even
paid. But it does not affect in any manner the effectivity of w/o ground.
the contract (Heirs of San Andres v. Rodriguez, G.R. No.
135634, May 31, 2000). Seller Agent not
receives allowed to profit.
DISTINCTIONS OF THE CONTRACT OF SALE WITH As to profit
profit.
OTHER CONTRACTS

255
 Civil Law
As to Contract Real contract Personal contract BASIS SALE CONTRACT FOR
PIECE-OF-WORK
4. Sale v. Dacion en Pago Manufacturi Manufacturi
ng in the ordinary ng upon special
BASIS DACION EN Existence course of order of a
SALE business. customer.
PAGO
No pre- Contract
existing credit. where property For the Not for the
is alienated to general market. general market,
Existence of To Whom
extinguish pre- but especially for
Credit Made
existing the customer.
credit/debt.
Applicabili Governed Not within
Buyer- Novates ty of by the Statute of the Statute of
seller creditor-debtor Statute of Frauds. Frauds.
relationship. relationship into Frauds
Relationship Borne by Borne by
seller-buyer.
Risk of the buyer. the worker or
Obligation Obligation Loss contractor, not by
Obligation s are created. s are the employer.
extinguished.
On the On the Rules in determining if the contract is one of sale or a
part of the part of the piece of work
seller: Price debtor:
Extinguishment 2. Sale – if ordered or manufactured in the ordinary
On the part of of the debt course of business (NCC, Art. 1467).
the buyer: – involves the sale of a thing or right
Acquisition of On the part of – obligation of seller is a real obligation or an
Consideration
the object. the creditor: obligation to give
The acquisition 3. Piece of work – if manufactured especially for the
of the object customer and upon his special order, and not for the
offered in lieu of general market (NCC, Art. 1467).
the original – involves lease of service
credit.
– obligation of seller is personal or obligation to
do
Greater Limited
Determinatio
freedom. freedom. CONTRACT TO SELL
n of the Price
Buyer still has The debtor A bilateral contract whereby the prospective seller, while
to pay the price. receives the expressly reserving the ownership of the subject property
Payment of
payment before despite delivery thereof to the prospective buyer, binds
Price
the contract is himself to sell the said property exclusively to the
perfected. prospective buyer upon fulfillment of the condition
agreed upon, that is, full payment of the purchase price
5. Sale v. Lease (Coronel v. CA, G.R. No. 103577, October 7, 1996).

SALE LEASE NOTE: Here, payment of the price is a positive suspensive

Obligation to absolutely
transfer ownership of thing.
only with obligation to
Consideration is the price.
Seller needs to be owner of
thing to transfer ownership.
NOTE: Lease with option to
buy – really a contract of
sale but designated as lease
in name.
Use of thing is condition. Failure of which is not a breach but an event
for specified period that prevents the obligation of the vendor to convey title
from becoming effective (Rabuya, 2017).
return.
Instances when a contract to sell may be resorted to:
Consideration is
the rental. 1. Where subject matter is indeterminate (NCC, Arts.
Lessor need not 1458 & 1460);
be owner. 2. Sale of future goods except future inheritance (NCC,
Art. 1462);
3. Stipulation that deed of sale & corresponding
certificate of sale would be issued only after full
payment (David v. Tiongson, G.R. No. 108169, August
25, 1999).

6. Contract for piece-of-work Contract to Sell v. Conditional Contract of Sale

256
 SALES
BASIS CONTRACT TO CONDITIONAL in bad constructive
SELL CONTRACT OF faith. There is no knowledge of such
SALE double sale in defect in the
The prospective The first element such case. Title to seller’s title, or at
seller does not as of consent is the property will least was charged
yet agree or present, although transfer to the with the
consent to it is conditioned buyer after obligation to
transfer upon the registration discover such
ownership of the happening of a because there is defect, cannot be a
property subject contingent event, no defect in the registrant in good
of the contract to which may or may owner-seller’s faith. Such second
sell until the not occur. title per se, but buyer cannot
As to
happening of an the latter, of defeat the first
consent
event, which may course, may be buyer’s title. In
be the full sued for damages case a title is
payment of the by the intending issued to the
purchase price. buyer. second buyer, the
What the seller first buyer may
agrees or obliges seek
himself to do is to reconveyance of
fulfill his promise the property
to sell the subject subject of the sale.
property when
the entire (Reyes v. Tuparan, G.R. No. 188064, June 1, 2011; Coronel v.
amount of the CA, G.R. No. 103577, October 7, 1996).
purchase price is
delivered to him. Contract of sale v. Contract to sell (2001 BAR)

Upon the If the suspensive BASIS CONTRACT OF CONTRACT TO

fulfillment of the condition is SALE SELL
suspensive fulfilled, the Ownership
condition, which contract of sale is is transferred to
Ownership is
is the full thereby perfected, the buyer upon
transferred
payment of the such that if there delivery of the
upon full
purchase price, had already been object to him.
payment of the
ownership will previous delivery
purchase price.
not automatically of the property As regards NOTE: Vendor
As to effect transfer to the subject of the sale transfer of has lost and
NOTE: Prior to
of buyer although to the buyer, ownership cannot recover
full payment,
fulfillment the property may ownership ownership until
ownership is
of have been thereto and unless the
retained by the
suspensive previously automatically contract is
seller.
condition delivered to transfers to the resolved or
him. The buyer by rescinded.
prospective operation of law
seller still has to without any There are
convey title to the further act having two contracts:
prospective to be performed
buyer by entering by the seller. 1. The contract
into a contract of to sell
absolute sale.
NOTE:
There being no Upon the Preparatory sale
There is
previous sale of fulfillment of the
As to numbers only one contract
the property, a suspensive 2. The deed of
of contracts executed between
third person condition, the sale absolute sale
involved the seller and the
As to effect buying such becomes absolute
buyer.
of sale of property despite and this will NOTE: The
property to the fulfillment of definitely affect principal
third the suspensive the seller’s title contract is
persons condition such as thereto. The executed after
the full payment second buyer of full payment of
of the purchase the property who the purchase
price, cannot be may have had price.
deemed a buyer actual or

257
 Civil Law
Full
payment of the GR: All persons, whether natural or juridical, who can
price is a bind themselves, have legal capacity to buy and sell [NCC,
Non-
positive Art. 1489(1)].
payment of the
suspensive
price is a
condition. XPNs:
resolutory
1. Minors, insane and demented persons and deaf-mutes
condition.
NOTE: Failure who do not know how to write;
to fully pay the 2. Persons under a state of drunkenness or during
Payment as a Vendor loses
price is not a hypnotic spell;
condition ownership over
breach but an 3. Husband and wife - sale by and between spouses.
the property and
event that Rationale for the prohibition:
cannot recover it
prevents the a. To prevent a spouse from defrauding his creditors
until and unless
obligation of the by transferring his properties to the other spouse;
the contract is
vendor to b. To avoid a situation where the dominant spouse
resolved or
convey title would unduly take advantage of the weaker
rescinded.
from becoming spouse;
effective. c. To avoid an indirect violation of the prohibition
against donations between spouses under Article
133 of the Civil Code (Medina v. Collector of
Internal Revenue, G.R. No. L-15113, January 28,
1. 1961).
1. Specific
Remedies Resolution
Performance 4. Sale between guardians and wards – the contract is
available 2. Damages
2. Rescission void and not merely voidable. The prohibition exists
3. Damages only when the guardianship exists.
5. Sale between agents and principals
GR: Art. 1491 (2) of NCC
--- XPN: The prohibition does not apply if the principal
Q: Project Movers Realty and Development consents to the sale of the property in the hands of the
Corporation (PMRDC) was indebted to Keppel Bank agent or administrator.
for P200M. To pay the debt, PMRDC conveyed to the
Also, after the termination of the affairs of the agency,
bank 25 properties. Adao occupies one of the
properties conveyed. The bank demanded Adao to the prohibition no longer applies. The transaction may
vacate the property but he refused. Hence, an be ratified by way of a new contract which will become
ejectment case was filed against Adao. In his defense, valid only from its execution and will not retroact to
Adao assailed that he had a Contract to Sell entered the date of the first contract.
between PMRDC and Adao. To prove full payment of 6. Sale between executors and administrators of estate
the property, he presented an affidavit. Is Keppel of the deceased [NCC, Art. 1491 (3)].
bank bound by the contract to sell between PMRDC
But hereditary rights are not included in the
and Adao?
prohibition.
A: NO. The contract to sell does not by itself give Adao the 7. Sale involving property of the government [NCC, Art.
right to possess the property. Unlike in a contract of sale, 1491(4)].
here in a contract to sell, there is yet no actual sale nor any The nullity of such prohibited contracts is definite and
transfer of title, until and unless, full payment is made. permanent and cannot be cured by ratification. The
The payment of the purchase price is a positive
public interest and public policy remain paramount
suspensive condition. Adao’s lone affidavit is self-serving,
and cannot be considered as substantial evidence to and do not permit of compromise or ratification.
prove that there was full payment made (Kepel Bank Phils. 8. Sale of property in litigation [NCC, Art. 1491(5)]
Inc., v. Adao, G.R. No. 158227, October 19, 2005). Nullity is permanent. Prohibition applies only to a sale
--- or assignment to the lawyer by a client of the property
PARTIES TO A CONTRACT OF SALE which is the object of litigation (Rabuya, 2017).

1. Seller – one who sells and transfers the thing and ABSOLUTE INCAPACITY
ownership to the buyer
2. Buyer – one who buys the thing upon payment of the Persons who are absolutely incapacitated to enter
consideration agreed upon into a contract of sale

1. Unemancipated minors (NCC, Art. 1327);

CAPACITY OF PARTIES 2. Insane or demented persons, and deaf-mutes who do
not know how to write (NCC, Art. 1327).

Persons who may enter into a contract of sale RELATIVE INCAPACITY

258
 SALES
cannot be
Persons who are relatively incapacitated to enter into ratified.
a contract of sale
Property
1. Spouses (NCC, Art. 1490); and rights
2. Agents, Guardians, Executors and Administrators; in litigation
3. Public Officers and Employees; or levied
4. Court Officers and Employees, and Court upon on
5. Others specially disqualified by law (NCC, Art. 1491). Cannot be
officers and execution
ratified.
employees before the
RELATIVEL court under
Y Reason: It
their
PROPERTY STATUS RATIFICAT is not only a
INCAPACIT jurisdiction
INVOLVED OF SALE ION Void private
ATED TO
BUY wrong, but
Others
also a
specially
public
Property Can be disqualified
wrong
entrusted to ratified by law
(Villanueva,
them for after the Property of
2014).
administrati inhibition the State
on or sale. has ceased. Public
Un- entrusted to
Agents officers and
enforcea them for
XPN: When Reason: the employees
ble administrati
principal only wrong on.
gave his that
consent. subsists is NOTE: The permanent disqualification of public and
the private judicial officers and lawyers grounded on public
wrong to policy differs from the first three cases of guardians,
Property of the ward, agents and administrators (Article 1491, Civil Code), as to
the ward principal or whose transactions it had been opined that they may be
during estate; and "ratified" by means of and in "the form of a new contact, in
Guardian period of can be which cases its validity shall be determined only by the
guardianshi condoned circumstances at the time the execution of such new
p by the contract. The causes of nullity which have ceased to exist
private cannot impair the validity of the new contract (Rubias v.
parties Batiller, G.R. No. L-35702, May 29, 1973).
themselves.
NOTE: Prohibitions are applicable to sales in legal
NOTE: redemption, compromises and renunciations.
Contracts
entered by Status of the following contracts of sale
guardian in
behalf of 1. Sale entered into by minors
ward are
rescissible GR: It is voidable, subject to annulment or
if ward ratification.
Voidable
suffers XCP: Where necessaries are sold and delivered to a
Property of lesion by minor or other person without capacity to act, he
Executors
the estate more than must pay a reasonable price [NCC, Art. 1489(2)].
and
under ¼ of value
administra-
administrati of property. 2. Sale by & between spouses (NCC, Art. 1490)
tors
on. Sale by
guardian of a. Status of prohibited sales between spouses:
property
belonging GR: Null and void
to a ward XPN: In case of sale between spouses:
without 1. When a separation of property was agreed
Court upon in the marriage settlements; or
approval is
2. When there has been a judicial separation of
void
property agreed upon between them
regardless
of the
b. Contract of sale with 3rd parties:
lesion,
hence,
GR: Under the law on sales, it would seem that a
spouse may, without the consent of the other

259
 Civil Law
spouse, enter into sales transactions in the regular
or normal pursuit of their profession, vocation or
trade (in relation to Art. 73, Family Code).
XPN: Even when the property regime prevailing
was the conjugal partnership of gains, the
Supreme Court held the sale by the husband of a
conjugal property without the consent of the wife
is void, not merely voidable under Art. 124 of the
Family Code since the resulting contract lacks one
of the essential elements of full consent (Guiang v.
CA, G.R. No. 125172, June 26, 1998).
c. Between common law spouses - also null and
void.
Sale between common law spouses is null and void to
prevent the exercise of undue influence by one
spouse over the other. The prohibition also applies to
a couple living as husband and wife without the
benefit of marriage (Calimlim-Canullas v. Fortun, et.
al., G.R. No. L-57499, June 22, 1984).
REASON: The condition of those who incurred guilt
would turn out to be better than those in legal union.
---
Q: Spouses Aggabao sought to purchase two parcels of
land owned by estranged spouses Dionisio and Ma.
Elena Parulan. Acting on good faith and relying on
the special power of attorney purportedly executed
by Dionisio, the spouses Aggabao paid earnest money
to Ma. Elena. When it was time to turn over the
owner’s duplicate copies for both lands, the Spouses
Aggabao found out that the one of the 2 TCTs was in
the hands of Dionisio’s brother Jeremy who claims
that he is the one with the power to sell the properties
and not Ma. Elena. Jeremy insisted on the price of
P800,000.00 for the property. Spouses Aggabao made
a counter-offer of P250,000.000 but was
subsequently denied. From then on, Jeremy did not
hear back from the spouses.
Meanwhile, husband Dionisio commenced an action
praying for the declaration of the nullity of the deed
of absolute sale executed by his estranged wife Ma.
Elena, and the cancellation of the title issued to the
Spouses Aggabao. On the other hand, the Spouses
Aggabao insists that sale had already been
consummated with Ma. Elena and further claim that
they had already paid the full amount of the
properties.
1. Is the sale of conjugal property made by Ma.
Elena, by presenting an SPA to sell
purportedly executed by her husband in her
favor validly made to the vendees?
2. Are the Spouses Aggabao considered buyers
in good faith?
A:
1. NO. The sale of conjugal property without the consent
of the husband was not merely voidable but void; hence,
it could not be ratified.
260
NOTE: Article 124 of Family Code applies to sale of
conjugal properties made after the effectivity of the
Family Code. In the case at bar, the sale was made on
March 18, 1991, or after August 3, 1988, the effectivity of
the Family Code.
2. NO. The Spouses Aggabao cannot be considered buyers
in good faith. Article 124 of the Family Code categorically
requires the consent of both spouses before the conjugal
property may be disposed of by sale, mortgage, or other
modes of disposition.
The Court declared in Bautista v. Silva that in order to
prove good faith in such a situation, the buyers must show
that they inquired not only into the title of the seller but
also into the sellers capacity to sell. Thus, the buyers of
conjugal property must observe two kinds of requisite
diligence, namely: (a) the diligence in verifying the
validity of the title covering the property; and (b) the
diligence in inquiring into the authority of the transacting
spouse to sell conjugal property in behalf of the other
spouse (Sps. Aggabao v. Sps. Parulan, G.R. No. 165803,
September 1, 2010) (Bersamin, J.).
---
Persons who has the right to assail the validity of the
transaction between spouses
The following are the only persons who can question the
sale between spouses:
1. The heirs of either of the spouses who have been
prejudiced;
2. Prior creditors; and
3. The State when it comes to the payment of the proper
taxes due on the transaction.
---
Q: The stipulation between the lawyer and counsel is
as follows, “the attorney’s fees of the Atty. X will be ½
of whatever the client might recover from his share in
the property subject of the litigation.” Is the
stipulation valid?
A: YES. The stipulation made is one of a contingent fee
which is allowed by the CPE and the CPR. It does not
violate the prohibition of acquisition of property subject
of the litigation by the lawyer provided for in the Civil
Code since the prohibition applies only to a sale or
assignment to the lawyer by his client during the
pendency of the litigation. The transfer actually takes
effect after the finality of the judgment and not during the
pendency of the case. As such it is valid stipulation
between the lawyer and client.
---
SPECIAL DISQUALIFICATIONS
Persons specially disqualified by law to enter into
contracts of sale (ALIEN-UnOS)
1. ALIENs who are disqualified to purchase private
agricultural lands (Art. XII Secs. 3&7, 1987
Constitution).
2. Unpaid seller having a right of lien or having
stopped the goods in transit is prohibited from
buying the goods either directly or indirectly in the
resale of the same at public/private sale which he
may make [NCC, Art. 1533(5); Art. 1476(4)].
 SALES
3. The Officer holding the execution or deputy cannot
become a purchaser or be interested directly or
indirectly on any purchase at an execution (Sec. 21
Rule 39, Rules of Court).
4. In Sale by auction, seller cannot bid unless notice
has been given that such sale is subject to a right to
bid in behalf of the seller (NCC, Art. 1476).
SALE BY A PERSON HAVING A VOIDABLE TITLE
Effect of a sale made by the seller with voidable title
over the object
The requisite that a thing be determinate is satisfied if at
the time the contract is entered into, the thing is capable of
being made determinate without the necessity of a new or
further agreement between the parties (NCC, Art. 1460).
B. When a thing is determinable
Even if the subject matter of the sale was generic, the
performance of the seller’s obligation would require
necessarily its physical segregation or particular
designation, making the subject matter determinate at the
point of performance.

1. Perfection stage: valid – buyer acquires title of
goods.
2. Consummation stage: valid – If the title has not yet
been avoided at the time of sale and the buyer must
buy the goods under the following conditions:
a. In good faith;
b. For Value;
c. Without notice of seller’s defect of title
(NCC, Art. 1506).
NOTE: Art. 1506 is predicated on the principle
that where loss has happened which must fall on
one of two innocent persons, it should be borne
by him, who is the occasion of the loss (De Leon,
2005).
Determinable subject matter of sale are not subject to risk
of loss until they are physically segregated or particularly
designated (Yu Tek & Co. v. Gonzales, G.R. No. L-9935,
February 1, 1915).
NOTE: The thing may be existing or not at the time of the
perfection of the contract. So long as it has the possibility
of existence at some future time. The law says things that
having a potential existence may be the object of the
contract of sale [NCC, Art. 1461(1)] (Rabuya, 2017).
Sale for a lump sum
The boundaries of the land stated in the contract
determine the effects and scope of the sale, NOT the area.

SUBJECT MATTER The vendors are obligated to deliver all the land included
within the boundaries, regardless of whether the real area
Requisites of a proper objects of sale should be greater or smaller than that recited in the deed.
This is particularly true where the area is described as
1. THINGS "humigit kumulang," that is, more or less (Semira v. CA,
a. Determinate or determinable G.R. No. 76031, March 2, 1994).
b. Lawful or licit ---
c. Should not be impossible (within the Q: Lino entered into a contract to sell with Ramon,
commerce of men) undertaking to convey to the latter one of the five lots
he owns, without specifying which lot it was, for the
2. RIGHTS price of P1 million. Later, the parties could not agree
which of five lots he owned Lino undertook to sell to
GR: Must be transmissible. Ramon. What is the standing of the contract? (2011
e.g. right of redemption, right of usufruct, sale of BAR)
credit, right to inheritance already assigned, etc.
A: It is a void contract since the particular lot sold cannot
XPNs: be determined.
a. FUTURE INHERITANCE – cannot be the
subject of sale; ---
KINDS OF OBJECT OF SALE
b. SERVICE
Reason: They are not determinate things 1. Existing Goods
and no transfer of ownership is available Owned or possessed by seller at the time of
but it can be the object of certain contracts perfection.
such as contract for a piece of work 2. Future Goods
(Pineda, 2010). Goods to be manufactured, raised, acquired by seller
after perfection of the contract or whose acquisition
The subject matter of sale must be determinate or at by seller depends upon a contingency (NCC, Art.
least determinable. 1462).
3. Sale of Undivided Interest or Share
A. When a thing is determinate a. Sole owner may sell an undivided interest (NCC,
Art. 1463).
A thing is determinate when it is particularly designated e.g. A fraction or percentage of such property.
or physically segregated from all others of the same class. b. Sale of an undivided share in a specific mass of
fungible goods makes the buyer a co-owner of the

261
 Civil Law
entire mass in proportion to the amount he vendee may
bought (Art. 1464). have reserve his
right to claim
NOTE: A co-owner cannot sell more than his indemnity from
share (Yturralde v. CA, G.R. No. L-31586, February the vendor in
28, 1972). the event that
4. Sale of Things in Litigation the latter knew
a. Sale of things under litigation is rescissible if that the thing
entered into by the defendant, without the could not come
approval of the litigants or the court (NCC, Art. into existence
1381). (Rabuya, 2017).

NOTE: If the property involved belongs to a NOTE: The presumption is Emptio rei speratae.
ward and the guardian enters into a contract
involving such property without court approval, SALE BY A PERSON WHO DOES NOT OWN THE THING
the contract is void, not merely rescissible. SOLD

b. No rescission is allowed where the thing is Ownership is not required at the time of perfection in
legally in the possession of a 3rd person who did order for the sale to be valid. Ownership is material only
not act in bad faith. at the time of delivery but only for the purpose of
5. Things subject to Resolutory Condition transferring ownership and does not affect the validity of
e.g. Things acquired under legal or conventional the contract of sale.
right of redemption, or subject to reserve truncal
(NCC, Art. 1465). Right to transfer ownership
6. Indeterminate Quantity of Subject Matter
It is during the delivery that the law requires the seller to
NOTE: The fact that the quantity is not determinate have the right to transfer ownership of the thing sold. In
shall not be an obstacle to the existence of the general, a perfected contract of sale cannot be challenged
contract provided it is possible to determine the on the ground of the seller’s non-ownership of the thing
same without need of a new contract (NCC, Art. sold at the time of the perfection of the contract
1349). (Alcantara-Daus v. De Leon, G.R. No. 149750, June 16,
2003).
Emptio rei speratae v. Emptio spei
This rule is in accord with a well-known principle of law
EMPTIO REI that one cannot transmit or dispose of that which he does
BASIS EMPTIO SPEI
SPERATAE not have — nemo dat quod non-habet.
Sale of thing Sale of mere
having potential hope or NOTE: Future inheritance cannot be the subject of sale.
Definition
existence. expectancy.
Legal effect of sale by a non-owner
Uncertainty is Uncertainty is
w/ regard to w/ regard to GR: The buyer acquires no better title to the goods than
Uncertainty quantity & existence of the seller had; caveat emptor (buyer beware).
quality. thing.
XPNs:
Contract deals Contract deals 1. Estoppel or when the owner of the goods is by his
w/ future thing. w/ present conduct precluded from denying the seller’s authority
Object of the to sell;
thing – hope or
Sale 2. When the contrary is provided for in recording laws;
expectancy.
3. When the sale is made under statutory power of sale
Sale is valid only Sale is valid or under the order of a court of competent
if the expected even though jurisdiction;
thing will exist. expected thing 4. When the sale is made in a merchant’s store in
So that if the does not come accordance with the Code of Commerce and special
condition is not into existence laws;
fulfilled, if the as long as the 5. When a person who is not the owner sells and delivers
thing does not hope itself a thing, and subsequently acquired title thereto;
Effectivity come into validly existed 6. When the seller has a voidable title which has not been
existence, the e.g. lotto avoided at the time of the sale;
contract cannot 7. Sale by co-owner of the whole property or a definite
have the effect NOTE: Sale of a portion thereof;
for lack of an vain hope or 8. Special rights of unpaid seller.
essential expectancy
requisite. however, is void
Although the (NCC, Art. 1461).

262
 SALES
Instances when the Civil Code recognizes sale of
things not actually or already owned by the seller at
the time of sale
1. Sale of a thing having potential existence (NCC,
Art.1461);
2. Sale of future goods (NCC, Art. 1462);
3. Contract for the delivery at a certain price of an article,
which the seller in the ordinary course of business
manufactures/ procures for the general market,
whether the same is on hand at the time or not (NCC,
Art. 1467).
OBLIGATIONS OF THE BUYER
Obligations of the Buyer (PAE)
1. Payment of the price
GR: Seller is not bound to deliver unless the purchase
price is paid
XPN: A period of payment has been fixed
2. Accept delivery of thing sold
NOTE: A grace period granted the buyer in case of
failure to pay is a right not an obligation. Non-
payment would still generally require judicial or
extrajudicial demand before default can arise.
3. Bear expenses for the execution and registration of
the sale and putting the goods in a deliverable state,
if such is the stipulation.
Other Obligations of the Buyer
1. To take care of the goods without the obligation to
return, where the goods are delivered to the buyer
and he rightfully refuses to accept (NCC, Art. 1587);
NOTE: The goods in the buyer’s possession are at the
seller’s risk.
2. To be liable as a depositary if he voluntarily
constituted himself as such (NCC, Art. 1587);
3. To pay interest for the period between delivery of
the thing and the payment of the price in the
following cases (NCC, Art. 1589):
a. should it have been stipulated;
b. should the thing sold and delivered produces
fruits or income; or
c. should he be in default, from the time of
judicial or extra-judicial demand for the
payment of the price.
OBLIGATIONS OF THE SELLER
Obligations of the seller (DDTWTP)
1. Deliver the thing sold (NCC, Arts. 1458&1459);
2. Deliver fruits & accessions/accessories accruing
from perfection of sale;
263
3. Transfer the ownership;
4. Warranties;
5. Take care of the thing, pending delivery, with proper
diligence;
6. Pay for the expenses of the deed of sale unless there
is a stipulation to the contrary.
Obligation of the seller in terms of the nature of the
subject matter of the sale
When the subject matter of the sale is a DETERMINATE or
SPECIFIC THING, the seller must deliver the thing to the
buyer when compelled by the latter.
When the subject matter is an INDETERMINATE OR
GENERIC THING, the seller may be asked that the
obligation be complied with at his expense (NCC, Art.
1165).
Seller’s obligation in case of delay or promise to
deliver the thing to two or more persons who do not
have the same interest
The seller shall be responsible for any fortuitous event
that may occur until he has delivered the thing (Art. 1165
in relation to Art. 1174 of the NCC).
PRICE
The sum stipulated as the equivalent of the thing sold and
also every incident taken into consideration for the fixing
of the price put to the debit of the buyer and agreed to by
him (Villanueva, 2004).
NOTE: A definite agreement on the manner of payment of
the price is an essential element in the formation of a
binding and enforceable contract of sale (Co v. CA, G.R. No.
123908, February 9, 1998).
Requisites of price
It must be:
1. Real not fictitious
2. Paid in money or its equivalent
3. For valuable consideration
4. Certain or ascertainable at the time of the perfection
of the contract
5. In some cases, must not be grossly inferior to the value
of the thing sold
NOTE: There is NO effect on the contract of sale in case of
breach in the agreed manner of payment. Payment of the
price has nothing to do with the perfection of the contract
(Sps. Bernardo Buenaventura and Consolacion Joaqui v. CA,
GR No. 126376, November 20, 2003).
When price is certain
1. If there is a stipulation
2. If it be with reference to another thing certain
3. If the determination of the price is left to the judgment
of specified person(s)
4. By reference to certain fact(s) as referred to in Art.
1472 (NCC, Art. 1469).
 Civil Law
NOTE: If the price is based on estimates, it is uncertain.
Simulated Price
The price is simulated when neither party had the
intention that the amount will be paid (Yu Bun Guan v.
Ong, G.R. No. 144735, October 18, 2001).
Effect if price is simulated
GR: The sale is void.
XPN: If it can be shown to be a donation or another
contract (NCC, Art. 1471).
Admission by the vendee that he did not pay any centavo
for the property makes the sale void (Labagala v.
Santiago, G.R. No. 132305, December 4, 2001).
When price of securities, grains, liquids and things is
considered certain
1. When the price fixed is that which the thing would
have on a definite day, or in a particular exchange or
market;
2. When the amount is fixed above or below the price of
such day, or in such exchange or market, provided
said amount be certain (NCC, Art. 1472).
3. When it is by reference to another certain thing (NCC,
Art. 1469).
NOTE: Art. 1469 of is not allowed for the
determination of the subject matter of the sale.
Fixing of the price CANNOT be left to the discretion of
one of the contracting parties
GR: The price cannot be fixed unilaterally by one of the
contracting parties.
XPN: If the price fixed by one of the parties is accepted by
the other, the sale is perfected.
Effect when the price is unilaterally fixed by one of the
contracting parties without consent of the other party
There is no meeting of the minds. The sale is inefficacious
(Pineda, 2010).
Effect when the price is fixed by the third person
designated
GR: Price fixed by a third person designated by the parties
is binding upon them.
XPNs:
1. When the third person acts in bad faith or by
mistake; and
2. When the third person disregards the specific
instructions or the procedure marked out by the
parties.
Gross inadequacy of price
264
The price is grossly inadequate if a reasonable man will
not agree to dispose of his property at that amount.
Effect of Gross Inadequacy of Price (NCC, Art. 1470)
GR: It does not affect the validity of the sale.
XPN: (CoRDS)
1. If Consent is vitiated (may be annulled or
presumed to be equitable mortgage);
2. If the parties intended a Donation or some other
act/ contract;
3. If the price is so low as to be “Shocking to the
conscience”;
4. If in the event of Resale, a better price can be
obtained.
Annulment of sale NOT the remedy in a simulated sale
Where the deed of sale states that the purchase price has
been paid but in fact has never been paid, the deed of sale
is null and void ab initio for lack of consideration.
Moreover, Art. 1471 of the Civil Code, provides that “if the
price is simulated, the sale is void” (Catindig v. Vda. de
Meneses, Roxas v. CA, G.R. No. 165851& G.R. No.
165851, February 2, 2011).
WHEN NO PRICE IS AGREED UPON BY THE PARTIES
Effect of failure to determine the price
1. Where contract is executory – ineffective.
2. Where the thing has been delivered to and
appropriated by the buyer – the buyer must pay a
reasonable price therefore.
---
Q: Nante, a registered owner of a parcel of land in
Quezon City, sold the property to Monica under a deed
of sale which reads as follows:
“That for and in consideration of the sum of P500,000,
value to be paid and delivered to me, and receipt of
which shall be acknowledged by me to the full
satisfaction of Monica, referred to as a vendee, I
hereby sell, transfer, cede, convey, and assign, as by
presents, I do have sold, transferred, ceded, conveyed
and assigned a parcel of land covered by TCT No. 2468
in favor of the Vendee.”
After delivery of the initial payment of P100,000,
Monica immediately took possession of the property.
Five months after, Monica failed to pay the remaining
balance of the purchase price. Nante filed an action
for the recovery of the possession of the property.
Nante allege that the agreement was one to sell, which
was not consummated as the full contract price was
not paid. Is the contention of Nante tenable? (2014
BAR)
A: NO. The deed itself states that for consideration
received, he sells, transfers, and conveys the land to
Monica an there was delivery of the property to the latter.
The contract is clearly one of sale as there was no
reservation of ownership on the part of the seller Nante.
 SALES
The non-payment of the price in a contract of sale would offer. Until accepted, it is not treated as a sale (Tayag v.
only entitle the seller to rescind the contract but it does Lacson, G.R. No. 134971, March 25, 2004).
not thereby prevent the transfer of ownership
particularly so as in this case, where there was already Contract of Sale v. Option Contract
delivery to the buyer.
--- BASIS CONTRACT OPTION
OPTION CONTRACT (2002, 2005 BAR) OF SALE CONTRACT
Must May be
A contract by which the owner of the property agrees with be a price anything of
another person that he shall have the right to buy his Consideration certain in value.
property at a fixed price within a certain time. It is binding money.
upon the promissor if the promise is supported by a
consideration distinct from the price. An option contract Bilater Unilater
is likewise a separate and distinct contract from a contract Bilateral/Unilater
al Contract. al Contract.
of sale. al
Subject The
Nature of an option contract matter if the “option to
Subject Matter contract of purchase” is
It is a preparatory contract in which one party grants to sale itself. the subject
another, for a fixed period and at a determined price, the matter.
privilege to buy or sell, or to decide whether or not to
enter into a principal contract. Elements of a Valid Option Contract

NOTE: If the option is perfected, it does not result in the 1. Consent

perfection or consummation of the sale (Diaz, 2006).
Period within which to exercise the option
1. Within the term stipulated;
2. If there is no stipulation, the court may fix the term.
Exercise of an option
In an option to buy, the party who has an option may
validly and effectively exercise his right by merely
notifying the owner of the former’s decision to buy and
expressing his readiness to pay the stipulated price (De
Leon, 2011).
A notice of acceptance must be communicated to offeror
even without actual payment as long as payment is
delivered in the consummation stage provided it still
within the period provided.
2. Subject Matter - An option right to an unaccepted
unilateral offer to sell/ accepted unilateral promise
to sell or an unaccepted unilateral offer to buy/
accepted unilateral promise to buy a determinate or
determinable object for a price certain including the
manner of payment (Villanueva, 2009).
3. Prestation – A consideration separate and distinct
from the purchase price for the option given.
(Villanueva, 2009)
Obligations of the offeror
4. Not to offer to any third party the sale of the object of
the option during the option period;
5. Not to withdraw the offer or option during the option
period;
6. To hold the subject matter for sale to the offeree in the
event that the latter exercises his option during the
option period.

Effect of the presence and absence of a separate Effect of acceptance and withdrawal of the offer
consideration in an option contract
If the offer had already been accepted and such
1. With separate consideration: acceptance has been communicated before the
a. Contract is valid; withdrawal is communicated, the acceptance creates a
b. Offeror cannot withdraw offer until after perfected contract, even if no consideration was as yet
expiration of the option; paid for the option. In which case, if the offeror does not
c. Is subject to rescission and damages but not perform his obligations under the perfected contract, he
specific performance. shall be liable for all consequences arising from the
breach thereof based on any of the available remedies
2. Without separate consideration: such as specific performance, or rescission with damages
a. The option contract is not deemed perfected; in both cases.
b. Offer may be withdrawn at any time prior to
acceptance. Right of first refusal

NOTE: Even though the option was not supported by a It is a contractual grant, not of the sale of a property, but
consideration, the moment it was accepted, contract of of the first priority to buy the property in the event the
sale is perfected (NCC, Art. 1324). owner sells the same.

An option imposes no binding obligation on the person

holding the option aside from the consideration for the

265
 Civil Law
NOTE: Where a time is stated in an offer for its RIGHT OF
OPTION
acceptance, the offer is terminated at the expiration of the BASIS FIRST
CONTRACT
time given for its acceptance (Pineda, 2010). REFUSAL
Principal contract; Accessory;
Basis of the right of first refusal Nature stands on its own. cannot stand
on its own.
It is based on the current offer to sell of the seller or offer Needs separate Does not need
to purchase of any prospective buyer. Only after the consideration. separate
optionee fails to exercise its right of first priority under Consideration
consideration
the same terms and within the period contemplated could
the owner validly offer to sell the property to a third Subject matter and There must
person, again, under the same terms as offered to the price must be be subject
optionee (Paranaque Kings Enterprises, Inc. vs. CA GR No. Subject
valid. matter but
111538, February 26, 1997). matter and
price not
price
important.
Effect of sale of a property in violation of the right of
first refusal Not conditional Conditional
Condition
The resulting contract is RESCISSIBLE by the person in There is no offer to There is an
whose favor the right of first refusal was given and even sell, but only an offer to sell.
though no particular price is stated in the covenant opportunity for the
granting the right of first refusal, the same price by which Offer to sell
buyer to enter into
the third-party buyer bought the property shall be a contract of sale.
deemed to be the price by which the right of first refusal
shall therefore be exercisable (Equitorial Realty Subjectivity to Not subject to Subject to
Development, Inc. v. Mayfair Theater, Inc., G.R. No. 106063, Specific specific specific
November 21, 1996). Performance performance. performance.
---
Q: Dux leased his house to Iris for a period of 2 years,
at the rate of P25,000.00 monthly, payable annually Right of first refusal must be contained in a written
in advance. The contract stipulated that it may be contract
renewed for another 2-year period upon mutual
agreement of the parties. The right of first refusal be embodied in a written contract
and the grant of such right must be clear and express.
The contract also granted Iris the right of first refusal
to purchase the property at any time during the lease, NOTE: It is applicable only to executory contracts and not
if Dux decides to sell the property at the same price to contracts which are totally or partially performed.
that the property is offered for sale to a third party. ---
Q: Pozzolanic entered a long-term contract with the
23 months after execution of the lease contract, Dux National Power Corporation (NPC) for the purchase of
sold breach of her right of first refusal. Dux said there all fly ash to be produced by the latter’s future power
was no breach because the property was sold to his plants. In the contract, NPC granted Pozzolanic a right
mother who is not a third party. Iris filed an action to of first refusal to purchase the fly ash that may be
rescind the sale and to compel Dux to sell the generated in the future. When NPC’s two new power
property to her at the same price. Alternatively, she plants started operation, it published an invitation to
asked the court to extend the lease for another 2 years interested buyers for the purchase of the fly ash.
on the same terms. Can Iris seek rescission of the sale Pozzolanic sent letters to NPC reminding its right of
of the property to Dux's mother? (2008 BAR) first refusal. NPC deferred its public bidding with the
first power plant’s fly ash but it nevertheless
A: YES. The right of first refusal is included in the contract continued with the bidding of the second power
signed by the parties. Only if the lessee failed to exercise plant’s fly ash. Pozzolanic filed a complaint, but
the right of first refusal could the lessor lawfully sell the during the pendency of the case NPC decided to
subject property to others, under no less than the same likewise dispose the fly ash from the first power plant
terms and conditions previously offered to the lessee. without allowing Pozzolanic to exercise its right of
Granting that the mother is not a third party, this would first refusal. Can Pozzolanic exercise its right of first
make her privy to the agreement of Dux and Iris, aware of refusal?
the right of first refusal. This makes the mother a buyer in
bad faith, hence giving more ground for rescission of the A: NO. The right of first refusal granted in favor of
sale to her (Equitorial Realty Development, Inc. v. Mayfair Pozzolanic is invalid for being contrary to public policy as
Theater, Inc., G.R. No. 106063, November 21, 1996). the same violates the requirement of competitive public
--- bidding in the award of government contracts. In this
Option contract v. Right of first refusal jurisdiction, public bidding is the established procedure
in the grant of government contracts (PSALM Corp., v.
Pozzolanic, G.R. No. 183789, August 24, 2011).
---

266
 SALES
Right of first refusal may be waived
Like other rights, the right of first refusal may be waived
or when a party entered into a compromise agreement
(Diaz, 2006).
Availment of sublessee of the right of first refusal of
the lessee
holding the option, aside from the consideration for the
offer (Limson v. CA, G.R. No. 135929, April 20, 2001).
Consideration of payment as option money
Payment is considered option money when it is given as a
separate and distinct consideration from the purchase
price.

GR: The sublessee is a stranger to the lessor who is bound Earnest money or “arras” (2002 BAR)
to respect the right of first refusal in favor of the lessee
only. This is the money given to the seller by the prospective
buyer to show that the latter is truly interested in buying
XPN: When the contract of lease granted the lessee the the property, and its aim is to bind the bargain (Pineda,
right to assign the lease, the assignee would be entitled to 2010).
exercise such right as he steps into the shoes of the
original assignee (Villanueva, 2009). It is actually a partial payment of the purchase price and
--- is considered as proof of the perfection of the contract (De
Q: Tess leased her 1,500 sq. m. Lot in Antipolo City to Leon, 2011)
Ruth for a period of three (3) years to February 2013.
NOTE: Option money may become earnest money if the
On March 19, 2011, Tess sent a letter to Ruth, part of parties agree (De Leon, 2011).
which read as follows:
Significance of giving an earnest money
“I am offering you to buy the property you are
presently leasing at P5,000.00 per sq.m. or of total of It is considered as:
P7,500,00.00. You can pay the contract price by 1. Part of the purchase price – earnest money is
installment for two (2) years without interest. deducted from the total price;
2. Proof of perfection of the contract (NCC, Art. 1482).
I will give you a period of one (1) year from the receipt
of this letter to decide whether you will buy the Effect of rescission on earnest money received
property.”
When the seller seeks to rescind the sale, he is obliged to
After the expiration of the lease contract, Tess sold return the thing which was the object of the contract along
the property to her niece for a total consideration of with fruits and interest (NCC, Art. 1385).
P4 Million. Ruth filed a complaint for the annulment
of the sale, reconveyance and damages against Tess Option money v. Earnest money
and her niece. Ruth alleged that the sale of the leased
property violated her right to buy under the principle BASIS EARNEST
OPTION MONEY
of right of first refusal. Is the allegation of Ruth MONEY
tenable? (2014 BAR) Money given as Forms part of
distinct the purchase
A: NO, the allegation of Ruth is not tenable. The letter As to Money
consideration for an price.
written by Tess did not grant a right of first refusal to Given
option contract.
Ruth. At most, it is to be construed as an option contract
whereby Ruth was given the right to buy or not to buy the Applies to a sale not Given only when
leased property. An option is itself not a purchase but it As to
yet perfected. there is already
merely secures the privilege to buy. However, the option Perfection
a sale.
is not valid because it was not supported by cause or Prospective buyer is When given, the
consideration distinct from the price of the property (Art. Obligation of
not required to buy. buyer is bound
1479). Also, Ruth does not appear to have exercised her the buyer upon
to pay the
option before the offer was withdrawn by the subsequent payment of
balance.
sale of the property to the niece of Tess. consideration
--- If buyer does not If sale did not
OPTION MONEY vis-a-vis EARNEST MONEY decide to buy, it materialize, it
cannot be must be
Option money recovered. returned.
As to Recovery
(Villanueva,
It is the distinct consideration in case of an option 2014; Pineda,
contract. It does not form part of the purchase price 2010).
hence, it cannot be recovered if the buyer did not continue
with the sale (NCC, Art. 1479). Ownership is Title passes to
As to Transfer reserved to the the buyer upon
NOTE: Option contract’s distinguishing characteristic is of Ownership seller and is not to delivery of the
that it imposes no binding obligation on the person pass until full thing sold.

267
 Civil Law
payment.
Specific Specific
Effect of Non-
performance. performance
payment
and rescission.
Remedy when seller refuses to complete the sale
transaction despite down payment of the buyer
The action for specific performance will lie. There is a
perfected contract of sale because there was a binding
agreement of sale, not just an option contract. The sale
was perfected upon acceptance by the seller of the down
payment from the buyer.
Seller’s refusal to proceed with the sale despite down
payment of buyer on the ground that the transaction
is disadvantageous to him (seller)
Seller cannot justify his refusal to proceed with the sale by
the fact that the deal is financially disadvantageous to him.
Having made a bad bargain is not a legal ground for
pulling out of a binding contract of sale, in the absence of
some actionable wrong by the other party (Vales v. Villa,
G.R. No. 10028, December 16, 1916).
FORMATION OF CONTRACT OF SALE
Three stages involved in the formation of a contract
of sale
NOTE: The acceptance of the offer must be absolute. It
must be plain, unequivocal, unconditional and without
variance of any sort from the proposal.
Upon the perfection of the contract, the parties may
reciprocally demand performance (Rabuya, 2017).
XPN: When the sale is subject to a suspensive condition
by virtue of law or stipulation.
The buyer is deemed to have accepted the goods
1. When he communicates to the seller that he has
accepted them;
2. When the goods have been delivered and he does
any act inconsistent with the ownership of the
seller;
3. When, after the lapse of reasonable time, he retains
the goods without intimating to the seller that he
rejected them (NCC, Art. 1585).
Rule on refusal to accept the goods by the buyer
The buyer is not bound to return the goods to the seller
and it is sufficient that he notifies the seller of his refusal
in the absence of a contrary stipulation (NCC, Art. 1587).
NOTE: If the refusal is without just cause, the title passes
to the buyer from the moment the goods are placed at his
disposal (NCC, Art. 1588).

1. Negotiation/Preparatory offer Effect of a qualified acceptance

2. Perfection
3. Consummation It constitutes merely a counter-offer which must in turn
be accepted to give rise to a valid and binding contract
Rules in the conception stage about the offer (Villanueva, 2009).
---
RULE Q: Licup, through a letter, offered to buy parcels of
Prior to acceptance, may be land to The Holy See and Philippine Realty
Offer is withdrawn at will by offeror but no Corporation (PRC). He enclosed a check for
floated authority to modify it. P100,000.00 to “close the transaction” and accepted
the responsibility of removing informal settlers.
Must be accepted within the Msgr. Cirilos, representative of the Holy See and PRC
period, otherwise, extinguished at the signed the conforme portion of the letter and accepted
end of period and may be withdrawn at the check. A stop-payment order was issued by Licup
With a and the latter requested that the titles to the land
will by offeror but must not be
period instead be given to SSE. Msgr. Cirilos wrote SSE
arbitrary, otherwise, liable for
damages. requesting to remove the informal settlers,
otherwise, the P100,000.00 would be returned. SSE
Extinguished by happening/ non- replied with an “updated proposal” that they will
With a comply provided that the purchase price is lowered.
happening of condition.
condition The proposal was rejected. The parcel of land was
Continues to be valid depending sold to another third person. Is there a perfected
Without contract of sale between the two parties?
upon circumstances of time, place and
period/
person.
condition A: NO. When Msgr. Cirilos affixed his signature on that
With a Original offer is extinguished. letter, he expressed his conformity to the terms of Licup’s
counter- offer appearing on it. There was meeting of the minds as
offer to the object and consideration of the contract. But when
Licup ordered a stop-payment on his deposit and
proposed in his April 26, 1988 letter to Msgr. Cirilos that
PERFECTION OF CONTRACT OF SALE
the property be instead transferred to SSE, a subjective
novation took place. The proposed substitution of Licup
GR: It is deemed perfected at the moment there is meeting
by SSE opened the negotiation stage for a new contract of
of minds upon the thing which is the object of the contract
sale as between SSE and the owners (Starbright Sales v.
and upon the price [NCC, Art. 1475(1)]. (2002, 2006 BAR)
Phil. Realty Corp., et. al, G.R. No. 177936, January 18, 2012).

268
 SALES
---
Q: Spouses Biong and Linda wanted to sell their
house. They found a prospective buyer, Ray. Linda
negotiated with Ray for the sale of the property. They
agreed on a fair price of P2 Million. Ray sent Linda a
letter confirming his intention to buy the property.
Later, another couple, Bernie and Elena, offered a
similar house at a lower price of P 1.5 Million. But Ray
insisted on buying the house of Biong and Linda for
sentimental reasons. Ray prepared a deed of sale to
be signed by the couple and a manager's check for P2
Million. After receiving the P2 Million, Biong signed
the deed of sale. However, Linda was not able to sign
it because she was abroad. On her return, she refused
to sign the document saying she changed her mind.
Linda filed suit for nullification of the deed of sale and
for moral and exemplary damages against Ray. Will
the suit prosper? (2006 BAR)
A: NO, the suit will not prosper. The contract of sale was
perfected when Linda and Ray agreed on the object of the
sale and the price (Art. 1475). There is therefore consent
on her part as the consent need not be given in any
specific form. Hence, her consent may be given by
implication, especially since she was aware of, and
participated in the sale of the property (Pelayo v. CA, G.R.
No. 141323, June 8, 2005). Her action for moral and
exemplary damages will also not prosper because the
case does not fall under any of those mentioned in Art.
2219 and 2232 of the Civil Code.
---
CONSUMMATION STAGE IN A CONTRACT OF SALE
Consummation stage in a contract of sale takes place by
the delivery of the thing together with the payment of the
price.
NOTE: The ownership of the thing is acquired by the
buyer in any of the ways specified by law or in any manner
agreed upon by the parties.
PERFECTION CONSUMMATION
From the moment there
From the time of MUTUAL
is a MEETING OF MINDS
DELIVERY by the
upon the things
contracting parties of the
promised by each party
things promised
in consideration of the
other
---
Q: When is ownership deemed transferred?
A: The thing shall be understood as delivered when it is
placed in the control and possession of the vendee.
NOTE: The most that a sale does is to create the obligation
to transfer ownership. It is only the title while the mode
of transferring ownership is delivery.
Effect of Delivery
GR: Title /ownership is transferred
XPN: When the contrary is stipulated as in the case of:
269
1. Pactum reservatii in domini – Agreement that
ownership will remain with seller until full payment
of price (contract to sell)
2. Sale on acceptance/approval
3. Sale on return
4. There is implied reservation of ownership
NOTE: Seller bears expenses of delivery.
Kinds of Delivery
1. ACTUAL or REAL – thing sold is placed under the
control and possession of buyer/agent;
2. CONSTRUCTIVE or LEGAL – does not confer physical
possession of the thing, but by construction of law, is
equivalent to acts of real delivery.
Requisites:
a. The seller must have control over the thing;
b. The buyer must be put under control;
c. There must be intention to deliver the thing for
purposes of ownership.
i. Tradicion Symbolica – delivery of certain
symbols representing the thing
ii. Tradicion Instrumental – delivery of the
instrument of conveyance
iii. Traditio Longa Manu – Delivery of thing by
mere agreement; when seller points to the
property without need of actually
delivering
NOTE: The thing to be transferred must be
within sight at that time (Rabuya, 2017).
iv. Tradicion Brevi Manu – the buyer, being
already in possession of the thing sold due
to some other cause, merely remains in
possession after the sale is effected, but
now in concept of owner. e.g. From lessee
to becoming an owner
v. Constitutum Possessorium– the seller
remains in possession of the property in a
different capacity. e.g. From owner to
lessee
3. QUASI-TRADITION – delivery of rights, credits or
incorporeal property, made by:
a. Placing titles of ownership in the hands of the
buyer;
b. Allowing buyer to make use of rights.
4. TRADITION BY OPERATION OF LAW – Execution of
a public instrument is equivalent to delivery. But to
be effective, it is necessary that the seller have such
control over the thing sold that, at the moment of
sale, its material delivery could have been made.
GR: There is presumption of delivery
XPN:
a. Contrary stipulation;
b. When at the time of execution, subject
matter was not subject to the control of
seller;
c. Seller has no capacity to deliver at time of
execution;
 Civil Law
d. Such capacity should subsist for a
reasonable time after execution of
instrument.
Delivery deemed effective
Delivery should be coupled with intention of delivering
the thing, and acceptance on the part of the buyer to give
legal effect of the act. Without such intention, there is no
such tradition.
Delivery of incorporeal property
1. When sale is made through a public instrument (NCC,
Art. 1498);
2. By placing the titles of ownership in the possession
of the buyer;
3. When buyer uses and enjoys the rights pertaining to
the incorporeal property with the consent of the
seller (NCC, Art. 1501).
Sale made through a public instrument
Article 1498 of the Civil Code provides that 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. In
the absence of stipulation to the contrary, the
ownership of the property sold passes to the vendee
upon the actual or constructive delivery thereof (Boy
v. CA, et. al, G.R. No. 125088, April 14, 2004).
Kinds of delivery to carrier
1. FAS (Free along Side) – when goods are delivered
alongside the ship, there is already delivery to the
buyer. The seller pays all charges and is subject to
risk until the goods are placed alongside the vessel
(Villanueva, 2009).
2. FOB (Free on Board) – when goods are delivered at
the point of shipment, delivery to carrier by placing
the goods on vessel is delivery to buyer. The seller
shall bear all expenses until the goods are delivered,
depending on whether the goods are to be delivered
“f.o.b.” at the point of shipment or at the point of
destination. (Villanueva,2009)
3. CIF (Cost, Insurance, Freight)
a. When buyer pays for services of carrier, delivery
to carrier is delivery to buyer, carrier acts as an
agent of the buyer;
b. When buyer pays seller the price – from the
moment the vessel is at the port of destination,
there is already delivery to buyer.
4. COD (Collect on Delivery) – the carrier acts for the
seller in collecting the purchase price, which the
buyer must pay to obtain possession of the goods.
Seller’s duties after delivery to the carrier
1. To enter on behalf of the buyer into such contract
reasonable under the circumstances;
2. To give notice to the buyer regarding necessity of
insuring the goods.
270
Effect of delivery through a carrier
GR: If the seller is authorized, delivery to carrier is
considered delivery to the buyer. The premise being that
the carrier acts as an agent of the buyer (Villanueva, 2009).
NOTE: Here, the carrier is deemed the bailee of the buyer
and the seller is deemed the agent of the buyer in
employing the carrier (Rabuya, 2017).
XPN:
1. A contrary intention appears;
2. Implied reservation of ownership [NCC, Art. 1503 (1)
(2) (3)].
When the object should be delivered
1. Stipulated time
2. If there is none, at a reasonable hour.
Place of delivery (Art. 1521 in relation to Art. 1582 of
NCC)
The place of delivery shall be: (AUBRI)
1. That agreed upon;
2. Place determined by usage of trade;
3. Seller’s place of business;
4. Seller’s residence;
5. In case of specific goods, where they can be found.
Effects of a sale of goods on installment
1. Goods must be delivered in full except when
stipulated;
2. When not examined by the buyer – it is not accepted
until examined or at least had reasonable time to
examine
Seller not bound to deliver the thing sold
The seller is not bound to deliver the thing sold:
1. If the buyer has not paid the price;
2. No period for payment has been fixed in the contract;
3. A period for payment has been fixed in the contract
but the buyer has lost the right to make use of the
time.
Suspension of payment by the buyer (NCC, Art.1590)
GR:
1. If he is disturbed in the possession or ownership of
the thing bought
2. If he has well-grounded fear that his possession or
ownership would be disturbed by a vindicatory
action or foreclosure of mortgage.
XPNs:
1. Seller gives security for the return of the price in a
proper case;
2. A stipulation that notwithstanding any such
contingency, the buyer must make payment;
3. Disturbance or danger is caused by the seller;
4. If the disturbance is a mere act of trespass;
5. Upon full payment of the price.
 SALES
Necessity of payment of the purchase price to transfer XPN: Third person acknowledges to the buyer that
ownership he holds the goods in behalf of the buyer (NCC, Art.
1521).
GR: Ownership of the thing sold shall be transferred to the 7. ON SALE or RETURN – The ownership passes to
vendee upon the actual or constructive delivery. buyer upon delivery, but he may revest ownership in
the seller by returning or tendering the goods within
XPN: Unless the contract contains a stipulation that the time fixed in the contract or within reasonable
ownership of the thing sold shall not pass to the purchaser time (NCC, Art. 1502).
until he has fully paid the price.
Sale on trial, approval or satisfaction
Acceptance of delivery by the buyer of the thing sold
Requisites:
1. Express – he communicates or intimates to the seller 1. When buyer signifies approval or acceptance to the
that he has accepted (NCC, Art. 1585). seller or does any act adopting the transaction.
2. Implied (NCC, Art. 1585) 2. If buyer did not signify approval or acceptance, but
a. Buyer does not act inconsistent with ownership retains the goods without giving notice of rejection
of seller after delivery; after the expiration of the period fixed or of
b. Retains the thing without communicating to reasonable time (NCC, Art. 1502).
seller that he has rejected.
Rules in case of sale on trial, approval or satisfaction
Effect if the buyer refuses to accept despite delivery of
the object of the sale TITLE WHO BEARS THE LOSS
GR: Borne by seller
Delivery is completed. Since delivery of the subject matter
of the sale is an obligation on the part of the seller, the XPN:
acceptance thereof by the buyer is not a condition for the Risk of Loss 1. Buyer is at fault
completeness of the delivery (Villanueva, 2009). 2. Buyer agreed to bear
the loss
NOTE: Thus, even with such refusal of acceptance,
delivery (actual/constructive), will produce its legal GR: Buyer must give goods a
effects (e.g. transferring the risk of loss of the subject trial
matter to the buyer who has become the owner thereof)
(Villanueva, 2004). As to trial
XPN: Buyer need not do so if
it is evident that it cannot
Under Art. 1588 of the Civil Code, when the buyer’s perform the work.
refusal to accept the goods is without just cause, the title It runs only when all
thereto passes to him from the moment they are placed at When period within
the parts essential for the
his disposal (Villanueva, 2004). which buyer must
operation of the object has
signify his acceptance
been delivered.
WHEN DELIVERY DOES NOT TRANSFER TITLE runs
Validity of Valid, provided the 3rd
1. Sale on TRIAL, APPROVAL, OR SATISFACTION (NCC, stipulation that a 3rd person is in good faith.
Art. 1502); person must satisfy
2. When there is an EXPRESS RESERVATION; approval or
a. If it was stipulated that ownership shall not pass satisfaction
to the purchaser until he has fully paid the price If the sale is made to Generally, it cannot be
(NCC, Art. 1478). a buyer who is an considered a sale on
3. When there is an IMPLIED RESERVATION; expert on the object approval.
a. When goods are shipped, but the bill of lading purchased
states that goods are deliverable to the seller or
his agent, or to the order of the seller or his agent DOUBLE SALE (2001, 2004, 2008 BAR)
(NCC, Art. 1503).
b. When the bill of lading is retained by the seller There is double sale when the same object of the sale is
or his agent (NCC, Art. 1503). sold to different vendees (NCC, Art. 1544).
c. When the seller of the goods draws on the buyer
for the price and transmits the bill of exchange Requisites of Double Sales (NCC, Art. 1544)
and the bill of lading to the buyer, and the latter
does not honor the bill of exchange by returning 1. 2 or more sales transactions must constitute valid
the bill of lading to the sell (NCC, Art. 1503). sales transactions;
4. When sale is NOT VALID; 2. 2 or more sales transactions must pertain to exactly
5. When the seller is NOT THE OWNER of the goods the same subject matter;
subject to the exceptions in Art. 1505 of NCC 3. 2 or more buyers at odds over the rightful ownership
6. GR: When goods are HELD BY A THIRD PARTY of the subject matter must each represent conflicting
interests; and

271
 Civil Law
4. 2 or more buyers at odds over the rightful ownership
of the subject matter must have bought from the very
same seller (Rabuya, 2017 citing Cheng v Genato,
1998).
Rules on preference (NCC, Art. 1544)
1. MOVABLE – Owner who is first to possess in good
faith;
2. IMMOVABLE –
a. First to register in good faith
b. No registration – first to possess in good faith
c. No registration & no possession in good faith –
person who presents oldest title in good faith.
NOTE: Article 1544 of the Civil Code has no application to
lands not registered with the Torrens system. If the sale is
not registered, it is binding only as between the seller and
the buyer; it does not affect innocent third persons (De
Leon, 2011). Article 1544 of the Civil Code does not apply
to contract to sell.
Purchaser in good faith
1. Buys the property without notice that some other
person has a right to, or interest in such property;
and
2. 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
(Agricultural and Home Extension Development Group
v. CA, G.R. No. 92319, September 3, 1992).
NOTE: Partial payment is not enough. Full payment
is a requirement for purposes of acquiring right over
the rules of double sale.
NOTE: This principle applies in a situation where not all
the requisites are present which would warrant the
application of Art. 1544 of NCC. The only requisite of this
rule is priority in time. In other words, the only one who
can invoke this is the first vendee. Undisputedly, he is a
purchaser in good faith because at the time he brought the
real property, there was still no sale to a second vendee
(Rabuya, 2017).
Rule on double sale regarding immovable
GR: Apply Art.1544 of NCC or the rule on preference
XPN: Sale of registered lands – apply Torrens System
Principle of prius tempore, potior jure - first in time,
stronger in right
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.
Conversely, 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 to merit the protection of Art. 1544 (2nd par.) of NCC,
the second realty buyer must act in good faith in
registering his deed of sale (Diaz, 2006).
272
NOTE: Where one sale is absolute and the other is a pacto
de retro transaction where the period to redeem has not
yet expired, Art. 1544 of NCC will not apply (Pineda,
2010).
Q: Does prior registration by the second buyer of a
property subject of a double sale confer ownership or
preferred right in his favor over that of the first
buyer?
A: Principle of caveat emptor – buyer beware
It literally means, ‘Let the buyer beware’. The rule
requires the purchaser to be aware of the supposed title
of the vendor and one who buys without checking the
vendor’s title takes all the risks and losses consequent to
such failure (Agcaoili, 2015).
Application of caveat emptor in particular sale
transactions
1. Sales of animals (NCC, Art. 1574);
2. Double sales (NCC, Art. 1544);
3. In sheriff’s sales;
4. Tax sales.
NOTE: In the above sales, there is no warranty of title or
quality on the part of the seller. The purchaser who buys
without checking the title of the vendor is assuming all
risks of eviction.
In sheriff’s sales, the sheriff does not guarantee the title to
real property and it is not incumbent upon him to place
the buyer in possession of such property (Pineda, 2010).
Caveat emptor NOT applicable in sales of registered
land
The purchaser of a registered land under the Torrens
system is merely charged with notice of the burdens and
claims on the property which are inscribed on the face of
certificate of title (Pineda, 2010).
Application of caveat emptor in judicial sales
Caveat emptor is applicable in judicial sales. The
purchaser in a judicial sale acquires no higher or better
title or right than that of the judgment debtor. If it
happens that the judgment debtor has no right, interest,
or lien on and to the property sold, the purchaser acquires
none (Pineda, 2010).
Effect of subsequent foreclosure to a prior purchaser
in good faith (2008 BAR)
The purchaser in good faith has better title to the property
sold even if subsequently foreclosed by a mortgagor.
Under the Torrens System, a buyer of registered lands is
not required by law to inquire further than what the
Torrens certificate indicates on its face. If a person
proceeds to buy it relying on the title, that person is
considered a buyer in good faith.
 SALES
EFFECTS OF THE CONTRACT WHEN THE THING SOLD
HAS BEEN LOST
RISK OF LOSS
A thing is considered as lost
GR: It is understood that the thing is lost when it:
1. Perishes;
2. Goes out of commerce; or
3. Disappears in such a way that its existence is
unknown or cannot be recovered [NCC, Art. 1189(2)].
XPN: In an obligation to deliver a generic thing, the loss or
destruction of anything of the same kind does not
extinguish the obligation (NCC, Art. 1263).
Effect when the loss occurred before perfection
GR: The thing perishes with the owner – Res perit domino
(NCC, Art. 1504). (1999 BAR)
XPNs:
1. Art. 1504(1) of the NCC;
2. Art. 1504(2) of the NCC;
3. Art. 1523(3) of the NCC.
NOTE: The seller still owns the thing because there is no
delivery or transfer of ownership yet. Hence, the seller
bears the risk of loss (Villanueva, 2004).
Effect when the loss occurred at the time of perfection
of the contract of sale
GR: Contract is considered void or inexistent because the
object did not exist at the time of the transaction. (Pineda,
2010)
XPN: In case of partial loss, the buyer may choose
between withdrawing from the contract and demanding
the remaining part. If he chooses the latter, he shall pay
the remaining part’s corresponding price in proportion to
the total sum agreed upon (NCC, Art. 1493).
Options of the buyer with regard to the sale in the
total or partial loss or deterioration of a mass of
specific goods without the knowledge of the seller
1. He may treat the sale as avoided or cancelled; or
2. He may continue with the sale with respect to the
available or remaining goods (NCC, Art. 1494).
Effect if the buyer chooses to continue with the sale of
the remaining goods
The remaining goods shall pass in ownership to the buyer
but subject to proportionate reduction of the price. But
this is applicable only if the goods are divisible or capable
of being divided (Pineda, 2010). If indivisible, the only
option available is the avoidance of the sale.
Effect when the loss occurred after perfection but
before delivery
273
GR: Who bears the risk of loss is governed by the
stipulations in the contract.
In the absence of stipulation: there are two conflicting
views:
First view: Res perit creditori or buyer bears the risk of
loss (Paras, Vitug, Padilla and De Leon).
Article 1504 of the Civil Code, which embodies res perit
domino, only covers goods. The obligation to pay on the
part of the buyer is not extinguished (Villanueva, 2004).
NOTE: Pursuant to Article 1537 of the Civil Code, the
vendee must also bear the resulting disadvantages before
the delivery but after the contract has been perfected.
This theory is an exception to the rule of resperit domino.
On the other hand, pursuant to Article 1262 of the Civil
Code, if the thing is lost or destroyed without the fault of
the seller, the obligation to deliver is extinguished but the
obligation to pay subsist (Pineda, 2010).
Second view: Res perit domino or seller bears the risk of
loss (Tolentino, Jurado, Baviera, and Villanueva).
In reciprocal obligations, the extinguishment of the
obligation due to loss of the thing affects both debtor and
creditor; the entire juridical relation is extinguished.
Under this view, the rule on loss under Article 1189 of the
Civil Code would be different from the rule on
deterioration – the loss would be for the account of the
seller, while deterioration would be for the account of the
buyer (Tolentino, 2002).
This view would make Articles 1480 and 1538 of the Civil
Code consistent with the provisions of Article 1504 of the
Civil Code (Villanueva, 2009).
Ownership is transferred only after delivery, further, the
contract is reciprocal. If the vendee cannot have the thing,
it is illogical and unjust to make him pay the price (Pineda,
2010).
Effect when loss occurred after delivery
GR: Res perit domino applies – the buyer is now the owner,
hence, the buyer bears the risk of loss (NCC, Art. 1504).
XPNs:
1. Where the delivery has been made either to the
buyer or to the bailee for the buyer, but ownership in
the goods has been retained by the seller merely to
secure performance by the buyer of his obligations
under the contract; and
2. Where actual delivery has been delayed through the
fault of either the buyer or seller, the goods are at the
risk of the party at fault [NCC, Art. 1504 (1) (2)].
Person who bears the risk of loss or deterioration
SELLER is the owner so seller bears
BEFORE
risk of loss.
PERFECTION
 Civil Law
Contract shall be without any effect – Alternative remedies in case of sale of personal
AT the SELLER bears the loss since the property in installments
PERFECTION buyer is relieved of his obligation
under the contract. 1. Specific Performance: Exact fulfillment should the
AFTER 2 CONFLICTING VIEWS buyer fail to pay
PERFECTION Deterioration & fruits – Buyer bears
BUT BEFORE loss (Tolentino, 2002). GR: If availed of, the unpaid seller cannot anymore
DELIVERY choose other remedies;
Buyer becomes the owner so
BUYER bears risk of loss. XPN: If after choosing specific performance, it has
AFTER become impossible to perform it, rescission may be
DELIVERY Delivery extinguish ownership vis-a- pursued.
vis the seller & creates a new one in
favor of the buyer. NOTE: If vendor elected fulfillment or specific
performance
a. The filing of collection suit barred the foreclosure
of the mortgage. A mortgagee who files a suit for
BREACH OF CONTRACT OF SALE collection abandons the remedy of foreclosure of the
chattel mortgage constituted over the personal
properties or security for the debt or value of the
promissory note which he seeks to recover in the
REMEDIES OF THE PARTIES
said suit.
REMEDIES OF THE SELLER
b. Filing of B.P. 22 does not bar foreclosure of
mortgage (Spouses Torres v. Medina).
INSTALLMENT SALES LAW or “RECTO LAW”
However, in Chieng v. Spouses Santos, it was held that
(1999, 2000 BAR)
the filing of the B.P. 22 case is equivalent to the filing
of a collection suit for the recovery of the mortgage-
Installment Sales Law
loan. The Court explained that the civil action for the
recovery of the amount of the dishonored checks is
Commonly known as the “RECTO LAW”. It is embodied in
impliedly instituted in the criminal action. Hence, the
Art. 1484 of the NCC, which provides for the remedies of
impliedly instituted civil action in the criminal case
a seller in the contracts of sale of personal property by
for violation of B.P. 22 is, in effect, a collection suit or
installments.
suit for recovery of mortgage debt.
NOTE: Art. 1484 of the NCC incorporates the provisions
c. Action for recovery of possession with replevin as
of Act No. 4122 passed by the Philippine Legislature on
provisional remedy preparatory to extrajudicial
Dec. 9, 1939, known as the "Installment Sales Law" or the
foreclosure is not an action for collection much less
"Recto Law," which then amended Art. 1454 of the Civil
for foreclosure.
Code of 1889.
But if the action for replevin culminated in the
foreclosure of the chattel mortgage and the sale of
Application of Recto Law
the personal property at the public auction, then
Article 1484 now applies (Rabuya, 2017).
This law covers contracts of sale of personal property by
installment (Act No. 4122). It is also applied to contracts
2. Rescission: Cancel the sale if buyer fails to pay 2 or
purporting to be leases of personal property with option
more installments. Deemed chosen when:
to buy, when the lessor has deprived the lessee of the
a. Notice of rescission is sent;
possession or enjoyment of the thing (PCI Leasing and
b. Takes possession of subject matter of sale;
Finance Inc. v. Giraffe- X Creative Imaging, Inc., G.R. No.
c. Files action for rescission.
142618, July 12, 2007).
NOTE: The stipulation that the installments or rents
NOTE: Recto Law applies only to sale payable in
already paid shall not be returned to the vendee shall
installments and not to a sale where there is an initial
be valid insofar as the same may not be
payment and the balance is payable in the future, because
unconscionable under the circumstances.
such is a straight sale, not a sale by installments.
3. Foreclosure: Foreclose on chattel mortgage if buyer
Requisites of Recto Law
fails to pay 2 or more installments. He shall have no
further action against the purchaser to recover any
1. Valid contract of sale;
unpaid balance of the price. Any agreement to the
2. Subject matter is personal property;
contrary shall be void.
3. Payable in installments; and
4. In the case of the second and third remedies, that
NOTE: Of the three remedies, only this third remedy
there has been a failure to pay two or more
bars the recovery of unpaid balance. Moreover,
installments (NCC, Art. 1484).
payment of damages, attorney’s fees, and etc are also
barred.

274
 SALES
GR: Actual foreclosure is necessary to bar recovery of
balance.
XPN: Mortgagor refuses to deliver property to effect
foreclosure; expenses incurred in attorney’s fees, etc.
in obtaining the property may be recovered by the
vendor.
The remedies are alternative, not cumulative.
This means that the availment of one is a bar to the other
remedies.
NOTE: In ordinary alternative obligations, a mere choice
categorically and unequivocally made and then
communicated by the person entitled to exercise his
option concludes the parties. The creditor may not
thereafter exercise any other option unless the chosen
alternative proves to be ineffectual or unavailing due to
no fault on his part (Rabuya, 2017).
Rationale of Recto Law
To remedy the abuses committed in connection with the
foreclosure of chattel mortgages and to prevent
mortgagees from seizing the mortgaged property, buying
it at a foreclosure sale for a low price and then bringing
suit against the mortgagor for a deficiency judgment.
(Villanueva, 2009)
Effect of filing an action for specific performance in
case of default in the payment of an installment sale
secured by a chattel mortgage on the subject of the
sale
The seller can collect from the buyer for the sum of money
the buyer failed to pay. In case the sum collected is
insufficient, the court can still order for the levy of the
property subject of the sale transaction to cover the
balance. Moreover, if the action instituted is for specific
performance and the mortgaged property is subsequently
attached and sold, the sale thereof does not amount to a
foreclosure of the mortgage; the seller-creditor is entitled
to a deficiency judgment (Industrial Finance Corporation
v. Ramirez, G.R. No. L-43821, May 26, 1977).
---
Q: A mortgaged a diamond ring to M as a security for
a loan which was to be paid 2 years thereafter. Since
A failed to pay M, she then foreclosed the mortgaged
property. However, it turned out that the proceeds of
the sale were insufficient, thus, M filed an action for
specific performance. A contends that this is a
violation of the Recto law since the foreclosure of the
chattel bars subsequent recovery. Is this correct?
A: NO. A is not correct in invoking the Recto law since it is
only applicable in case of sale of personal property
through installment. In the given case, the amount being
claimed by A was to be paid 2 years thereafter as a lump
sum, not through installments. Moreover, the transaction
is a loan not a sale.
---
Recto Law does NOT cover a contract to sell of
movables
275
There will be nothing to rescind if the suspensive
condition (payment of full purchase price) upon which
the contract is based fails to materialize (Villanueva,
2009).
REALTY INSTALLMENT BUYER ACT or “MACEDA
LAW” (2000, 2003 BAR)
Realty Installment Buyer Act
Commonly known as the “MACEDA LAW.” It is embodied
in R.A. 6552 which provides for certain protection to
particular buyers of real estate payable on installments.
The law declares as "public policy to protect buyers of real
estate on installment payments against onerous and
oppressive conditions.
NOTE: The purpose of the law is to protect buyers in
installment against oppressive conditions.
Transactions/sale covered by the Maceda Law
The law involves the sale of immovables on installment
(Maceda Law, RA 6552).
1. Coverage: Residential Real Estate (Villanueva, 2009).
2. Excluded:
a. Industrial lots;
b. Commercial buildings (and commercial lots by
implication);
c. Sale to tenants under agrarian laws;
d. Sale of lands payable in straight terms (Sec. 3, RA
6552).
NOTE: The list is not exclusive (Villanueva, 2009).
---
Q: What are the so-called “Maceda” and “Recto” laws
in connection with sales on installments? Give the
most important features on each law. (1999 BAR)
A: The Maceda Law is applicable to sales of immovable
property on installments. The most important features
are:
4. After having paid installments for at least two
years, the buyer is entitled to a mandatory grace
period of one month for every year of
installment payments made, to pay the unpaid
installments without interest.
If the contract is cancelled, the seller shall
refund to the buyer the cash surrender value
equivalent to fifty percent (50%) of the total
payments made, and after five years of
installments, an additional five percent (5%)
every year but not to exceed ninety percent
(90%) of the total payments made.
NOTE: This requires a notarial act of rescission
and the refund to the buyer of the full payment
of the cash surrender value of the payments on
the property. Failure to comply with the
mandatory twin requirement shall result into
 Civil Law
the contract remaining to be valid and
subsisting (Rabuya, 2017).
5. In case the installments paid were less than 2
years, the seller shall give the buyer a grace
period of not less than 60 days. If the buyer fails
to pay the installments due at the expiration of
the grace period, the seller may cancel the
contract after 30 days from receipt by the buyer
of the notice of cancellation or demand for
rescission by notarial act (Rillo v. CA, G.R. No.
125347, June 19, 1997).
NOTE: According to the Supreme Court, the
vendor could go to the court and demand
judicial rescission in lieu of a notarial act of
rescission. An action for annulment of contract
which is a kindred concept of rescission by
notarial act will also suffice (Rabuya, 2017).
Other rights granted to a buyer under the Maceda Law
1. Sell or assign rights to another
2. Reinstate contract by updating within 30 days before
and cancellation
3. Deed of Sale to be done by notarial act
4. Pay full installment in advance the balance of price
anytime w/o interest
5. Have full payment annotated in certificate of title
NOTE: Applies to contracts even before the law was
enacted. Stipulation to the contrary is void.
---
Q: Spouses Dakila entered into a contract to sell with
Honorio Cruz over a parcel of industrial land in
Valenzuela, Bulacan for a price of P3,500,000.00. The
spouses would give a downpayment of P500,000.00
upon the signing of the contract, while the balance
would be paid for the next 3 consecutive months in
the amount of P1,000,000.00 per month. The spouses
paid the first 2 installments but not the last
installment. After one year, the spouses offered to pay
the unpaid balance which Honorio refused to accept.
The spouses filed a complaint for specific
performance against Honorio invoking the
application of the Maceda Law. If you are the judge,
how will you decide the case? (2014 BAR)
A: I will rule in favor of Honorio. The invocation of the
Maceda Law is misplaced. The law applies only to sale or
financing of realty on installment payments including
residential units or residential condominium apartments
and does not apply to sales of industrial units or industrial
lands like in the case presented.
The sale to the Spouses Dakila is not a sale on installment
but more of a straight sale where a down payment is to be
made and the balance to be paid in a relatively short
period of three months.
---
Q: Priscilla purchased a condominium unit in Makati
City from the Citiland Corporation for a price of P10
Million, payable P3 Million down and the balance
276
with interest thereon at 14% per annum payable in
60 equal monthly installments of P198,333.33.
They executed a Deed of Conditional Sale in which it
is stipulated that should the vendee fail to pay three
successive installments, the sale shall be deemed
automatically rescinded without the necessity of
judicial action and all payments made by the vendee
shall be forfeited in favor of the vendor by way of
rental for the use and occupancy of the unit and as
liquidated damages.
For 46 months, Priscilla paid the monthly
installments religiously, but on the 47th and 48th
months, she failed to pay. On the 49th month, she
tried to pay the installments due but the vendor
refused to receive the payments tendered by her.
The following month, the vendor sent her a notice
that it was rescinding the Deed off Conditional Sale
pursuant to the stipulation for automatic rescission,
and demanded that she vacate the premises. She
replied that the contract cannot be rescinded
without judicial demand or notarial act pursuant to
Article 1592 of the Civil Code. (2000, 2014 BAR)
a) Is Article 1592 applicable?
b) Can the vendor rescind the contract?
A:
a) NO. Article 1592 of the Civil Code does not apply to
a conditional sale. Article1592 of NCC applies only
to a contract of sale and not to a Deed of
Conditional Sale where the seller has reserved title
to the property until full payment of the purchase
price. The law applicable is the Maceda Law
(Valarao v. CA, G.R. No. 130347, March 3, 1999).
b) NO, the vendor cannot rescind the contract under the
circumstances. Under the Maceda Law, which is
the law applicable, the seller on installment may
not rescind the contract till after the lapse of the
mandatory grace period of 30 days for every one
year of installment payments, and only after 30
days from notice of cancellation or demand for
rescission by a notarial act. In this case, the refusal
of the seller to accept payment from the buyer on the
49th month was not justified because the buyer was
entitled to 60 days grace period and the payment
was tendered within that period. Moreover, the
notice of rescission served by the seller on the
buyer was not effective because the notice was not by
a notarial act. Besides, the seller may still pay within
30 days from such notarial notice before rescission
may be effected. All these requirements for a valid
rescission were not complied with by the seller.
Hence, the rescission is invalid.
REMEDIES OF AN UNPAID SELLER
Unpaid Seller
One is considered as unpaid seller when:
1. The whole of the price has not been paid or
tendered;
 SALES
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 (NCC, Art. 1525).
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 dishonored. In which case, the
seller is still an unpaid seller (US v. Bedoya, 14 Phil.
398).
Moreover, bills of exchange or mercantile documents
shall produce the effect of payment only when they
have been cashed or when through the fault of the
creditor, they have been impaired.
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).
---
Remedies of an Unpaid Seller
I. Ordinary
1. Action for Price (NCC, Art. 1595)
Exercised when:
a. Ownership has passed to buyer;
b. Price is payable on a day certain;
c. Goods cannot readily be resold for
reasonable price and Art. 1596 of NCC is
inapplicable.
2. Action for Damages – In case of wrongful
neglect or refusal by the buyer to accept or
pay for the thing sold.
NOTE: The measure of damages is the
estimated loss directly and naturally
resulting in the ordinary course of events
from the buyer’s breach of contract.
Where there is an available market for the
goods in question, the measure of damages is,
in the absence of special circumstances
showing proximate damage of a different
amount, the difference between the contract
price and the market or current price at the
time or times when the goods ought to have
been accepted, or, if no time was fixed for
acceptance, then at the time of the refusal to
accept.
II. Special (NCC, Art. 1596)
1. Possessory Lien (NCC, Art. 1527) – seller not
bound to deliver the object of the contract of
277
sale if buyer has not paid him the price. 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
NOTE: When part of goods delivered, may still
exercise right on goods undelivered.
Moreover, when title to the property has passed
to the buyer, but possession remains in the
hands of the seller, the latter is necessarily
holding the goods for the buyer. For his
protection, the seller is entitled to possess the
same until he has been fully paid, or a tender of
the price has been made.
Loss of Lien:
a. When he delivers the goods to the carrier or
other bailee for purpose of transmission to the
buyer which reserving the ownership in the
goods or the right to the possession thereof;
b. When the buyer or his agent lawfully obtains
possession of the goods; or
c. By waiver thereof (Rabuya, 2017).
2. Stoppage in Transitu (NCC, Art. 1530)
Requisites: (I-SCENT-U)
a. Insolvent buyer
b. The sale of goods must be on Credit
c. Seller must Surrender the negotiable
document of title, if any
d. Seller must bear the Expenses of delivery
of the goods after the exercise of the right.
e. Seller must either actually take possession
of the goods sold or give Notice of his claim
to the carrier or other person in
possession
f. Goods must be in Transit
g. Unpaid seller
NOTE: Buyer’s insolvency need not be
judicially declared. A person is insolvent who
either has ceased to pay his debts in the
ordinary course of business or cannot pay his
debts as they become due, whether insolvency
proceedings have been commenced or not.
[NCC, Art. 1636 (2)].
3. Special Right to Resell the Goods (NCC, Art.
1533)
Exercised when:
a. Goods are perishable,
b. Stipulated the right of resale in case of
default, or
c. Buyer in default for unreasonable time
4. Special Right to Rescind (NCC, Art. 1597)
Requisites:
 Civil Law
a. Goods have not been delivered to the
buyer;
b. Buyer has repudiated the contract of
sale; or
c. Has manifested his inability to perform
his obligations thereunder; or
d. Has committed a breach thereof, which
must be substantial.
NOTE: Here, the seller may thereafter totally
rescind the contract of sale by giving notice of
his election to do so to the buyer.
---
Q: Nante, a registered owner of a parcel of land in
Quezon City, sold the property to Monica under a deed
of sale which reads as follows:
"That for and in consideration of the sum of
P500,000.00, value to be paid and delivered to me,
and receipt of which shall be acknowledged by me to
the full satisfaction of Monica, referred to as Vendee,
I hereby sell, transfer, cede, convey, and assign, as by
these presents, I do have sold, transferred, ceded,
conveyed and assigned a parcel of land covered by
TCT No. 2468 in favor of the Vendee."
After delivery of the initial payment of P100,000.00,
Monica immediately took possession of the property.
Five (5) months after, Monica failed to pay the
remaining balance of the purchase price. Nante filed
an action for the recovery of possession of the
property. Nante alleged that the agreement was one
to sell, which was not consummated as the full
contract price was not paid. Is the contention of Nante
tenable? (2014 BAR)
A: NO. The contention of Nante is not tenable. The deed
itself states that for consideration received, he sells,
transfers, and conveys the land to Monica and there was
delivery of the property to the latter. The contract is
clearly one of sale as there was no reservation of
ownership on the part of the seller Nante. The non-
payment of the price in a contract of sale would only
entitle the seller to rescind the contract but it does not
thereby prevent the transfer of ownership particularly so
as in this case, where there was already delivery to the
buyer.
---
Instances when possessory lien is lost
1. Seller delivers without reserving ownership in goods
or right to possess them;
2. Buyer or agent lawfully obtains possession of goods;
3. Waiver (NCC, Art. 1529).
NOTE: Seller loses lien when he parts with good (but still,
stoppage in transitu can be exercised).
Right of stoppage in transitu
The seller may resume possession of the goods at any time
while they are in transit, and he will then become entitled
to the same rights in regard to the goods as he would have
had if he had never parted with the possession (NCC, Art.
1530).
278
Thereafter, the seller may exercise the following rights:
a. Right of lien; NCC, Art. 1527
b. Right to resell; NCC, Art. 1533 and
c. Right to rescind the transfer of title. (NCC, Art.
1534)
Goods considered to be in transit
1. After delivery to a carrier or other bailee and before
the buyer or his agent takes delivery of them; and
2. If the goods are rejected by the buyer, and the carrier
or other bailee continues in possession of them, even
if the seller has refused to receive them back [NCC,
Art. 1531(1)].
Goods deemed to be no longer in transit
1. After delivery to the buyer or his agent;
2. If the buyer/agent obtains possession of the goods at
a point before the destination originally fixed;
3. If the carrier or the bailee acknowledges that he
holds the goods in behalf of the buyer/ his agent;
4. If the carrier or bailee wrongfully refuses to deliver
the goods to the buyer or his agent (Villanueva, 2009).
Enforcement of right to stoppage in transitu
The seller may:
1. Take actual possession of the goods;
2. Give notice of his claim to the carrier or other bailee
who is in possession of the goods (NCC, Art. 1532).
Effect of the exercise of this right
1. The goods are no longer in transit;
2. Contract of carriage end. The carrier now becomes a
mere 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.
(NCC, Arts. 1530 & 1531)
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).
Effect of exercising the special right of resale
The unpaid seller shall not be liable to the original buyer
upon the sale or for any profit made by such resale, but
may recover from the buyer damages for any loss
occasioned by the breach of the sale (NCC, Art. 1533).
NOTE: The seller cannot, however, directly or indirectly
buy the goods.
Cases in which it is allowed:
 SALES
1. Where the goods are of perishable in nature;
2. Where the seller has expressly reserves the right of
resale in case the buyer should make default; or
3. Where the buyer has been in default in payment of the
price for unreasonable time [NCC, Art. 1533(1)].
Notice to the defaulting buyer
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.
NOTE: Notice of time and place of resale is not essential
to the validity of such resale (NCC, Art. 1533).
Effect of exercising the special right to rescind
The unpaid seller shall not be liable to the buyer upon the
sale, but may recover from the buyer damages for any loss
occasioned by the breach of the sale (NCC, Art. 1534).
Cases in which it is allowed:
1. Where the seller has expressly reserved the right to
rescind in case the buyer should make default; or
2. Where the buyer has been in default in the payment of
the price for unreasonable length of time [NCC, Art.
1534(1)].
Buyer deemed as insolvent
One is deemed insolvent when he either 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 (Villanueva,
2009).
REMEDIES OF THE BUYER
I. Immovables in general
1. Disturbed in possession or with reasonable
grounds to fear disturbance – Suspend
payment.
2. In case of subdivision or condominium
projects – If real estate developer fails to
comply with obligation according to approved
plan:
a. Rescind;
b. Suspend payment until seller complies.
II. Movables
1. Failure of seller to deliver – Action for specific
performance without giving the seller the
option of retaining the goods on payments of
damages.
2. Breach of seller’s warranty – The buyer may,
at his election, avail of the following remedies:
a. Accept goods & set up breach of warranty
by way of recoupment in diminution or
extinction or the price;
279
b. Accept goods & maintain action against
seller for damages;
c. Refuse to accept goods & maintain action
against seller for damages;
d. Rescind contract of sale & refuse to
receive goods/return them when already
received and recover the price or any
part which has been paid.
3. Disturbed in possession or with reasonable
grounds to fear disturbance – Suspend
payment.
NOTE: When the buyer has claimed and been granted
a remedy in any of these ways, no other remedy can
thereafter be granted, without prejudice to the
buyer’s right to rescind, even if previously he has
chosen specific performance when fulfillment has
become impossible [Villanueva, 2011; in relation to
NCC, Art. 1191(2)].
PERFORMANCE OF CONTRACT
Rule when the seller delivers goods lesser than what
he has contracted to sell
1. The buyer may reject the goods delivered and he
shall have no liability; or
2. The buyer may accept the goods delivered, but he
will pay the contract rate, if he has knowledge that
the seller is not going to deliver all the goods
contracted for;
3. If, however, the buyer has used or disposed of the
goods delivered before he knows that the seller is not
going to perform his contract in full, the buyer shall
not be liable for more than the fair value to him of the
goods so received (NCC, Art. 1522).
Rule when the seller delivers goods greater than what
he has contracted to sell
1. The buyer may accept only the goods which were
included in the contract and reject the excess;
2. The buyer may accept the entire goods delivered and
he shall pay for them at the contract rate (NCC, Art.
1522).
Rule when the seller delivers goods which are mixed
with other goods of different description not included
in the contract
1. The buyer may accept the goods which are in
accordance with the contract and reject the rest
(NCC, Art. 1522); or
2. The buyer may also accept them all if he so desires,
but he must pay for them all.
Rule if the subject matter is indivisible
The buyer may reject the whole of the goods (NCC, Art.
1522).
Duty of the seller with regard to accessions and
accessories
 Civil Law
The seller has the duty to preserve the thing and its
accessions and accessories from the time of the perfection
of the contract of sale (NCC, Art. 1537).
But all the fruits shall pertain to the vendee from the day
on which the contract was perfected.
NOTE: In case of loss or deterioration, the seller is liable
for damages or the buyer may seek rescission with
damages. However, if loss or deterioration is due to a
fortuitous event, the seller is not liable (NCC, Art. 1538).
Rule when the sale of immovable is by unit of measure
or number
GR: The seller must deliver all that may have been stated
in the contract.
XPN: If impossible to deliver all, the buyer may choose
between:
g. Proportional reduction of the price; or
h. Rescission of the contract provided the deficiency is
not less than 1/10 of the area stated in the contract
(NCC, Art. 1539).
Prescription period for the action of rescission of
contract
6 months from the day of delivery (NCC, Art. 1543).
How payment is made by the buyer
Price is paid at the time and place stipulated in the
contract. It is made to the person in whose favor the
obligation has been constituted or his successor in
interest, or any person authorized to receive (Villanueva,
2009).
WARRANTIES
Warranty
A statement or representation made by the seller of
goods, as part of the contract of sale, having reference to
the character, quality, or title, of the goods, and by which
he promises or undertakes to insure that certain facts are
or shall be as he then represents (De Leon, 2011).
Effect of a breach of warranty
Buyer may:
1. Refuse to proceed with the contract; or
2. Proceed with the contract and waive the
condition.
NOTE: If the condition is in the nature of a promise that it
should happen or be performed, the non-performance
may be treated as a breach of warranty.
Kinds of warranties
1. Express
2. Implied
280
NOTE: Prescriptive period of actions based on express
warranty:
1. That specified in the contract and in the absence
thereof
2. 4 years (Rabuya, 2017)
Express warranties
Any affirmation of fact or any promise by the seller
relating to the thing if the natural tendency of such
affirmation or promise is to induce the buyer to purchase
the same, and if the buyer purchases the thing relying
thereon (Art. 1546).
Requisites: (AIR)
1. It must be an Affirmation of fact relating to the
subject matter of sale
2. Natural tendency is to Induce buyer to purchase
subject matter
3. Buyer purchases the subject matter Relying thereon
Liability of the seller for breach of express warranties
The seller is liable for damages (Villanueva, 2009).
Implied warranties
Warranties deemed included in all contracts of sale by
operation of law (NCC, Art. 1547).
1. Warranty that seller has right to sell – refers to
consummation stage. Not applicable to sheriff,
auctioneer, mortgagee, pledgee (NCC, Art. 1547).
2. Warranty against eviction(Art. 1548)
Requisites: (JPENS)
a. Final Judgment;
b. Buyer is Evicted in whole or in part from the
subject matter of sale;
c. Basis of eviction is a right Prior to sale or act
imputable to seller;
d. Seller has been Summoned in the suit for
eviction at the instance of buyer; or made 3rd
party defendant through 3rd party complaint
brought by buyer;
e. No waiver on the part of the buyer.
NOTE: For eviction – disturbance in law is required
and not just trespass in fact.
3. GR: Warranty against non-apparent burden or
servitude (NCC, Art. 1560).
Requisites:
a. Immovable sold is encumbered with non-
apparent burden or servitude not mentioned in
the agreement;
b. Nature of non-apparent servitude or burden is
such that it must be presumed that the buyer
would not have acquired it had he been aware
thereof.
XPN: Warranty not applicable when non-apparent
burden or servitude is recorded in the Registry of
 SALES
Property – unless there is expressed warranty that
the thing is free from all burdens and encumbrances
4. Warranty against Hidden Defects (NCC, Art. 1561)
Requisites: (HENNAS)
a. Defect is important or Serious;
i. The thing sold is unfit for the use which it is
intended;
ii. Diminishes its fitness for such use or to
such an extent that the buyer would not
have acquired it had he been aware thereof.
b. Defect is Hidden;
c. Defect Exists at the time of the sale;
d. Buyer gives Notice of the defect to the seller
within reasonable time;
e. Action for rescission or reduction of the price is
brought within the proper period;
i. 6 months – from delivery of the thing sold
(NCC, Art. 1571);
ii. Within 40 days – from the delivery in case
of animals (NCC, Art. 1577).
f. There must be No waiver of warranty on the part
of the buyer.
NOTE: Hidden faults or defects pertain only to those that
make the object of sale unfit for the use for which it was
intended at the time of the sale.
Non-applicability of implied warranty (ASAP)
1. “As is and where is” sale;
2. Sale of second hand articles;
3. Sale by virtue of authority in fact or law;
4. Sale at public auction for tax delinquency.
Where the cause of action is to hold the seller of a
vehicle for breach of implied warranty
Under Article 1599 of the Civil Code, once an express
warranty is breached, the buyer can accept or keep the
goods and maintain an action against the seller for
damages. In the absence of an existing express warranty a
complaint for damages may be anchored on the
enforcement of an implied warranty against hidden
defects. However, this right must be exercised within six
months from the delivery of the thing sold, else his cause
of action had become time-barred (De Guzman v.
Toyota Cubao, G.R. No. 141480, November 29, 2006).
Effects of waiver of an implied warranty
1. Seller in bad faith and there is waiver against eviction
–void.
2. When buyer without knowledge of a particular risk,
made general renunciation of warranty – is not a
waiver but merely limits liability of seller in case of
eviction.
3. When buyer with knowledge of risk of eviction
assumed its consequences and made a waiver – seller
not liable (applicable only to waiver of warranty
against eviction).
WARRANTY AGAINST EVICTION
281
In a contract of sale, unless a contrary intention appears,
there is an implied warranty on the part of the seller that
he has the 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 [NCC, Art. 1547(1)].
Coverage of a warranty against eviction
It covers eviction by a final judgment based on a right
prior to the sale or an act imputable to the vendor, the
vendee is deprived of the whole or of a part of the thing
purchased.
The vendor shall answer for the eviction even though
nothing has been said in the contract on the subject.
NOTE: The contracting parties, however, may increase,
diminish, or suppress this legal obligation of the vendor
(Art. 1548).
Effect of a breach of warranty against eviction
The buyer shall have the right to demand the R-I-C-E with
damages from seller:
1. The Return of the value which the thing sold had at
the time of the eviction, be it greater or lesser than
the price of the sale;
2. The Income or fruits, if he has been ordered to
deliver them to the party who won the suit against
him;
3. The Costs of suit which caused the eviction, and, in a
proper case, those of suit brought against the vendor
for the warranty;
4. The Expenses of contract if buyer has paid them;
5. The damages, interests and ornamental expenses if
sale was made in bad faith (NCC, Art. 1555).
NOTE: Vendor is liable for any hidden defect even if he is
not aware (Caveat Venditor).
Purchaser must be aware of the title of the vendor (Caveat
Emptor).
Rights of buyer in case of partial eviction
1. Restitution (with obligation to return the thing w/o
other encumbrances than those which it had when he
acquired it);
2. Enforcement of warranty against eviction (Paras,
2013 and NCC, Art. 1556).
Inapplicability of rescission
GR: Rescission is not a remedy in case of eviction because
rescission contemplates that the one demanding it is able
to return whatever he has received under the contract.
Since the vendee can no longer restore the subject matter
of the sale to the vendor, rescission cannot be carried out
(NCC, Art. 1385).
XPN: The buyer may demand rescission in case of partial
eviction, because there still remains a portion of the thing
sold (De Leon, 2009).
 Civil Law
WARRANTY AGAINST HIDDEN DEFECT
Hidden defect (NCC, Art.1561)
One which is unknown or could not have been known to
the buyer (Diaz, 2006.)
NOTE: Seller does not warrant patent defect.
Reason: caveat emptor (buyer beware).
Application
The seller shall be responsible for warranty against
“hidden defect” only when:
1. The nature of the hidden defect is such that it
should render the subject matter unfit for the
use for which it is intended; or
2. Should diminish its fitness for such use to such
an extent that, had the buyer been aware
thereof, he would not have acquired it or would
have given a lower price for it.
Redhibitory defect
It is a defect in the article sold against which defect the
seller is bound to warrant. The vice must constitute an
imperfection, a defect in its nature, of certain importance;
and a minor defect does not give rise to redhibition (De
Leon, 2005).
Redhibitory defect on animals (NCC, Art. 1576)
If the hidden defect of animals, even in case a professional
inspection has been made, should be of such a nature that
expert knowledge is not sufficient to discover it, the defect
shall be considered as redhibitory.
Void sale of animal (NCC, Art. 1575)
The sale is void if animal is:
1. Suffering from contagious diseases;
2. Unfit for the use or service for which they were
purchased as indicated in the contract.
Responsibility of a vendor for hidden defects
If the hidden defects which the thing sold may have:
1. Render it unfit for the use for which it is
intended; or
2. Diminish its fitness for such use to such an
extent that had the vendee been aware thereof,
he would not have acquired it or would have
given a lower price for it (NCC, Art. 1561).
Extent of warranty by the seller against hidden
defects
The seller is responsible to the vendee for any hidden
faults or defects in the thing sold, even though he was not
aware thereof.
282
When the seller is not answerable for the defects of
the thing sold
1. For patent defects or those which are visible;
2. Even for those which are not visible if the buyer is an
expert who, by reason of his trade or profession,
should have known them (NCC, Art. 1561);
3. If the contrary has been stipulated, and the vendor
was not aware of the hidden faults or defects in the
thing sold (NCC, Art. 1566).
Effect of a breach of warranty against hidden defects
It would depend on whether the seller had knowledge of
such defect and whether there has been a waiver of the
warranty.
1. If the thing should be lost in consequence of the hidden
faults, and seller was aware of them – he shall:
a. bear the loss,
b. return the price and
c. refund the expenses of the contract with
damages
2. If the thing is lost and seller was not aware of the
hidden faults – he shall:
a. return the price and interest
b. reimburse the expenses of the contract
which the buyer might have paid, but not
for damages (Villanueva, 2004).
Prescriptive period: six months from date of the delivery
of the thing sold (NCC, Art. 1571).
Remedies of the buyer in case of sale of things with
hidden defects (NCC, Art. 1567)
The vendee may elect between:
1. Withdrawing from the contract, or
2. Demanding a proportionate reduction of the
price, with damages in either case.
Waiver of warranty against eviction
There is waiver of warranty against eviction when the
lessee has inspected the premises and decides to
consummate the contract based on such inspection.
Under Arts. 1561 and 1653 of the Civil Code, the lessor is
responsible for warranty against hidden defects, but he is
not answerable for patent defects or those, which are
visible, and which can be seen upon inspection (Jon and
Marissa De Ysasi v. Arturo and Estela Arceo, G.R. No.
136586, November 22, 2001).
Specific implied warranties in sale of goods (NCC, Art.
1562)
1. Warranty of fitness
GR: No implied warranty
XPN:
a. Buyer manifests to the seller the particular
purpose for which the goods are required; and
b. Buyer relies upon the seller’s skill or judgment
2. Warranty of merchantability
 SALES
That goods are reasonably fit for the general purpose A: NO. Upon the execution of the Deed of Sale, Goodyear
for which they are sold. did transfer ownership of and deliver the vehicle to Sy.
The impoundment of the vehicle and the failure to
REMEDIES IN CASE OF BREACH OF WARRANTY register it were clearly acts that were not deliberately
caused by Goodyear, but that resulted solely from the
Remedies of the buyer in case of breach of warranty failure of the PNP to lift the latter’s own alarm over the
vehicle.
1. Accept goods and set up breach of warranty by way
of recoupment in diminution or extinction or the Assuming there was a breach of the implied warranty
price; against hidden encumbrances, notice of breach was not
2. Accept goods and maintain action against seller for given to the Goodyear within a reasonable time. Article
damages; 1586 of the Civil Code requires that notice be given after
3. Refuse to accept goods and maintain action against the breach, of which Sy ought to have known. (Goodyear
seller for damages; Philippines, Inc. v. Sy and Lee, G.R. No. 154554, November 9,
4. Rescind contract of sale and refuse to receive 2005).
goods/return them when already received. ---
CONDITION vis-à-vis WARRANTY
Remedies of the buyer in case of breach of warranty
NOT absolute Condition

The vendee's remedies against a vendor with respect to
the warranties against hidden defects or encumbrances
upon the thing sold, in the case of Arts. 1561, 1562, 1564,
1565 and 1566 of the Civil Code, may either be to
withdraw from the contract or demand a proportionate
reduction of the price, with damages in either case.
The vendee may also ask for the annulment of the contract
upon proof of error or fraud, in which case the ordinary
rule on obligations shall be applicable; responsibility
arising from fraud is demandable in all obligations and
any waiver of an action for future fraud is void.
Responsibility arising from negligence is also demandable
in any obligation, but such liability may be regulated by
the courts, according to the circumstances.
The vendor could likewise be liable for quasi-delict under
Article 2176 of the Civil Code, and an action based thereon
may be brought by the vendee (Coca-Cola Bottlers
Philippines, Inc. v. CA, G.R. No. 110295, October 18, 1993).
An uncertain event or contingency upon the happening of
which the obligation or right of the contract depends. In
such case, the obligation of the contract does not attach
until the condition is performed (De Leon, 2011).
NOTE: There may be a contract of sale of goods, whose
acquisition by the seller depends upon a contingency,
which may or may not happen [NCC, Art. 1462(2)].
Effect of non-fulfillment of a condition
If imposed on the perfection of contract – prevents the
juridical relation itself from coming into existence.
The other party may:
1. Refuse to proceed with the contract
2. Proceed w/ contract, waiving the performance
of the condition
Condition v. Warranty

Instances when the buyer cannot rescind the sale in CONDITION WARRANTY
case there is a breach of warranty As to nature
Purports to the existence Purports to the
1. If he knew of the breach of warranty; of obligation. performance of
2. If he fails to return or offer to return goods to seller obligation.
in substantially as good condition as they were at
time ownership was transferred; As to the need for stipulation
3. If he fails to notify the seller within a reasonable time Must be stipulated to Need not be
of his election to rescind. form part of the stipulated; may form
--- obligation. part of obligation by
Q: Goodyear Philippines sold a car to Anthony Sy. provision of law.
Later on, Sy sold the car to Jose Lee. When Lee tried to
register the car in his name, he failed to have it
registered because it turned out that the car was As to subject matter
stolen before and was only subsequently recovered May attach itself to Relates to the
by Goodyear. However, PNP did not lift the alert alarm obligation of seller to subject matter itself or to
over the said car. Due to this, the car was impounded deliver possession and obligation of the seller as
and Lee was sued by PNP. This problem was relayed transfer. to the subject matter of
by Lee to Sy. It led to Sy filing a case against Goodyear the sale.
for breach of warranty. It is Sy’s argument that it is
Goodyear’s duty to convey the vehicle to Sy free from
all liens, encumbrances and legal impediments. Was EXTINGUISHMENT OF SALE
there a breach of warranty by Goodyear?
Causes for extinguishment of sale

283
 Civil Law
Other person can exercise the right to repurchase
A contract of sale is extinguished by:
1. Same causes as how an obligation is The right to repurchase may be exercised by any person
extinguished, namely: to whom the right of repurchase may be transferred, or in
a. Payment or performance; case of legal redemption, by the person so entitled by law
b. Loss of the thing due; (Villanueva, 2009).
c. Condonation or remission of the debt;
d. Confusion or merger of the rights of NOTE: Right to repurchase must be reserved at the time
creditor and debtor; of perfection of sale (Pineda, 2010).
e. Compensation;
f. Novation; Reservation of right to repurchase
g. Annulment;
h. Rescission; The right to repurchase is reserved by a stipulation to that
i. Fulfillment of resolutory condition; effect in the contract of sale. Because it is not a right
j. Prescription granted to the vendor by the vendee, but is a right
2. Conventional Redemption reserved by the vendor.
3. Legal redemption
Reservation CANNOT be made in an instrument different
Redemption from that of the contract of sale. Once the instrument of
absolute sale is executed, and any right thereafter granted
It is a mode of extinguishment wherein the seller has the the vendor in a separate instrument cannot be a right of
right to redeem or repurchase the thing sold upon return repurchase but some other right like the option to buy in
of the price paid. the instant case (Villanueva, 2009).

Kinds of redemption Parole evidence in proving right of repurchase

1. Legal The right of repurchase may be proved by parole evidence

2. Conventional
Incorporation of right to redeem in every contract of
sale
The right of the vendor to redeem/repurchase must
appear in the same instrument. However, parties may
stipulate on the right of repurchase in a separate
document but in this case, it is valid only between the
parties and not against third persons. (Pineda, 2010).
when the contract of sale has been reduced in writing
(Mactan Cebu International Airport Authority v. CA, G.R.
No. 121506, October 30, 1996).
Effect on the reserved right to repurchase if the
principal contract of sale is void
Since the underlying contract of sale was inoperative and
consequently void, then the right of repurchase reserved
would also be void (Villanueva, 2009).

Pre-emption v. Redemption EQUITABLE MORTGAGE

PRE-EMPTION REDEMPTION One which lacks the proper formalities, form or words or
other requisites prescribed by law for a mortgage, but
As to when it arises
shows the intention of the parties to make the property
Arises before sale Arises after sale subject of the contract as security for a debt and contains
nothing impossible or contrary to law (Cachola v. CA, G.R.
No. 97822, May 7, 1992; NCC, Art. 1602).
As to availability of rescission
Rescission inapplicable. There can be Essential requisites of equitable mortgage
rescission of original sale.
1. Parties entered into a contract of sale;
As to whom the action is directed 2. Their intention was to secure an existing debt by way
Action is directed Action is directed of a mortgage.
against prospective against buyer.
seller. Presumption of an equitable mortgage (2005 BAR)

A sale with conventional redemption is deemed to be an

CONVENTIONAL REDEMPTION equitable mortgage in any of the following cases (NCC, Art.
1602) (AIR-STAR)
Seller reserves the right to repurchase thing sold coupled
with obligation to return the purchase price of the sale, 1. Price of the sale with right to repurchase is unusually
expenses incurred under the contract, other legitimate Inadequate;
payments and, necessary & useful expenses made on the 2. Seller Remains in possession as lessee or otherwise;
thing sold (Art. 1601 in relation to Art. 1616 of the Civil 3. Upon or after the expiration of the right to
Code). repurchase Another instrument extending the

284
 SALES
period of redemption or granting a new period is remedy is foreclosure of the mortgage. If there is no
executed; foreclosure, the debtors retains the ownership (Vasquez v.
4. Purchaser Retains for himself a part of the purchase CA, G.R. No. 144882, February 4, 2005).
price;
5. Seller binds himself to pay the Taxes on the thing Elements of pactum commissorium
sold;
6. In any other case where the real intention of the 1. There should be a pledge or mortgage wherein
parties is that the transaction shall Secure the property is pledged or mortgaged by way of security
payment of a debt or the performance of any other for the payment of the principal obligation; and
obligation; 2. There should be a stipulation for an automatic
7. Art. 1602 shall also apply to a contract purporting to appropriation by the creditor of the thing pledged or
be an Absolute sale (Art. 1604). (2005 BAR) mortgaged in the event of nonpayment of the
principal obligation within the stipulated period (Sps.
NOTE: In case of doubt in determining whether it is Pen v. Sps. Julian, G.R. No. 160408, January 11, 2016)
equitable mortgage or sale a retro (with right of (Bersamin, J.).
repurchase); it shall be construed as equitable mortgage.
The remedy is reformation. NOTE: Article 2088 of the Civil Code prohibits the
creditor from appropriating the things given by way of
Inadequacy of price and Equitable Mortgage pledge or mortgage, or from disposing of them; any
stipulation to the contrary is null and void.
Inadequacy of price does NOT constitute proof sufficient
to declare a contract as one of equitable mortgage. Mere REDEMPTION v. OPTION TO BUY
inadequacy of the price is not sufficient. The price must be
grossly inadequate, or purely shocking to the conscience REDEMPTION OPTION TO BUY
(Diaz, 2010). As to nature
Forms part of the contract of Principal and
The decisive factor in evaluating whether a deed sale. preparatory contract.
absolute in form is a mortgage
The right must be imbedded May exist prior to or
The intention of the parties, such as the relative situation in a contract of sale upon its after the perfection of
of the parties at that time, the attitude acts, conduct, perfection. the sale, or be
declarations of the parties, the negotiations between imbedded in another
them leading to the deed, and generally, all pertinent facts contract upon
having a tendency to fix and determine the real nature of perfection.
their design and understanding is the decisive factor in
evaluation if the deed is a mortgage (Sps. Raymundo, et al. As to necessity of separate consideration
v. Sps. Bandong, G.R. No. 171250, July 4, 2007). Does not need a separate Separate
consideration to be valid consideration is
Effects when sale is adjudged as an equitable and effective. needed for it to be
mortgage valid and effective.

1. The apparent seller may ask for the reformation of As to period

the instrument (NCC, Art. 1605). (2005 BAR) Redemption period cannot Period for an
2. Money, fruit or other benefit to be received by the exceed 10 years. option right may
buyer as rent or otherwise shall be considered as exceed 10 years.
interest (NCC, Art. 1602).
3. The court may decree that “vendor” pay his As to requirement of notice
outstanding loan to the “vendee” (Banga v. Bello, G.R. Notice is required for its Only notice is
No. 156705, September 30, 2005). exercise accompanied with required.
4. A remand of the case to the trial court where the
tender of
latter did not pass upon the mortgagor’s claim that
payment/consignment.
he had paid his mortgage obligation for the purpose
of the determining whether said obligation has been
As to effect
paid, and if not, how much should still be paid.
Its exercise extinguishes an
(Banga v. Bello, G.R. No. 156705, September 30, 2005). Its exercise
existing contract of sale.
results into the
Pactum Commissorium perfection of a
contract of sale
A stipulation for automatic vesting of title over the (Villanueva, 2009).
security in the creditor in case of debtor’s default
(Villanueva, 2009). NOTE: Also, once the instrument of absolute sale is
executed, the seller can no longer reserve the right of
The creditor cannot appropriate the things given by way repurchase and any right thereafter granted the seller by
of pledge or mortgage or dispose of them, otherwise that the buyer cannot be a right of repurchase but some other
would result in pactum commissorium. The proper rights, like that of an option to buy.

285
 Civil Law
PERIOD OF REDEMPTION
1. No period agreed upon – 4 years from date of
contract;
2. When there is agreement – should not exceed 10
years; but if it exceeded, valid only for the first 10
years (NCC, Art. 1606);
3. When period to redeem has expired & there has been
a previous suit on the nature of the contract – seller
still has 30 days from final judgment on the basis that
contract was a sale with pacto de retro;
Rationale: No redemption due to erroneous belief
that it is equitable mortgage which can be
extinguished by paying the loan.
4. When period has expired & seller allowed the period
of redemption to expire – seller is at fault for not
having exercised his rights so should not be granted
a new period.
NOTE: Tender of payment is sufficient but it is not in itself
a payment that relieves the seller from his liability to pay
the redemption price.
Running of period of redemption
1. Right of legal pre-emption or redemption shall be
exercised within 30 days from written notice by the
buyer – deed of sale not to be recorded in Registry of
Property unless accompanied by affidavit that buyer
has given notice to redemptioners.
2. When there is actual knowledge, no need to give
written notice; period of redemption begins to run
from actual knowledge.
Extension of the time to redeem
Parties may extend the period to redeem as long as the
total period shall not exceed ten years. However, such
extension can only be granted when the original period
has not yet expired. Otherwise, there exists only a
promise to sell on the buyer’s part (Pineda, 2010).
EXERCISE OF THE RIGHT TO REDEEM
Obligations the vendor a retro if he desires to redeem
(NCC, Art. 1616)
The vendor a retro must pay or reimburse the vendee a
retro the following:
1. Price of the sale;
2. Expenses of the contract;
3. Other legitimate expenses;
4. Necessary and useful expenses (Pineda, 2010).
Written notice mandatory for the right of redemption
to commence
Written notice is mandatory for the right of redemption
to commence and the notice must be in writing stating the
execution of the sale and its particulars. It may be made in
a private or public document (Pineda, 2010).
286
Prescribed form for an offer to redeem
There is no prescribed form for an offer to redeem to be
properly effected. Hence, it can either be through a formal
tender with consignation of the redemption price within
the prescribed period. What is paramount is the
availment of the fixed and definite period within which to
exercise the right of legal redemption.
NOTE: Art. 1623 of the Civil Code does not prescribe any
distinctive method for notifying the redemptioner.
Tender of payment NOT necessary for redemption to
take effect
Tender of payment is not necessary and offer to redeem
is enough only when the amount of repurchase is
uncertain and depends upon an accounting of the vendee
who has not yet made such accounting (Tolentino, 1999).
Effect of failure to redeem
There must be judicial order before ownership of real
property is consolidated to the buyer a retro.
Vendor a retro CANNOT be compelled to redeem
There is no obligation on the part of the vendor a retro to
repurchase. He may or may not exercise the right to
repurchase (Pineda, 2010).
LEGAL REDEMPTION
It is the right to be subrogated upon the same terms and
conditions stipulated in the contract, in the place of one
who acquires the thing by purchase or by dation en pago
or by other transaction whereby ownership is
transmitted by onerous title (NCC, Art. 1619).
Instances of legal redemption
1. Sale of a co-owner of his share to a stranger (NCC, Art.
1620) (2000, 2002 BAR)
2. When a credit or other incorporeal right in litigation
is sold (NCC, Art. 1634).
3. Sale of an heir of his hereditary rights to a stranger
(NCC, Art. 1088).
4. Sale of adjacent rural lands not exceeding 1 hectare
(NCC, Art. 1621).
5. Sale of adjacent small urban lands bought merely for
speculation (NCC, Art. 1622).
Other instances when the right of legal redemption is
also granted
1. Redemption of homesteads
2. Redemption in tax sales
3. Redemption by judgment debtor
4. Redemption in extrajudicial foreclosure
5. Redemption in judicial foreclosure of mortgage
Basis of legal redemption
 SALES
It is created partly for reason of public policy and partly
for the benefit and convenience of the redemptioner to
afford him a way out of what might be a disagreeable or
inconvenient association into which he has been in trust.
It is intended to minimize co-ownership (Pineda, 2010).
Running of period of legal redemption
The right of legal redemption shall not be exercised
except within 30 days from the notice in writing by the
prospective seller, or seller, as the case may be. The deed
of sale shall not be recorded in the Registry of Property
unless accompanied by an affidavit of the seller that he
has given written notice thereof to all possible
redemptioners (NCC, Art. 1623).
Written notice indispensable
The right of legal pre-emption or redemption shall not be
exercised except within 30 days from the notice in writing
by the prospective vendor, or by the vendor, as the case
may be (NCC, Art. 1623). (2001, 2002 BAR)
NOTE: Knowledge is insufficient – the mere fact that the
redemptioner – the person who has the right to redeem –
is already aware of the existence of the sale will not excuse
the written notice. Mere knowledge does not satisfy the
requirement; there must still be written notice despite
such knowledge (Barcellano v. Banas, et al., G.R. No.
165287, September 14, 2011).
The right of redemption of co-owners excludes that of
adjoining owners (NCC, Art. 1623).
This means that co-owners are preferred if the property
is to be redeemed by a co-owner and an adjoining owner.
Pre-emption
Redemption presupposes that the property was already
sold or transferred to another. In pre-emption, the right is
present before the sale; there is a right to purchase ahead
of or before it can be sold or transferred to other persons.
e.g. Whenever a piece of urban land which is so small and
so situated that a major portion thereof cannot be used for
any practical purpose within a reasonable time, having
been bought merely for speculation, is about to be re-sold,
the owner of any adjoining land has a right of pre-emption
at a reasonable price (NCC, Art. 1620).
Pre-emption v. Redemption
PRE-EMPTION REDEMPTION
Arises before sale Arises after sale
No rescission because There can be rescission of
no sale yet exists. the original sale.
Action Is directed Action is directed against
against the prospective the buyer.
seller.
287
ASSIGNMENT OF CREDITS
Assignment is the process of transferring gratuitously or
onerously the right of the assignor to the assignee, who
would then be allowed to proceed against the debtor
(Paras, 2008).
The assignment involves no transfer of ownership but
merely effects the transfer of rights which the assignor
has at the time to the assignee.
It is an agreement by virtue of which the owner of a credit,
known as the assignor, by a legal cause, such as sale,
dacion en pago, exchange or donation, and without the
consent of the debtor, transfers his credit and accessory
rights to another, known as the assignee, who acquires
the power to enforce it to the same extent as the assignor
could enforce it against the debtor (South City Homes, Inc.
v. BA Finance Corp, G. R. No. 135462, December 7, 2001).
NOTE: In assignments, a consideration is not always a
requisite, unlike in sale. Thus, an assignee may maintain
an action based on his title and it is immaterial whether
or not he paid any consideration therefor. Furthermore,
in an assignment, title is transferred but possession need
not be delivered.
Perfection of contract for assignment of credit
The contract for the assignment or transfer of credit and
other incorporeal rights is perfected from the moment the
parties agree upon the credit or right assigned and upon
the price even if neither has been delivered (NCC, Art.
1475).
However, the assignee will acquire ownership only upon
delivery (De Leon, 2011).
Effects of Assignment
1. Transfers the right to collect the full value of the
credit, even if he paid a price less than such value;
2. Transfers all accessory rights;
3. Debtor can set up against the assignee all the
defenses he could have set up against the assignor.
Effectivity against Third Persons
If personal property is involved — a public instrument is
needed to make the assignment effective against third
persons.
If real property is involved –– registration in the Registry
of Property would be needed.
NOTE: The assignee merely steps into the shoes of the
assignor, the former acquiring the credit subject to
defenses (e.g. fraud, prescription, etc.) available to the
debtor against the assignor. The assignee is deemed
subrogated to the rights as well as to the obligations of the
seller. He cannot acquire greater rights than those
pertaining to the assignor (De Leon, 2011).
 Civil Law
Accessory Rights included in the Assignment of a
Credit (NCC, Art. 1627)
1. Guaranty;
2. Mortgage;
3. Pledge;
4. Preference.
Effect of Assignment of Credit on Debtor
The “meeting of the minds” in assignment contemplates
that between the assignor of the credit and his assignee,
there being no necessity for the consent of the debtor. It
is sufficient that the assignment be brought to the debtor’s
knowledge in order to be binding upon him (C & C
Commercial Corp. v. Philippine National Bank, G.R. No. L-
42449 July 5, 1989).
Effect of payment by the debtor after assignment of
credit
1. Before Notice
Payment to the original creditor is valid and debtor
shall be released from his obligation.
NOTE: Assignment is effective as to the debtor only
from the time he has knowledge of it.
2. After Notice
Payment to the original creditor is not valid as
against the assignee. He can be made to pay again by
the assignee.
Warranties
In assignment, the assignor shall be responsible for the
existence and legality of the credit at the time of sale,
unless it has been expressly sold as a doubtful account, in
which case the assignee takes the credit at his own risk.
Consequently, the invalidity of the credit assigned makes
the assignor-vendor liable for breach of such warranty.
In addition, assignment does not make the assignor
warrant the solvency of the debtor to the credit, unless:
a. There is a stipulation to that effect; or
b. The insolvency of the debtor was prior to the
assignment and of common knowledge.
But even when the assignor warrants the solvency of the
debtor, the warranty should last for one year only, from
the time of the assignment if the credit is already due;
otherwise, the warranty shall cease only one year after
the maturity of the credit (NCC, Art. 1629).
Reason: First, to prevent fraud which may be committed
by feigning the solvency of the debtor at the time of the
assignment when in fact he is insolvent. Second, to oblige
the assignee to exert efforts in the recovery of the credit
and thereby avoid that by his oversight, the assignor may
suffer (De Leon, 2011).
If the assignor in good faith is liable for a warranty, he is
liable only for the expenses of the contract, and any other
288
legitimate payments made by reason of the assignment.
On the other hand, an assignor in bad faith who breaches
such warranties, shall in addition be liable to pay for the
necessary and useful expenses, plus damages (NCC, Art.
1628).
Liabilities of the assignor of credit
The liability of the vendor (assignor) in good faith is
limited only to the price received and to the expenses of
the contract, and any other legitimate payments by reason
of the assignment [NCC, Art. 1616 (1)].
The assignor in bad faith is liable not only for the payment
of the price and all expenses, but also for damages. An
assignor in bad faith is one who has knowledge of any of
the circumstances (Paras, 2011).
Legal Redemption in Sale or Credit or other
incorporeal right in litigation (NCC, Art. 1634)
Requisites:
1. There must be a sale or assignment of credit;
2. There must be a pending litigation at the time of the
assignment;
3. The debtor must pay the assignee:
a. price paid by him
b. judicial cost incurred by him; and
c. interest on the price from the date of payment
4. The right must be exercised by the debtor within 30
days from the date the assignee demands (judicially
or extra-judicially) payment from him.
GR: Debtor has the right of legal redemption in sale of
credit or incorporeal rights in litigation
XPNs:
1. Sale to a co-heir or co-owner
2. Sale to a co-owner
3. Sale to the possessor of property in question
THE SUBDIVISION AND CONDOMINIUM BUYER’S
PROTECTIVE DECREE (PD 957)
Date of Approval: July 12, 1976
The purpose is to afford its inhabitants the requirements
of a decent human settlement and to provide them with
ample opportunities for improving their quality of life (De
Leon, 2011).
PD 957
P.D. No. 957 was promulgated to encompass all questions
regarding subdivisions and condominiums. It is aimed at
providing for an appropriate government agency, the
HLURB, to which all parties aggrieved in the
implementation of its provisions and the enforcement of
contractual rights with respect to said category of real
estate may take recourse (Arranza vs. B.F. Homes, Inc., G.R.
No. 131683, June 19, 2000).
 SALES
The regulatory functions of the NHA are now
transferred to the Housing and Land Use Regulatory
Board (HLURB).
NOTE: Under E.O. 648 of 1981, the implementation of P.D.
957 was transferred from the National Housing Authority
(NHA) to the Housing and Land Regulatory Board
(HLURB).
The law recognized that subdivision and condominium
development involves public interest and welfare and
should be brought to a body, like the HLURB, that has
technical expertise. In the exercise of its powers, the
HLURB is empowered to interpret and apply contracts,
and determine the rights of private parties under these
contracts. This ancillary power, generally judicial, is now
no longer with the regular courts (Chua v. Ang, G.R. No.
156164, September 4, 2009).
NOTE: Not every case involving buyers and sellers of real
estate may be filed with the HLURB. Its jurisdiction is
limited to those cases filed by the buyer or owner of a
subdivision or condominium and based on any of the
causes of action enumerated under Section 1 of P.D. No.
1344, and which jurisdictional facts must be clearly
alleged in the complaint (Delos Santos v. Sarmiento, G.R.
No. 154877, March 27, 2007).
Quasi-judicial authority of HLURB (Sec. 1, P.D. 1344)
(URS)
1. Unsound real estate business practices;
2. Claims involving refund and any other claims filed
by subdivision lot or condominium unit buyer
against the project owner, developer, dealer,
broker, or salesman; and
3. Cases involving specific performance of
contractual and statutory obligations filed by
buyers of subdivision lots or condominium units
against the owner, developer, dealer, broker or
salesman.
HLURB has no jurisdiction to impose criminal
penalties
What the Decree provides is the authority of the HLURB
to impose administrative fines under Section 38, as
implemented by the Rules Implementing the Subdivision
and Condominium Buyer’s Protective Decree (Chua v.
Ang, G.R. No. 156164, September 4, 2009).
“Sale” or “Sell” defined under the Decree
It shall include:
1. Every disposition, or attempt to dispose, for a valuable
consideration, of a subdivision lot, including the
building and other improvements thereof, if any, in a
subdivision project or a condominium unit in a
condominium project;
2. Contract to sell;
3. Contract of purchase and sale;
4. Exchange;
5. Attempt to sell;
6. Option of sale or purchase;
7. Solicitation of a sale;
289
8. Offer to sell, directly or by an agent, or by a circular,
letter, advertisement or otherwise; and
9. A. privilege given to a member of a cooperative,
corporation, partnership, or any association and/or
B. the issuance of a certificate or receipt evidencing or
giving the right of participation in, or right to, any
land in consideration of payment of the membership
fee or dues (Deemed sale).
“Buy” and “purchase” defined under the Decree
It shall include any contract to buy, purchase, or
otherwise acquire for a valuable consideration a
subdivision lot, including the building and other
improvements, if any, in a subdivision project or a
condominium unit in a condominium project.
Subdivision project
A tract or a parcel of land registered under Act No. 496
which is partitioned primarily for residential purposes
into individual lots with or without improvements
thereon, and offered to the public for sale, in cash or in
installment terms.
NOTE: It shall include all residential, commercial,
industrial and recreational areas as well as open spaces
and other community and public areas in the project.
Subdivision lot
Any of the lots, whether residential, commercial,
industrial, or recreational, in a subdivision project.
Complex subdivision plan
A subdivision plan of a registered land wherein a street,
passageway or open space is delineated on the plan.
Condominium project
The entire parcel of real property divided or to be divided
primarily for residential purposes into condominium
units, including all structures thereon.
Condominium unit
A part of the condominium project intended for any type
of independent use or ownership, including one or more
rooms or spaces located in one or more floors (or part of
parts of floors) in a building or buildings and such
accessories as may be appended thereto.
Definition of Terms
a. Owner -registered owner of the land subject of a
subdivision or a condominium project.
b. Developer - person who develops or improves the
subdivision project or condominium project for and
in behalf of the owner thereof.
c. Dealer - any person directly engaged as principal in
the business of buying, selling or exchanging real
estate whether on a full-time or part-time basis.
 Civil Law
d. Broker - any person who, for commission or other
compensation, undertakes to sell or negotiate the
sale of a real estate belonging to another.
e. Salesman - person regularly employed by a broker
to perform, for and in his behalf, any or all functions
of a real estate broker.
Procedure for converting of a parcel of land into a
subdivision or condominium project by the
Registered Owner
He shall:
1. Submit his subdivision plan to the HLURB which shall
act upon and approve the same, upon a finding that the
plan complies with the Subdivision Standards' and
Regulations enforceable at the time the plan is
submitted.
2. If the conversion desired involves a condominium
project, the same procedure shall be followed except
that, in addition, the HLURB shall act upon and
approve the plan with respect to the building or
buildings included in the condominium project in
accordance with the National Building Code (RA
6541).
3. The subdivision plan, as so approved, shall then be
submitted to the Director of Lands for approval.
4. In case of complex subdivision plans, court approval
shall no longer be required.
5. The condominium plan as likewise so approved, shall
be submitted to the Register of Deeds of the province
or city in which the property lies and the same shall be
acted upon subject to the conditions and in
accordance with the procedure prescribed in Section
4 of the Condominium Act (RA 4726).
Requirements for registration
1. Name of the owner;
2. The location of the owner's principal business office,
and if the owner is a non-resident Filipino, the name
and address of his agent or representative in the
Philippines is authorized to receive notice;
3. The names and addresses of all the directors and
officers of the business firm, if the owner be a
corporation, association, trust, or other entity, and of
all the partners, if it be a partnership;
4. The general character of the business actually
transacted or to be transacted by the owner; and
5. A statement of the capitalization of the owner,
including the authorized and outstanding amounts of
its capital stock and the proportion thereof which is
paid-up.
Q: When is a subdivision or condominium project
deemed to be registered?
A: Upon completion of the publication requirement
NOTE: The fact of such registration shall be evidenced by
a registration certificate to be issued to the applicant-
owner or dealer.
---
Q: Part of the required documentary attachments to
the application is a certificate of title to the property
290
which is free from all liens and encumbrances. Does
this bar an owner of mortgaged property from
engaging in subdivision or condominium project
while the mortgage is in force?
A: NO. In case any subdivision lot or condominium unit is
mortgaged, it is sufficient if the instrument of mortgage
contains a stipulation that the mortgagee shall release the
mortgage on any subdivision lot or condominium unit as
soon as the full purchase price for the same is paid by the
buyer.
---
Q: After issuance of the registration certificate, may
the owner or dealer already sell subdivision lots or
condominium units?
A: NO. He must first obtain a license to sell the project
within two weeks from the registration of such project.
---
Issuance of license to sell
After an examination of the registration statement filed by
said owner or dealer and all the pertinent documents
attached thereto, the HLURB is convinced that the owner
or dealer is of good repute, that his business is financially
stable, and that the proposed sale of the subdivision lots
or condominium units to the public would not be
fraudulent.
Purpose of the requirement of posting of a
performance bonds before a license to sell may be
issued
It is to guarantee the construction and maintenance of the
roads, gutters, drainage, sewerage, water system, lighting
systems, and full development of the subdivision project
or the condominium project and the compliance by the
owner or dealer with the applicable laws and rules and
regulations.
The performance bond shall be executed in favor of
the Republic of the Philippines and shall authorize
the HLURB to use the proceeds for the purposes of its
undertaking in case of forfeiture
Exempt transactions
1. Sale of a subdivision lot resulting from the partition
of land among co-owners and co-heirs.
2. Sale or transfer of a subdivision lot by the original
purchaser thereof and any subsequent sale of the
same lot.
3. Sale of a subdivision lot or a condominium unit by or
for the account of a mortgagee in the ordinary course
of business when necessary to liquidate a bona fide
debt.
Suspension of a license to sell
1. Upon verified complaint by a buyer of a subdivision
lot or a condominium unit in any interested party, the
HLURB may, in its discretion, immediately suspend
the owner's or dealer's license to sell pending
investigation and hearing of the case.
 SALES
2. The HLURB may motu proprio suspend the license to
sell if, in its opinion, any information in the
registration statement filed by the owner or dealer is
or has become misleading, incorrect, inadequate or
incomplete or the sale or offering for a sale of the
subdivision or condominium project may work or
tend to work a fraud upon prospective buyers.
Revocation of license to sell or registration of a
subdivision or condominium project
The HLURB may, motu proprio or upon verified complaint
filed by a buyer of a subdivision lot or condominium unit,
revoke the registration by issuing an order to this effect,
with his findings in respect thereto, if upon examination
into the affairs of the owner or dealer during a hearing, it
shall appear there is satisfactory evidence that the said
owner or dealer:
1. Is insolvent; or
2. Has violated any of the provisions of this Decree or
any applicable rule or regulation of the HLURB, or
any undertaking of his/its performance bond; or
3. Has been or is engaged or is about to engage in
fraudulent transactions; or
4. Has made any misrepresentation in any prospectus,
brochure, circular or other literature about the
subdivision project or condominium project that has
been distributed to prospective buyers; or
5. Is of bad business repute; or
6. Does not conduct his business in accordance with
law or sound business principles.
NOTE: Where the owner or dealer is a partnership or
corporation or an unincorporated association, it shall be
sufficient cause for cancellation of its registration
certificate and its license to sell, if any member of such
partnership or any officer or director of such corporation
or association has been guilty of any act or omission
which would be cause for refusing or revoking the
registration of an individual dealer, broker or salesman.
Registration needed after the execution of a contract
to sell relevant to the sale or conveyance of
subdivision lots and condominium units
All contracts to sell, deeds of sale and other similar
instruments relative to the sale or conveyance of the
subdivision lots and condominium units, whether or not
the purchase price is paid in full, shall be registered by the
seller in the Office of the Register of Deeds of the province
or city where the property is situated.
Mortgage CANNOT be made by the owner or
developer without permission
There must be prior written approval of the HLURB.
When approval by the HLURB is given
When it is shown that the proceeds of the mortgage loan
shall be used for the development of the condominium or
subdivision project and effective measures have been
provided to ensure such utilization.
291
Rule if the owner desires to make alterations in the
approved subdivision plan
GR: No owner or developer shall change or alter the
roads, open spaces, infrastructures, facilities for public
use and/or other form of subdivision development as
contained in the approved subdivision plan and/or
represented in its advertisements
XPN: If he has obtained the permission of the HLURB and
the written conformity or consent of the duly organized
homeowners association, or in the absence of the latter,
by the majority of the lot buyers in the subdivision.
---
Q: May payment made by a buyer be forfeited in favor
of the owner or developer in case the buyer desists
from further payment due to the failure of the owner
or developer to develop the subdivision or
condominium project according to the approved plan
within the time limit provided for such? What is the
buyer’s remedy in this case?
A: NO, such forfeiture is not allowed. Such buyer may, at
his option, be reimbursed the total amount paid including
amortization interests but excluding delinquency
interests, with interest thereon at the legal rate.
---
NOTE: Sections 23 and 24 of Pres. Decree 957, provide
that no installment payments made by the buyer in a
subdivision or condominium project for the lot or unit he
contracts to buy shall be forfeited in favor of the owner or
developer when the buyer, after due notice to the owner
or developer desists from further payment due to the
failure of the owner or developer to develop the
subdivision or condominium project according to the
approved plans and within the time limit for complying
with the same. The sections also grant to the buyer the
option to be reimbursed the total amount paid
(Villanueva, 2009).
Defaulting buyers have rights under the Decree
The rights of the buyer in the event of this failure to pay
the installments due for reasons other than the failure of
the owner or developer to develop the project shall be
governed by RA 6552 or the Maceda Law.
Where the transaction or contract was entered into prior
to the effectivity of RA 6552 on August 26, 1972, the
defaulting buyer shall be entitled to the corresponding
refund based on the installments paid after the effectivity
of the law in the absence of any provision in the contract
to the contrary.
Owner or developer’s obligation in case the lot bought
and fully-paid by the buyer is mortgaged
In the event a mortgage over the lot or unit is outstanding
at the time of the issuance of the title to the buyer, the
owner or developer shall redeem the mortgage or the
corresponding portion thereof within six months from
such issuance in order that the title over any fully paid lot
or unit may be secured and delivered to the buyer in
accordance herewith.
 Civil Law
Parties CANNOT waive compliance with the decree
Any condition, stipulation, or provision in contract of sale
whereby any person waives compliance with any
provision of the Decree or of any rule or regulation issued
thereunder shall be void.
Notice NOT required in the demand of refund
Section 23 of PD 957 does not require that a notice be
given first by the buyer to the seller before a demand for
refund can be made as the notice and demand can be
made in the same letter or communication (Villanueva,
2009).
---
Q: Ernesto Marcelo sold the lot where the water tank
of the subdivision, Happy Glen Loop, is located for
almost 30 years to Hermogenes Liwag, president of
the Homeowner’s association of the said subdivision.
Is the sale of the lot where the water tank was located
valid?
A: NO. Taking into consideration the intention of the law
to create and maintain a healthy environment in human
settlements, the location of the water facility in the
Subdivision must form part of the area reserved for open
space.
The law expressly provides that open spaces in
subdivisions are reserved for public use and are beyond
the commerce of man. The sale of the subject parcel of
land by the subdivision owner or developer to
Hermogenes was contrary to law (Liwag v. Happy Glen
Loop Homeowners Association, Inc., G.R. No. 189755, July 4,
2012).
THE CONDOMINIUM ACT (RA 4726)
Date of Approval: June 18, 1966
Condominium
It is an interest in real property consisting of separate
interest in a unit in a residential, industrial or commercial
building and an undivided interest in common, directly or
indirectly, in the land on which it is located and in other
common areas of the building.
It may include, in addition, a separate interest in other
portions of such real property (Sec. 2, RA 4726).
---
Q: When is ownership acquired?
A: A purchaser of a unit who has not paid the full purchase
price thereof is not the owner of the unit and
consequently is not a shareholder of the Condominium
Corporation.
---
“Separate Interest”
The ownership of a condominium unit is the “separate
interest’’ of the owner which makes him automatically a
shareholder in the condominium. Nobody can be a
shareholder unless he is the owner of a unit and when he
ceases to be the owner, he also ceases automatically to be
292
a shareholder (Sunset View Condominium Corporation v.
Campos, Jr., G.R. No. L-52361, April 27, 1981).
Nature of ownership in condominium projects
As to the condominium unit- the same is owned
separately and individually by the unit owner.
As to the land and to the common areas in the
condominium project- there are two situations
contemplated in Sections 2 and 5 of the Condominium
Act:
1. Where the land and other common areas in the
condominium project are held by the owners of
separate units as co-owners thereof.
In such a situation, there is co-ownership among the
unit owners, with respect to the undivided interest in
the land and common areas.
2. Where the land and other common areas are to be
held by the condominium corporation.
In which case, the owners of the individual units are
automatically considered members or shareholders
of the corporation. Under the provisions of the
Condominium Act, the undivided interest in the
common areas or the shareholding in the common
areas is inseparable from the unit to which it is only
an appurtenant (Rabuya, 2008).
Restrictions as regards ownership of condominium
units
1. As regards individuals:
No condominium unit shall be conveyed or
transferred to the persons other than:
c. Filipino citizens; or
d. Corporations at least 60% of capital stock
of which belong to Filipino citizens
XPN: In cases of hereditary succession.
2. As regards corporations:
No transfer or conveyance of a unit shall be valid if
the concomitant transfer of the appurtenant
membership or stockholding in the corporation will
cause the alien interest in such corporation to exceed
the limits imposed by existing laws.
NOTE: The law provides that no condominium unit can be
sold without at the same time selling the corresponding
amount of rights, shares or other interests in the
condominium management body, the Condominium
Corporation; and no one can buy shares in a
Condominium Corporation without at the same time
buying a condominium unit.
It expressly allows foreigners to acquire condominium
units and shares in condominium corporations up to not
more than 40% of the total and outstanding capital stock
of a Filipino-owned or controlled corporation. Under this
set up, the ownership of the land is legally separated from
the unit itself. The land is owned by a Condominium
Corporation and the unit owner is simply a member in
this Condominium Corporation. As long as 60% of the
members of this Condominium Corporation are Filipino,
 SALES
the remaining members can be foreigners (Hulst v. PR
Builders, Inc., G.R. No. 156364, September 25, 2008).
Incidents of Condominium Grant (Sec. 6, RA 4726)
Unless otherwise provided in the enabling law or master
deed or the declaration of restrictions:
1. The boundary of the unit granted are the interior
surfaces of the perimeter walls, floors, ceilings,
windows and doors;
2. There shall pass with the unit, as an appurtenance, an
exclusive easement for the use of the air space
encompassed by the boundaries of the unit as it
exists at any particular time and as the unit may
lawfully be altered or reconstructed from time to
time;
NOTE: Such easement shall be automatically
terminated in any air space upon destruction of the
unit as to render it untenable.
3. Unless otherwise, provided, the common areas are
held in common by the holders of units, in equal
shares, one for each unit;
4. A non-exclusive easement for ingress, egress and
support through the common areas is appurtenant
to each unit and the common areas are subject to
such easements.
Rights of Condominium Owner [Sec. 6 (e)(f) (g), RA
4726]
1. Exclusive right to paint, repaint, tile, wax, paper or
otherwise refinish and decorate the inner surfaces
of the walls, ceilings, floors, windows and doors
bounding his own unit;
2. Exclusive right to mortgage, pledge or encumber his
condominium and to have the same appraised
independently of the other condominiums;
NOTE: Any obligation incurred by such
condominium owner is personal to him.
3. Absolute right to sell or dispose of his condominium.
XPN: Unless the master deed contains a
requirement that the property be first offered to the
condominium owners within a reasonable period of
time before the same is offered to outside parties.
Partition (Sec. 7, RA 4726)
GR: Common areas shall remain undivided, and there
shall be no judicial partition thereof.
XPN: Where several persons own condominiums in a
condominium project, an action may be brought by one or
more such persons for partition thereof by sale of the
entire project, as if the owners of all of the condominiums
in such project were co-owners of the entire project in the
same proportion as their interests in the common areas:
NOTE: However, a partition shall be made only upon
a showing that:
293
1. Three years after damage or destruction to the
project which renders material part thereof unit
for its use prior thereto, the project has not been
rebuilt or repaired substantially to its state prior
to its damage or destruction; or
2. Damage or destruction to the project has
rendered one-half or more of the units therein
untenable and that condominium owners
holding in aggregate more than thirty percent
interest in the common areas are opposed to
repair or restoration of the project; or
3. The project has been in existence in excess of
fifty years, that it is obsolete and uneconomic,
and that condominium owners holding in
aggregate more than fifty percent interest in the
common areas are opposed to repair or
restoration or remodeling or modernizing of the
project; or
4. The project or a material part thereof has been
condemned or expropriated and that the project
is no longer viable, or that the condominium
owners holding in aggregate more than seventy
percent interest in the common areas are
opposed to continuation of the condominium
regime after expropriation or condemnation of
a material portion thereof; or
5. The conditions for such partition by sale set
forth in the declaration of restrictions, duly
registered in accordance with the terms of the
Act, have been met.
Registration of declaration of restrictions and its
effect
The owner of a project shall, prior to the conveyance of
any condominium therein, register a declaration of
restrictions relating to such project.
Such restrictions shall constitute a lien upon each
condominium in the project, and shall insure to and bind
all condominium owners in the project.
NOTE: Such liens, unless otherwise provided, may be
enforced by any condominium owner in the project or by
the management body of such project.
---
Q: May the management body acquire and hold, for
the benefit of the condominium owners, tangible and
intangible personal property and dispose of the same
by sale or otherwise?
A: YES, unless otherwise provided for by the declaration
of restrictions.
NOTE: The beneficial interest in such personal property
shall be owned by the condominium owners in the same
proportion as their respective interests in the common
areas.
A transfer of a condominium shall transfer to the
transferee ownership of the transferor's beneficial
interest in such personal property.
Condominium Corporation
 Civil Law
A corporation specially formed for the purpose, in which
the holders of separate interest shall automatically be
members or shareholders, to the exclusion of others, in
proportion to the appurtenant interest of their respective
units in the common areas.
NOTE: As regards title to the common areas, including the
land, or the appurtenant interests in such areas, these
may be held by a condominium corporation.
Term of a condominium corporation
Co-terminus with the duration of the condominium
project, the provisions of the Corporation Law to the
contrary notwithstanding.
---
Q: May a condominium corporation sell, exchange,
lease or otherwise dispose of the common areas
owned or held by it in the condominium project?
A:
GR: During its existence, it cannot do so, especially when
the master deed contains a requirement that the property
should first be offered to the other condominium owners
within a reasonable time before offering it to third parties,
then it may not.
XPN: If authorized by the affirmative vote of a simple
majority of the register owners, subject to prior
notifications to all registered owners and only upon the
final approval of the Housing and Land Use Regulatory
Board (Sec. 2, Republic Act No. 7899).
---
Assessment as lien upon unit (Sec. 20, RA 4726)
An assessment upon any condominium made in
accordance with a duly registered declaration of
restrictions shall be an obligation of the owner thereof at
the time the assessment is made. The amount of any such
assessment plus any other charges thereon, such as
interests, cost (including attorney’s fees) and penalties, as
such as may be provided for in the declaration of
restrictions, shall be and become a lien upon the
condominium assessed when the management body
causes a notice of assessment to be registered with the
Registered of Deeds of the city or province where such
condominium project is located. Such lien shall be
superior to all other liens registered subsequent to the
registration of said notice of assessment except real
property tax liens and may be enforced in the same
manner provided for by law for the judicial or extra-
judicial foreclosure of mortgages of real property
(Rabuya, 2008).
Rule as regards enforcement of the lien
Such liens may be enforced in the same manner provided
for by law for the judicial or extra-judicial foreclosure of
mortgages of real property.
Q: Can the management body bid in the foreclosure
sale based on the lien for unpaid assessments?
294
A: GR: YES, the management body shall have power to bid
at foreclosure sale (Sec. 20, par. 3, RA 4726).
XPN: Unless otherwise provided for in the declaration of
restrictions.
NOTE: The condominium owner shall have the same right
of redemption as in cases of judicial or extra-judicial
foreclosure of mortgages.
LEASE
GENERAL PRINCIPLES
Lease
A lease is a contract where one of the parties binds himself
to give to another the enjoyment or use of a thing for a
certain price and for a period which may be definite or
indefinite but not longer than 99 years (NCC, Art. 1643).
(1997 BAR)
It is a consensual, bilateral, onerous and commutative
contract by which the owner temporarily grants the use
of his property or the rendering of some service to
another who undertakes to pay some rent, compensation
or price (Rabuya, 2017).
Essential Elements of Lease
1. Consent
a. On part of owner – nobody can force an
owner to lease out his property if he is not
willing.
b. On part of lessee
GR: No person can be compelled to become
a lessee against his will.
XPN: In industrial accession where both the
landowner and the builder, planter or
sower acted in good faith, the builder or
planter can be compelled to pay reasonable
rent if they cannot be obliged by the
landowner to buy the land because its value
is considerably more than that of the
building or trees. In case of the sower, he
can also be compelled to pay proper rent by
the landowner (NCC, Art. 448).
2. Object of subject matter
3. Rent (Rabuya, 2017)
Kinds of Lease according to subject matter
1. Lease of things – whether real or personal, involving
an obligation on the part of the lessor to deliver the
thing which is the object thereof and the correlative
right of the lessee to the peaceful and adequate
enjoyment thereof for a price certain (NCC, Art.
1654); or
2. Lease of work – which refers to a contract for a piece
of work, involving an obligation on the part of the
contractor (lessor) to execute a piece of work for the
employer (lessee) in consideration of a certain price
or compensation (NCC, Art. 1713);
 LEASE
NOTE: Duties of a contractor who furnishes work and Manio v. Gonzalez Sy Chiam, G.R. No. 26085, August 12,
and materials: 1927).
a. To deliver
b. To transfer ownership Rent under Rent Control Act
c. To warrant eviction and hidden defects
3. Lease of service – involving an obligation on the part It is the amount paid for the use or occupancy of a
of the housekeeper, laborer or employee, or common residential unit whether payment is made on a monthly
carrier to do or perform a service for the head of a or other basis (Sec. 4, RA 934, Rent Control Act).
family, or master, employer, or passenger or
shipper of goods, respectively, in consideration of Owner has the right to fix the rent because the contract is
compensation. consensual and not imposed by law, but increasing the
rent is not an absolute right of the lessor. The new rate
NOTE: Since lease is consensual and is not imposed by must be reasonable and in no case shall the lessor be
law, only the lessor has the right to fix the rents. However, allowed to increase the rental when the term has not yet
the increasing of the rent is not an absolute right on the expired, unless, the tenant consents (Paras, 2008).
part of the lessor.
Form of Lease Contract
Characteristics or Requisites for Lease of Things
GR: Lease may be made orally.
1. Consensual;
2. Principal; XPN: If the lease of real property is made for more than
3. Nominate; one year, it must be in writing, in compliance with the
4. Purpose is to allow enjoyment or use of a thing; Statute of Frauds [NCC, Art. 1403 (2)(e)].

NOTE: The person to enjoy is the lessee; the person Distinctions between ‘Lease of Things’ and ‘Other
allowing the enjoyment by another is the lessor. Contracts’

5. Subject matter must be within the commerce of man; Lease v. Sale

6. Purpose to which the thing will be devoted should
not be immoral; LEASE SALE
7. Onerous; Only the enjoyment or use Ownership is transferred.
is transferred.
NOTE: There must rent or price certain.
NOTE: In lease of things,
8. Period is Temporary; the transfer which one of
the parties obligates
NOTE: Not perpetual, hence, the longest period is 99 himself to make is not one
years. of ownership over the
thing but merely the
9. Period is either definite or indefinite; enjoyment or use thereof
 If no term is fixed, we should apply Art.1682 of (Rabuya, 2017).
NCC (for rural leases) and Art. 1687 of NCC (for Transfer is temporary. Transfer is permanent,
urban leases) unless subject to a
 If the term is fixed but indefinite , the court will resolutory condition.
fix the term under the law of obligations and
contracts; and The lessor need not be the The seller must be the
10. Lessor need not be the owner. owner. owner or at least
authorized by the owner
NOTE: A usufructuary may thus lease the premises in to transfer ownership, of
favor of a stranger, such lease to end at the time that the the thing sold at the time
usufruct itself ends. it is delivered.

Consideration of Lease The price of the subject The price of the thing is
matter is usually not usually fixed in the
The cause of a contract of lease of things must be a price mentioned, being contract.
certain generally called “rent” in money or its equivalent, immaterial.
or some other prestation which the lessee binds himself
to undertake. The important thing is that what is given by NOTE: A lease of personal property with option to buy (at
the lessee has value (De Leon, 2005). a nominal amount) (Art. 1485 of NCC) at the end of the
lease can be considered a sale (Abella v. Gonzaga, 56 Phil.
Rent 132; U.S. Com. Co. v. Halili, 49 O.G. 2281; Viuda de Jose v.
Barrueco, 67 Phil. 191)
The compensation either in money, provisions, chattels,
or labor, received by the lessor from the lessee (Tolentino Lease v. Usufruct

295
 Civil Law
LEASE USUFRUCT
Real right only in the case Always a real right.
of the lease of real
property where the lease
is registered.
The lessor may or may not The creator of the right
be the owner. must be the owner or one
duly authorized by him.
The lessor has the active The owner has the
obligation to maintain the passive duty to allow the
lessee in the enjoyment or usufructuary to enjoy or
use of the property. use the same.
The lessee generally pays The usufructuary pays the
no taxes. annual charges and taxes
on the fruits.
The lessee generally has The usufructuary is
no obligation to pay for obliged to make the
repairs. ordinary repairs needed
by the thing given in
usufruct.
The lessee cannot The usufructuary may
constitute a usufruct on lease the thing in usufruct
the property. to another.
As a rule, may be created May be created by law,
only by contract. contract, last will and
testament or
prescription.
Generally covers As a rule covers all
particular uses limited by possible uses of the
the contract. property.
Lease v. Commodatum
LEASE COMMODATUM
Onerous contract, Essentially gratuitous.
although the rent may
subsequently be
condoned or remitted.
Not essentially personal Purely personal in
in character and, character, and
therefore, the right may consequently, the death of
be transmitted to the either the bailor or the
heirs. bailee extinguishes the
contract.
Consensual contract. Real contract as it is
perfected only upon
delivery of the object
thereof.
Both contracts consist in the transmission of the
enjoyment or use of a thing to another.
Lease of Work v. Lease of Service
LEASE OF WORK LEASE OF SERVICE
296
The object is the It is the performance of
execution of a piece of some service or an
work for an employer by employer by a
an independent househelper or laborer or
contractor. for a passenger or owner
of goods by common
carrier.
In both kinds of lease, the employer or passenger or
owner of goods binds himself to pay some
remuneration or compensation in favor of the
independent contractor, employee, or common
carrier and the relation of principal and agent does
not exist between the parties.
Lease of Services v. Contract for a Piece of Work
LEASE OF SERVICES CONTRACT FOR A
(Locatio Operatum) PIECE OF WORK
(Locatio Operas)
The object of the The object of the contract
contract is the labor or is the work done (the
service itself performed result of the labor)
by the lessor. without considering the
labor that produced it.
The result is generally The result is generally
not important, hence the important; the price is not
laborer is entitled to be payable until the work is
paid even if there is completed, and said price
destruction of the work cannot be lawfully
through fortuitous demanded if the work is
event or the result destroyed before it is
intended not attained. finished and accepted.
There is a price certain (compensation);
The relation of principal and agent does not exist
between the lessor and lessee.
Lease of Services v. Agency
LEASE OF SERVICES AGENCY
The basis is It is representation.
employment.
The lessor performs a The agent executes a
material act for the juridical act for and in
benefit of his employer behalf of his principal.
without representation
of the latter.
The work or service It is presumed for a
must be for a price or compensation.
compensation.
The will of both parties The will of one is
is necessary for the sufficient.
extinguishment of the
relationship.
Only two persons are Three persons: the
involved: the lessor and principal, the agent and
lessee. the third person with
 LEASE
whom the agent has GR: Consumable goods cannot be the subject matter of a
contracted. contract of lease of things (NCC, Art. 1648, 1st part).
Reason: To use or enjoy them, they will have to be
The risk of loss before The risk is borne by the consumed. This cannot be done by the lessee since
delivery is borne by the principal since the agent ownership over them is NOT transferred to him by the
independent contractor, acts merely as his contract of lease.
esp. in the lease of work representative.
for a fixed price. XPNs: They may be leased:

In the lease of work, the The agent is not, unless he a. If they are merely to be exhibited as for display
independent contractor expressly binds himself purposes; (lease ad pompan et ostentationem);
is personally liable for or exceeds the limits of b. If they are accessory to an industrial
his contracts with third his authority. establishment (e.g. oil in an industrial firm)
persons.
In the lease of service, The agent exercises Persons Disqualified to Be Lessees
the lessor ordinarily discretionary powers.
performs only 1. Husband and wife cannot lease to each other their
ministerial duties. separate properties except:
a. If a separation of property was agreed upon in
Lease of Things v. Lease of Services the marriage settlement;
b. If there has been a judicial separation under Art.
LEASE OF THINGS LEASE OF SERVICES 135 of the Family Code; (NCC, Art. 1490)
Object of contract is a Object is some work or Reasons for the disqualification:
thing. service. 1. To prevent prejudice to creditors;
2. To prevent the stronger spouse from
Lessor has to deliver the Lessor has to perform influencing unduly the weaker spouse.
thing leased. some work or service.
NOTE: The prohibition applies even to common law
In case of breach, there In case of breach, no spouses. For otherwise said spouses would be placed
can be an action for action for specific in a better position than legitimate spouses.
specific performance. performance.
2. Persons referred to under Art. 1491 of NCC are
Compensation in lease of work or service disqualified because of fiduciary relationships.

1. When there is an agreement
The lessee must be compelled to pay the agreed price
unless it is found to be iniquitous or unreasonable in
which case the courts may fix a reasonable and just
remuneration. Where the compensation is
renounced or waived after the service has been
rendered, there is still a lease of service although it
has become gratuitous.
NOTE: While foreigners in general cannot buy rural
or urban lands, they may become lessees thereof
since the reason for the law — fiduciary relationship
— does not exist in this case (Smith, Bell and Co. v.
Reg. of Deeds, G.R. No. L-7084, October 27, 1954).
Hence, foreigners may lease land from others (NCC,
Art. 1643).

2. Where the agreement may be implied Lease of private lands by foreigners

One who performs work or service in favor of
another who impliedly consents thereto and who
benefits thereby, is entitled to compensation by
virtue of an innominate contract of facio ut des (I give
that you may do) or of the case of services tacitly
contracted in which case the courts will fix the
reasonable worth of the services rendered.
3. Where no rate or amount is fixed in the contract
The contract is nevertheless valid if the amount can
be ascertained in the light of the customs and usages
of the place, or by findings of fact on the basis of
evidence submitted in case of disagreement.
NOTE: A price certain exists when the same can be
ascertained according to the customs and usages of the
place.
Lease of Consumable Goods
a. Foreigner investing in the Philippines
Any foreigner investing in the Philippines is allowed
to lease private lands but the lease contract shall be
for a period not exceeding 50 years renewable once
for a period of not more than 25 years and the lease
area shall be used solely for the purpose of
investment upon the mutual agreement of the parties
(Sec. 4, RA 7652).
b. Foreigner not investing
Allowed to lease private lands in the Philippines but
for a maximum period of 25 years, renewable for
another 25 years upon mutual agreement of both
parties (Sec 1, PD 471).
Estoppel against lessee
A lessee is stopped from asserting title to the thing leased
as against the lessor (NCC, Art. 1436), or to deny the
lessor’s title, or to assert a better title not only in himself,
but also in some third person, including the State while he

297
 Civil Law
remains in possession of the leased property and until he
surrenders possession to the lessor (VSC Commercial
Enterprises, Inc. v. CA, G.R. No. 121159, December 16, 2002).
This estoppel applies even though the lessor had no title
at the time the relation of lessor and lessee was created. It
may be asserted not only by the original lessor, but also
by those who succeed to his title (Geminiano v. CA, G.R. No.
120303, July 24, 1996).
---
Q: Fred sold to Juan a parcel of land, belonging to his
minor son, Lino, then under his guardianship, without
judicial approval. After the sale, Juan immediately
took possession of the land, built a house and
religiously paid the taxes thereon. Nine years
thereafter, Lino, no longer a minor, rented the ground
floor of the house built by Juan. Lino paid the rent for
the first month, then stopped paying. Two years
thereafter, when pressed for payment of the accrued
rent, Lino refused, claiming ownership over the
property, alleging that the sale of the property to Juan
while he was a minor without the approval of the
guardianship court rendered the sale null and void. Is
the claim of Lino valid and meritorious? Explain.
(1987 BAR)
A: NO. Lino’s claim is not valid and not meritorious
because Lino is in estoppel. A lessee cannot assail the right
and title of the lessor and cannot claim ownership as
against the lessor. The fact that the sale was made while
Lino was a minor is of no moment because he recognized
and ratified the contract after he was already of majority
age.
---
Purpose in Recording a Lease
A lease DOES NOT have to be recorded in the Registry of
Property to be binding between the parties.
Registration is useful only for the purposes of notifying
strangers to the transaction (NCC, Art. 1648). Registration
is not essential for the validity of the contract but is
needed to make it effective regarding third persons
(Rabuya, 2017).
Proper Authority Required
If a lease is to be recorded, the following persons must
have special power of attorney to constitute the lease:
1. Husband – with respect to the paraphernal real
estate of the wife;
2. Father or guardian – with respect to the property of
the minor or the ward;
3. Manager or administrator – with respect to the
property under his administration.
NOTE: The “manager” here may be:
a. The administrator of conjugal property
(Rodriguez v. Borromeo, G.R. No. L-17772, June
9, 1922).
b. The administrator of a co-ownership (Melencio
v. Dy Tiao Lay, G.R. No. L-32047, November 1,
1930).
298
c.
The administrator of state patrimonial
property (Tipton v. Andueza, G.R. No. L-2220,
April 4, 1906).
---
Q: A husband was properly given by his wife the
authority to administer her paraphernal real
property. Does this necessarily mean that just
because the husband is now the administrator, he can
lease said property without any further authority?
A: It depends.
1. If the lease will be for one year or less, no other
authority is required.
2. If the lease on the real property will be for more than a
year, then a special power of attorney (aside from the
public instrument transferring administration) is
required (NCC, Art.1878).
3. Furthermore, whether it be a) or b), if the lease is to be
recorded, there must be a special power of attorney
(NCC, Art. 1647).
NOTE: If it is the wife who is administering her
paraphernal real property, the husband has no authority
whatsoever, to lease, in any way, or administer the
property.
---
Q: If a father, who is administering the real estate of
his minor son, wants to record the lease, should he
ask for judicial permission?
A: YES. A father who is administering the real estate of his
minor son should ask for judicial permission if he wants
to record the lease (Art. 1647). But even if no judicial
authorization is asked, such defect cannot be invoked by
a lessee who has dealt with him (Summers v. Mahinay, [CA]
40 O.G. [11th S] No. 18). Only the son or his own heirs may
question the validity of the transaction.
---
Q: Is lease a real or a personal right?
A: Generally, it is a personal right. But it partakes of the
nature of a real right if:
a. the lease of real property is for more than one
year;
b. the lease of real property is registered
regardless of duration.
NOTE: In both cases a special power of attorney
is required because these are acts of strict
dominion, and not merely of administration
[NCC, Arts. 1647 & 1878(8)].
---
Effects if the lease of real property is not registered
1. The lease is not binding on innocent third persons such
as a purchaser (Salonga, et al. v. Acuña, C.A., 54 O.G.
2943).
2. Naturally, such an innocent third person is allowed to
terminate the lease in case he buys the property from
the owner-lessor. (NCC, Art. 1676). (2009 BAR)
3. When a third person already knows of the existence
and duration of the lease, he is bound by such lease
even if it has not been recorded. The reason is simple:
 LEASE
actual knowledge is, for this purpose, equivalent to
registration (Quimson v. Suarez, G.R. No. L-21381, April
5, 1924; and Gustilo v. Maravilla, G.R. No. L-23386,
December 12, 1925).
NOTE: But if the sale is fictitious and was only
resorted to for the purpose of extinguishing the lease,
the supposed vendee cannot terminate the lease. The
sale is presumed fictitious if at that time the supposed
vendee demands the termination of the lease, the sale
is not recorded in the Registry of Property (Art. 1676,
3rd paragraph, NCC).
4. If the stranger knows of the existence of the lease, but
has been led to believe that the lease would expire
very soon, or before the new lease in favor of him
begins (when in fact this was not true), the stranger
can still be considered innocent (Quimson v. Suarez,
G.R. No. L-21381, April 5, 1924).
Rules on lease of things when lessee is an alien
1. Personal property – 99 year limit applies.
2. Aliens cannot lease public lands, and cannot acquire
private lands except through succession.
3. If lease of real property (private lands), maximum of
25 years renewable for another 25 years (PD 713).
4. Under the Investor’s Lease Act of 1995 (ILA), the 25
year period was extended to 50 years provided the
following conditions are met:
a. Lessee must make investments;
b. Lease is approved by DTI;
c. If terms are violated, DTI can terminate it.
NOTE: The ILA did not do away with P.D. 713, under ILA
the consent of DTI is required, while in P.D. 713 no
consent is required.
Right of a purchaser of a leased property
GR: Purchaser of thing leased can terminate the lease.
XPNs:
1. Lease is recorded in Registry of Property
2. There is a stipulation in the contract of sale that the
purchaser shall respect the lease;
3. Purchaser knows the existence of the lease;
4. Sale is fictitious;
5. Sale is made with a right of repurchase.
Term of lease contract
GR: The law does not allow perpetual lease. There must
be a period which may either be definite or indefinite.
When no period is fixed:
3. In case of lease of rural lands (NCC, Art. 1682)
4. In case of lease of urban lands (NCC, Art. 1687)
5. Lease during the lifetime of one of the parties
A lease of things during the lifetime of one of the
parties is valid, which is considered one for life,
ending upon the death of the party who could have
terminated the contract (Rabuya, 2017).
299
ASSIGNMENT OF LEASE (1990, 1994, 2005 BAR)
Assignment of lease by lessee
Lessee cannot assign the lease contract without the
consent of the lessor, unless there is a stipulation to the
contrary (NCC, Art. 1649).
In an assignment of lease, the personality of the lessee
(assignor/debtor) disappears. The lessee makes an
absolute transfer of his lease, involving not only his rights
but also obligations as such lessee and thus, dissociates
himself from the original contract of lease. There arises
the new juridical relation between the lessor and the
assignee who is converted into a new lessee. There is in
effect, a novation by substituting the person of the debtor
[NCC, Art. 1291 (2)] and novation cannot take place
without the consent of the creditor (NCC, Art. 1293).
Hence, the lessee cannot assign the lease without the
consent of the lessor (creditor), unless there is a
stipulation granting him that right.
Objective: to protect the lessor or owner of the leased
property. An assignment of lease without the consent of
the lessor is a ground for rescission of the lease.
SUBLEASE
It is a separate and distinct contract of lease wherein the
original lessee becomes a sublessor o a sublessee of the
thing, in whole or in part, without prejudice to his
responsibility for the performance of the contract toward
the lessor (NCC, Art. 1650).
The lessee may sublet the thing leased, in whole or in part,
unless expressly prohibited in the contract of lease (NCC,
Art. 1650).
Nature of Sublease
It is a separate and distinct contract of lease wherein the
original lessee becomes a sublessor to a sublessee.
The reason why assignment is generally prohibited while
subleasing is generally allowed is because the assignment
of the lease contract is a novation where the personality
of the lessee disappears. In sublease, on the other hand,
the lessee remains to be a party to the lease contract and
he remains liable to the lessor (Rabuya, 2017).
Right of Lessee to Sublease (1990, 1999, 2005 BAR)
Unlike in assignment, a lessee may generally sublease the
property in the absence of express prohibition because he
lessee remains a party to the lease even if he has already
created a sublease thereon. Hence, for example, he still
must pay rents to the lessor (Paras, 2008).
Note: Art. 1650 of NCC says “express prohibition.” Hence,
if the prohibition is merely implied, a sublease will still be
allowed (Susana Realty v. Fernandez, et al., CA, 54 O.G.
2206).
In sublease, the lessee remains a party to the contract.
 Civil Law
There are two leases and two distinct juridical relations:
1. Between the lessor and the lessee, and
2. Between the sublessor (lessee) and the sublessee.
The lessee is still responsible for the performance of his
obligations toward the lessor.
A judgment of eviction against the lessee affects the
sublessee even if the latter is not sued in the ejectment
case.
Reason: The sublesee can invoke no right superior to that
of the sublessor from which his own right is derived, and
the moment the sublessor is duly ousted from the
premises, the sublessee has no leg to stand on.
Parties to a Sublease
1. Lessor
2. Sublessor (original lessee in the contract of lease)
3. Sublessee
Liability of Sublessee towards Lessor (1999, 2000
BAR)
Although the sublessee is not a party to the contract of
lease, the sublessee is still directly liable to the lessor for
acts appertaining to the use and preservation of the
property. This is of course in addition to the sublessee’s
obligation to the sublessor. Note also that the liability for
rent is given in Art. 1652 of NCC (Paras, 2008).
Direct Action by the Lessor (Accion Directa)
The lessor may bring an action directly against the
sublessee if he does not use and preserve the thing leased
in accordance with the agreement between the lessor and
the lessee or with the nature of the property. It is not
necessary that the sublessor be joined as a defendant
(NCC, Art. 1651).
This is true, notwithstanding the fact that the sublessee is
not a party to the lease contract (Paras, 2008).

Juridical relationships in a sublease arrangement Subsidiary liability of sublessee to lessor (1999 BAR)

1. Principal lease 1. Remedy to collect rents from the sublessee

2. Sublease The law grants the lessor the right to demand payment
from the sublessee the rents which the sublessor failed
These relationships co-exist and are intimately related to to pay the lessor. The demand to pay rents made by the
each other but are distinct from one another (Albano, lessor on the sublessee does not exempt the latter from
2013). his obligation to pay the sublessor the rents which said
--- sublessee failed to pay the lessor.
Q: Alfonso was the owner of a building being leased to
Beatriz. The contract allowed subleasing of the Purpose: To prevent a situation where the lessee
building, thus, Beatriz subleased it to Charlie. Charlie collects rents from the sublessee but does not pay his
directly paid his rent to Alfonso after the lease rents to the lessor.
expired. Was Charlie correct?
2. Amount of rent recoverable
A: NO. There are two (2) distinct leases involved, the The liability of the sublessee is limited to the amount of
principal lease and the sublease. In such agreement, the rent due from him to the sublessor under the terms of
personality of the lessee does not pass on to or is acquired the sublease at the time of the extrajudicial demand by
by the sublessee. Thus, the payment to the lessor was not the lessor. Future rents cannot be recovered. He is
payment to the sublessor. Alfonso was a stranger to the liable to the lessor only for rents the lessee failed to pay
sublease agreement (Blas v. CA, G.R. No. 82813, December the lessor.
14, 1989).
--- NOTE: The liability of the sublessee is subsidiary.
Sublease v. Assignment (1990, 1994, 2005 BAR)
3. Liability for rents paid in advance
SUBLEASE ASSIGNMENT The sublessee continues to be subsidiarily liable to the
The lessee retains an The lessee makes an lessor for any rent unpaid by the lessee. The rule is to
interest in the lease; he absolute transfer of his avoid collusion between the lessee and the sublessee.
remains a party to the interest as lessee; thus, he
contract. dissociates himself from Warranty of the lessor
the original contract of
lease. 1. That he has a right to lease the thing;
2. That the lessee shall enjoy the legal and peaceful
The sublessee does not The assignee has a direct possession of the thing;
have any direct action action against the lessor. 3. That the thing is fit for the use for which it is intended;
against the lessor. 4. That the thing is free from any hidden fault or defect (De
Leon, 2005).
Can be done even Cannot be done unless the
without the permission lessor consents. In case of eviction of the lessee, and the return of the rents
of the lessor unless paid is required, a reduction shall be made taking into
there be an express account the period during which the lessee enjoyed the
prohibition. thing.

300
 LEASE
The lessee has also the right of proportionate reduction of
the rents agreed upon where the area or number of the
object of the lease is less than that stated in the contract
(NCC, Art. 1542).
Lessor’s warranty is distinct from his liability for
damages
Liability for the warranty is not equivalent to liability in
damages, as the latter is an obligation distinct from the
former.
The lessor’s obligation to warrant the thing leased,
whether or not he knew of the existence therein of defects
that rendered it unsuitable for the use for which the lessee
intended it, is distinct from his liability for damages,
which only attaches when he knew about such defects and
failed to reveal them to the lessee or concealed them, in
which case fraud and bad faith may be presumed on his
part (Yap Kim Chuan v. Tiaoqui, G.R. No. 10006, September
18, 1915).
RIGHTS AND OBLIGATIONS OF THE LESSOR
AND THE LESSEE
Rights and obligations arising from lease contract are
transmissible to the heirs
1. A lease contract is not essentially personal in
character.
2. The rights and obligations are transmissible to the
heirs.
3. The death of the party does not excuse nonperformance
of contract which involves a property right and the
rights and obligations pass to the successors or
representatives of the deceased.
OBLIGATIONS OF THE LESSOR
(1996, 2010 BAR)
1. Delivery of the property
The thing leased must be delivered in order that the
lessee may enjoy or use the same. Delivery may, of
course, be actual or constructive (NCC, Art. 1496, first
part).
The thing must be delivered, without delivery there
could be no lease because delivery goes to the
essence of the contract. Delivery cannot be waived.
2. Making of necessary repairs
Includes all the repairs needed, whether the damage
be caused by nature, fortuitous event or lapse of time,
but not those brought about by the fault of the lessee
himself or by his privies or his servants whether the
defect was caused prior to or after the delivery of the
object (Rabuya, 2017).
Article 1654 of NCC speaks of necessary repairs to
keep the thing leased suitable for the use to which it
has been devoted unless there is a stipulation to the
contrary. In default of a special stipulation, the
custom of the place shall be observed as to the kind
of repairs (NCC, Art. 1686). In case, the lessor fails in
301
the performance of this duty, the lessee may suspend
the payment of rent (NCC, Art. 1658) or avail himself
of the other remedies provided in the law. The lessor
is not liable for repairs for damages or deterioration
caused by the lessee himself.
NOTE: The word “repairs’’ implies the putting back
of something in the condition in which it was
originally, while an “improvement’’ is the adding of
something new thereto; hence, the filling of a vacant
lot is not a repair (Albano v. Villanueva, 7 Phil. 277
[1906]) nor the construction of a house [Valencia v.
Ayala de Roxas, 13 Phil. 45 (1909)].
3. Duty of the lessee to notify lessor (NCC, Art. 1663)
Peaceful and adequate enjoyment refers to legal, not
physical possession.” Hence, a lessor is not, for
instance, liable for physical disturbances in the
neighborhood, but is liable if the lessee is evicted due
to non-payment of taxes by the lessor (Paras, 2008).
The lessor’s obligation to maintain the lessee arises
when acts termed “legal trespass’’ disturb, dispute,
or place difficulties in the lessee’s peaceful and
adequate enjoyment of the leased premises that in
some manner or other cast doubt upon the right of
the lessor to execute the lease. The lessor must
answer for such legal trespass (Liwayway
Publications, Inc. v. Permanent Concrete Workers
Union, G.R. No. L-25003 October 23, 1981).
There is mere act of trespass when third person
claims no right whatsoever. In trespass in law, the
third person claims a legal right to enjoy the
premises (Rabuya, 2017).
NOTE: When it is merely trespass in fact, the lessor
cannot be faulted for any breach. The lessee can file a
direct action against the trespasser such as forcible
entry or illegal detainer.
4. Duty not Alter Form
The lessor has also the duty not to alter the form of
the thing leased as to impair the use of the said thing
to which it is devoted under the terms of the lease
(NCC, Art. 1661).
Rules if urgent repairs are necessary (NCC, Art. 1662)
1. If repairs last for NOT MORE THAN 40 days
Lessee is obligated to tolerate the work, although it
may be annoying to him and although during the same
time he may be deprived of a part of the premise.
2. If repairs last for 40 DAYS OR MORE
Lessee can ask for reduction of the rent in proportion
to the time (including the 1st 40 days and the part of
the property of which he is deprived).
NOTE: In either case, rescission may be availed of if
the main purpose of the lease is to provide a dwelling
place and the property becomes uninhabitable.
Effects if the lessor fails to make urgent repairs
 Civil Law
The lessee may:
1. Order repairs at the lessor’s cost;
2. Sue for damages;
3. Suspend the payment of the rent; or
4. Ask for rescission, in case of substantial damage to him
If the contract of lease is silent as to who will pay for
repair expenses
1. Major Repairs – Lessor
2. Minor Repairs – Lessee
Remedy of the lessee if the lessor fails to make major
or necessary repairs
Lessee may ask for:
1. Rescission of contract and indemnification for
damages.
2. Indemnification only, while the contract remains in
force (NCC, Art. 1659).
Effect of destruction of thing leased by fortuitous
event (1993 BAR)
Total destruction
1. The lease is extinguished if the thing is totally
destroyed.
2. The lessee cannot compel the lessor to reconstruct the
destroyed property.
3. The lessee of the lot and building which has been totally
destroyed by fortuitous event cannot be considered as
lessee of the land after the building had been totally
destroyed by the fortuitous event (Roces v. Rickards,
[C.A.] 45 O.G. [Supp.] 97).
4. While the land has not been affected, consideration
should be taken of the fact that generally the land was
leased only as an incident to the lease of the building
(Rohde Shotwell v. Manila Motors Co., Inc., G.R. No. L-
7637, December 29, 1956).
Partial Destruction
Lease is not extinguished. The lessee is given the option to
choose between a proportionate reduction of the rent and
rescission of the lease. Once the choice of the lessee has
been communicated to the lessor, the former cannot
change it (NCC, Art.1201).
If reduction of rent is chosen, the same shall be retroactive
to the date the partial destruction occurred. In case of
rescission, the general rule is that it will not be granted for
slight or trivial causes. The partial destruction, under the
circumstances, should be important or substantial as to
defeat the purpose of the lessee in entering into the
contract of lease.
NOTE: The choice is on the LESSEE and not to the lessor.
When lessee may suspend payment of rent
1. When lessor fails to undertake necessary repairs.
2. When lessor fails to maintain the lessee in peaceful
and adequate enjoyment of the property leased.
302
Effectivity of the suspension
1. In the case of repairs, from the time he made the
demand for said repairs, and the demand went
unheeded.
2. In the case of eviction, from the time the final judgment
for eviction becomes effective.
OBLIGATIONS OF THE LESSEE
Principal Obligations of the Lessee (NCC, Art. 1657)
1. Payment of agreed price of lease
The obligation of the lessee to pay the rent agreed
upon arises only when the thing leased has been
delivered to the lessee for the purposes stipulated in
the contract.
2. Proper use of the thing leased
The lessee must exercise the diligence of a good father
of a family. He must devote the thing to the use
stipulated, and if none was stipulated, to that which
may be inferred from the nature of the thing leased
according to the custom of the place.
NOTE: The use of the thing for an illegal purpose
entitles the lessor to terminate the contract.
3. Payment of expenses for deed of lease
In lease, the law imposes the obligation to pay
expenses for the deed of lease on the lessee. By
agreement, the obligation may be assumed by the
lessor.
Other Obligations of the Lessee
1. To make urgent repairs even if annoying to him (NCC,
Art. 1662, par. 1).
2. To notify the lessor of every usurpation by a third
person or persons on the property and of the urgent
repairs needed (NCC, Art. 1663).
NOTE: If the lessee fails to comply, he would be liable
for damages which the lessor would suffer and which
could have been avoided by lessee’s diligence.
3. To return the property leased upon termination of the
lease in the same condition as he received it save what
has been lost or impaired by:
- Lapse of time
- Ordinary wear and tear; or
- Inevitable cause/ fortuitous event (NCC, Art.
1665).
Responsibility for deterioration or loss of the thing
leased
GR: Presumption that the lessee is responsible for the
deterioration or loss of the thing leased unless he proves
that it took place without his fault. Such liability extends
to deterioration caused by the members of his household
and by guests and visitors.
XPN: When destruction is due to earthquake, flood, storm
or other natural calamity (Rabuya, 2017).
---
 LEASE
Q: Jude owned a building which he had leased to
several tenants. Without informing his tenants, Jude
sold the building to Ildefonso. Thereafter, the latter
notified all the tenants that he is the new owner of the
building. Ildefonso ordered the tenants to vacate the
premises within thirty (30) days from notice because
he had other plans for the building. The tenants
refused to vacate, insisting that they will only do so
when the term of their lease shall have expired. Is
Ildefonso bound to respect the lease contracts
between Jude and his tenant? Explain your answer.
(2009 BAR)
A: YES. Ildefonso must respect the lease contracts
between Jude and his tenants. While it is true that the said
lease contracts were not registered and annotated on the
title to the property, Ildefonso is still not an innocent
purchaser for value. He ought to know the existence of the
lease because the building was already occupied by the
tenants at the time he bought it. Applying the principle of
caveat emptor, he should have checked and known the
status of the occupants or their right to occupy the
building before buying it.
---
REMEDIES
Accion Directa
A direct action which the lessor may bring against a
sublessee who misuses the subleased property.
Alternative remedies of aggrieved party
1. Rescission of the contract with damages
Failure of lessor to place the lessee in possession of
the premises leased is a case of lessor’s non-
compliance with his obligation. (1999, 2001 BAR)
Restrictions to Rescission
a. Requires judicial action;
b. Can be brought only by the aggrieved party;
c. Must be substantial, not slight or minor
breach.
2. Action for damages only allowing the lease to remain
subsisting
---
Q: Under a written contract dated December 1, 1989,
Victor leased his land to Joel for a period of five (5)
years at a monthly rental of P1,000.00, to be
increased to P1,200.00 and P1,500.00 on the third
and fifth year, respectively. On January 1, 1991, Joel
subleased the land to Conrad for a period of 2 years at
a monthly rental of P1,500.00. On December 31, 1992,
Joel assigned the lease to his compadre, Ernie, who
acted on the belief that Joel was the rightful owner
and possessor of the said lot. Joel has been faithfully
paying the stipulated rentals to Victor. When Victor
learned on May 15, 1992 about the sublease and
assignment, he sued Joel, Conrad and Ernie for
rescission of the contract of lease and for damages.
1. Will the action prosper? If so, against whom?
Explain.
303
2. In case of rescission, discuss the rights and
obligations of the parties. (2005 BAR)
A:
1. YES, the action for rescission of the lease will prosper
because Joel cannot assign the lease to Ernie without
the consent of Victor. (NCC, Art. 1649) But Joel may
sublet to Conrad because there is no express
prohibition (NCC, Art. 1650; Alipio v. CA, G.R. No. 134100,
September 29, 2000).
Victor can rescind the contract of lease with Joel, and
the assignment of the lease to Ernie, on the ground of
violation of law and of contract. The sub-lease to
Conrad remained valid for 2 years from January 1,
1991, and had not yet lapsed when the action was filed
on May 15, 1992.
2. In case of rescission, the rights and obligations of the
parties should be as follows: At the time that Victor filed
suit on May 15, 1992, the assignment had not yet
lapsed. It would lapse on December 1, 1994, the very
same date that the 5-year basic lease would expire.
Since the assignment is void, Victor can get the property
back because of the violation of the lease. Both Joel and
Ernie have to surrender possession and are liable for
damages. But Conrad has not yet incurred any liability
on the sublease which still subsisted at the time of the
filing of the action on May 15, 1992.
Ernie can file a cross-claim against Joel for damages on
account of the rescission of the contract of assignment.
Conrad can file a counter-claim against Victor for
damages for lack of causes of action at the time of the
filing of the suit.
---
Q: A is the owner of a lot on which he constructed a
building in the total cost of P10, 000,000. Of that
amount B contributed P5, 000,000 provided that the
building as a whole would be leased to him (B) for a
period of ten years from January 1, 1985 to December
31, 1995 at a rental of P100,000 a year. To such
condition, A agreed. On December 20, 1990, the
building was totally burned. Soon thereafter, A’s
workers cleared the debris and started construction
of a new building. B then served notice upon A that he
would occupy the building being constructed upon
completion, for the unexpired portion of the lease
term, explaining that he had spent partly for the
construction of the building that was burned. A
rejected B’s demand. Did A do right in rejecting B’s
demand? (1993 BAR)
A: YES. A was correct in rejecting the demand of B. As a
result of the total destruction of the building by fortuitous
event, the lease was extinguished (NCC, Art. 1655).
---
Grounds for judicial ejectment under the Rental
Reform Act of 2002
1. Assignment of lease or subleasing of residential units in
whole or in part, including the acceptance of boarders
or bedspacers, without the written consent of the
lessor;
 Civil Law
2. Rental payment in arrears for 3 months; Provided, that
in case of refusal by the lessor to accept the payment of
the rent, the lessee may deposit the amount in court or
with the city or municipal treasurer, as the case may be,
or in the bank in the name of and with notice to the
lessor, within one month after the refusal of the lessor
to accept payment.
---
Q: Jane leased a truck to Ed for 2 years. After 1 year
from delivery, the truck was destroyed by a strong
typhoon. What is the effect of the destruction of the
truck with respect to the lease?
A: It depends. If the thing leased is totally destroyed by a
fortuitous event, the lease is extinguished. If the
destruction is partial, the lessee may choose between:
proportional reduction of rent or, rescission of lease (NCC,
Art. 1655).
NOTE: On the part of the lessor, instead of rescinding the
contract, he may directly file an action for ejectment
against the lessee.
If the aggrieved party has chosen the option of rescission
under Art. 1659 of NCC, the court has no discretion to
grant the non-fulfillment in an ordinary obligation under
Art. 1191 of NCC.
---
Q: What are the damages recoverable in ejectment
cases?
A: Only the rents or the fair rental value of the premises.
The following cannot be successfully claimed:
1. Profits plaintiff could have earned were it not for the
possible entry or unlawful detainer;
2. Material injury to the premises;
3. Actual, moral, or exemplary damages (Baens v. Ca,
G.R. no. L-57091, November 23, 1983).
---
When lessee may immediately terminate the lease
(NCC, Art. 1660)
1. By notice to the lessor in case the dwelling place or
building is unfit for human habitation and is
dangerous to life or health.
2. Even if at the time the contract was perfected, the lessee
KNEW of the dangerous condition or WAIVED the
right to rescind.
Reason: Public safety cannot be stipulated against.
Two Kinds of trespass with Respect to the Property
Leased
1. Mere act of trespass (disturbance in fact)
The physical enjoyment is reduced and may take
place in a case of forcible entry. The third person
claims no right whatever (Paras, 2008).
NOTE: If the leased premises are expropriated and
the tenant is evicted from the premises, the lessor is
not liable for damages. The lessee must look to the
expropriator for his compensation (Sayo v. Manila
Railroad Co., G.R. No. 17357, June 21, 1922).
304
2. Trespass in law (disturbance in law)
A third person claims a LEGAL right to enjoy the
premises. The lessor is responsible for trespass in
law (Paras, 2008).
Lessee is presumed at fault in case of loss or
deterioration of the property
This presumption is rebuttable. The burden of proof is on
the LESSEE to show that the loss or deterioration is not
due to his own fault, such as when the deterioration
resulted from lapse of time, ordinary wear and tear, or
from inevitable cause (NCC, Art. 1665).
Non-applicability of presumption when the loss or
destruction is due to:
1. Earthquake
2. Flood
3. Storm
4. Other natural calamities
Reason: It is unjust to impose upon the lessee the burden
of proving due diligence. It is more probable that in such
cases he was not negligent (Code Commission).
NOTE: Ordinarily, fire is NOT a natural calamity. But if the
tenant can prove that he had no fault in the case of fire,
and that it was impossible for him to stop its spread, he
will not be liable (Lizares v. Hernaez and Alunan, 40 Phil.
981).
Deterioration caused by others
Although the deterioration was not caused by the lessee
himself, he is still liable under the law if the deterioration
was made by his household, guests and visitors (NCC, Art.
1668). His liability is akin to civil liability in quasi-delict
(NCC, Art. 2180).
DURATION AND TERMINATION OF LEASE
When lease is supposed to end
1. When the lease was made for a DETERMINATE TIME,
the lease ends on the DAY FIXED, without need of a
demand (NCC, Art. 1669).
2. If the understanding between the parties as to the
term of the lease was vague and uncertain, it cannot
be said that a definite period was agreed upon; hence
the proper Article to apply would be Art. 1687 of NCC
(Guitarte v. Sabaco, et al., G.R. No. L-3688-91, March
28, 1960).
NOTE: Under Article 1687 of NCC, if the period for the
lease has not been fixed, it is understood to be from year
to year, if the rent agreed upon is annual; from month to
month, if it is monthly; from week to week, if the rent is
weekly; and from day to day, if the rent is to be paid daily.
---
Q: May the courts fix a different period for the lease?
A: YES. Even though a monthly rent is paid, and no period
for the lease has been set, the courts may fix a longer term
 LEASE
for the lease after the lessee has occupied the premises for
over one year. If the rent is weekly, the courts may
likewise determine a longer period after the lessee has
been in possession for over six months. In case of daily
rent, the courts may also fix a longer period after the
lessee has stayed in the place for over one month (NCC,
Art. 1687).
---
When demand is necessary as a procedural
requirement
For purposes of an action for unlawful detainer on the
ground of the lessee’s failure to pay rents or violation of
the terms of the lease, Rule 70 (Rules of Court) requires
that demand be made upon the lessee giving him 5 days
(in case of buildings) and 15 days (in case of land), within
which to pay the unpaid rentals and to vacate the
premises.
The demand to vacate must be definite and must not
provide an alternative.
The demand required under Rule 70 is only a procedural
requirement and does not, if not complied with, change
the fact that the lease contract has ended upon the
termination of the period fixed for its existence (Paras,
2008).
When demand to vacate is unnecessary
When the action is to terminate the lease, demand is not
necessary. The expiration of the term of the lease
immediately gives rise to a cause of action for unlawful
detainer in which case, demand to vacate is no longer
necessary. (Paras, 2008).
Extinguishment of Lease
1. By the expiration of the period (NCC, Art. 1673);
2. Total loss or destruction of the thing leased (NCC, Art.
1655);
3. Rescission due to non-performance of the obligations
of a party;
4. Mutual agreement to terminate the lease contract;
5. By action of the purchaser or transferee of the
property leased in good faith against the lessee
whose lease contract is not duly recorded;
6. In case the dwelling place or any other building is
unfit for human habitation and is dangerous to life or
health (NCC, Art. 1660);
7. By resolution of the right of the lessor;
8. By will of the purchaser or transferee of the thing
(Rabuya, 2017).
Extension or renewal of lease
1. Authority of Court
When the parties have stipulated on the period of the
lease, upon its expiration the Court cannot extend the
period since it has no authority to do so.
2. Lease not to be deemed extended or renewed by
implication
Where a lease contract expressly stipulates that the
lease shall not be deemed extended or renewed by
implication beyond the contractual period for any
305
cause or reason whatsoever but only by negotiations,
the mere fact that the lessee was willing to pay what
he claimed to be a reasonable rent – which was less
than that demanded by the lessor – did not operate
in any sense to extend the lease.
3. Lease extendible for a similar period
A stipulation that a lease is “extendible” for a further
similar period is to be understood as giving the lessee
the right to the additional period or to quit upon the
expiration of the first term.
4. Lease renewable at the option of both parties
A stipulation that the lease of a parcel of land will be
“renewable for another 10 years at the option of both
parties under such terms, conditions and rentals
reasonable at the time,” means that there should be
mutual agreement as to the renewal of the lease.
5. Option to renew given to lessor
If the option is given to the lessor, the lessee cannot
renew the lease against the former’s refusal. The
lease is deemed terminated.
6. Extension exclusively for the benefit of the lessor
The stipulation in a lease contract extending the lease
term beyond that originally agreed upon, in order to
save the lessor the trouble of reimbursing the lessee
in cash for the expenses incurred on the leased
premises was exclusively for the benefit of the lessor;
hence, the latter has the right to terminate the lease
upon the expiration of the original period, or at any
other time thereafter, by tendering to the lessee, or
consigning to the court, the outstanding balance of
his expenditures. The lessor should be given the
option to either reimburse the balance of the
expenditures or demand that the lessee should
account for and credit the lessor for the fruits of the
properties since the expiration of the lease against
the balance due to the lessee, turning over any excess
to the lessor.
7. Option to renew given to lessee
Where a lessee is given the option to continue or
renew the contract of lease and is silent upon the
rentals, the old terms are to be followed in the
renewed lease.
Implied New Lease or Tacita Reconduccion (1990,
1999, 2001 BAR)
Tacita Reconduccion refers to the right of the lessee to
continue enjoying the material or de facto possession of
the thing leased within a period of time fixed by law
(Rabuya, 2017).
Arises if at the end of the contract, the lessee should
continue enjoying the thing leased for at least 15 DAYS
with the acquiescence of the lessor — unless of course a
notice to the contrary had previously been given by
EITHER PARTY.
Effects of the implied new lease
1. The period of the new lease is not that stated in the
original contract, but the time in Arts. 1682 and 1687
of NCC (month to month, year to year, etc.).
2. Other terms of the original contract are revived (Paras,
2008).
 Civil Law
Terms which are revived
The original terms of the original contract which are
revived are only those which are germane to the lessee’s
right of continued enjoyment of the property leased or
related to such possession, such as the amount of rental,
the date when it must be paid, the care of the property, the
responsibility for repairs, etc.
NOTE: No such presumption may be indulged in with
respect to special agreements which by their nature are
foreign to the right of occupation or enjoyment inherent
in a contract of lease.
e.g. preferential right given to the lessee to purchase the
leased property.
Requisites for an implied renewal of lease
1. The term of the original contract of lease must have
already expired;
2. The lessee continues enjoying the thing leased for at
least 15 days;
3. The continuation of the occupation by the lessee is
with the acquiescence of the lessor; and
4. The lessor or lessee has not previously given a notice
to vacate.
NOTE: The notice required under Article 1670 is the one
given after the expiration of the lease period for the
purpose of aborting an implied renewal of lease. The
notice to vacate constitutes an express act on the part of
the lessor that he no longer consents to the continued
occupation by the lessee of the leased property
(Tagbilaran Integrated Settlers Assoc. v. CA, G.R. No.
148562, November 25, 2004).
Instances when implied renewal NOT applicable
1. Stipulation against implied renewal.
2. Invalidity of original lease.
3. Acceptance of rentals beyond original term.
4. Acceptance of rentals less than amounts stipulated.
5. Non-payment of rentals.
Rule if lessor objects to lessee’s continued possession
Note that under Art. 1671 of NCC, there are three
requisites:
1. The contract has expired;
2. The lessee continues enjoying the thing;
3. The lessor has objected to this enjoyment.
If the three requisites are present, the lessee shall be
considered a possessor in BAD FAITH.
If the lessee still makes a construction after he has become
a possessor in bad faith, he may be compelled:
1. To forfeit the construction without indemnity; or
2. To buy the land regardless of whether or not its value
is considerably more than the value of the
construction; or
3. To demolish the construction at his expense.
306
NOTE: In any of the 3 cases hereinabove referred to, he
will still be subject to the payment of damages (Arts. 449-
451 of NCC).
Judicial Grounds for Ejectment of Lessees (1994, 2004
BAR) (ENVI)
1. Expiration of period of the lease
The period of the lease contract may be:
a. Conventional – when the period is by agreement of
the parties;
b. Legal – when the period is fixed by law under Arts.
1682 and 1687 of NCC;
GR: Upon the expiration of the period, the lease
contract is terminated. If a determinate time was
stipulated, the lease ceases without need of a demand
(NCC, Art. 1669).
XPN: In case of implied new lease. After termination of
the lease, the lessor is free to dispose of the property in
favor of another lessee. The payment of all rents then
due will be immaterial. As long as the period has
expired, the lessee can be ejected.
2. Non-payment of the rentals agreed upon
One of the principal obligations of the lessee is to pay
the rentals agreed upon (NCC, Art. 1657 par. 1). It is the
cause or consideration for the use and enjoyment of
the property leased. Non-payment of the rentals after
a demand therefor is a justifiable ground for the lessor
to rescind the contract and eject the lessee.
3. Violation of any condition
Any violation of the terms and conditions of a contract
of lease, whether it is essential or accidental in nature,
will constitute a violation of the lease contract and will
justify the filing of an ejectment case against the
lessee.
The theory that a lease could continue for an indefinite
term as long as the lessee pays the rentals had already
been rejected by the SC because the validity or
compliance of contracts cannot be left to the will of
one of the parties (NCC, Art. 1308).
Where the contract of lease prohibits the lessee from
introducing improvements and making repairs and
the lessee did so, he violated this condition. This
violation is a basis for ejectment.
4. Improper use or enjoyment of the property leased
The lessee is obliged to use the thing leased as a
diligent good father of a family. If due to improper use
of the property, the same is lost, destroyed or
deteriorated, the lessor may immediately file a suit for
restitution or ejectment. He need not wait for the
expiration of the period of the lease.
Preliminary mandatory injunction to restore
possession pending appeal (NCC, Art. 1674)
 LEASE
The LESSOR is entitled to a writ of preliminary injunction
to restore him in his possession in case the higher court is
satisfied that the lessee’s appeal is frivolous or dilatory
(i.e., without merit) or the lessor’s appeal is prima facie
meritorious.
Reason: The remedy is intended “to put an end to the
present state of the law which unjustly allows the lessee
to continue in possession during an appeal’’ (Report of the
Code Commission).
Use by lessee of legal period
The lessee is entitled to periods agreed upon in the lease
contract (conventional) or those established in Articles
1682 and 1687 of NCC (implied new lease).
However, these rights are restricted if there are grounds
or causes for the ejectment of the lessee under Art. 1673
of NCC. To enjoy peace, the lessee must be faithful to his
obligations as such.
When the lessee is guilty of a cause of ejectment under Art.
1673 of NCC, he is also deprived of the right to enjoy the
period of grace under Art. 1687 of NCC.
Effect of Sale of Leased Property on the Lease Contract
1. The purchaser shall respect the lease in the following
situations:
a. When the lease is registered with the proper
Register of Deeds.
b. When the deed of sale provides for the recognition
and respect of the lease by the purchaser until
termination of the period.
c. When the purchaser has actual knowledge of the
existence of the lease.
d. The lease cannot also be terminated by the
purchaser in a fictitious sale and by the purchaser
in a sale with pacto de retro until the expiration of
the period to redeem. Only a purchaser in good
faith of the leased property is granted protection
by the law.
2. In any other case, the purchaser is not obliged to
respect the lease contract. He has the option to
continue or discontinue the lease.
The sale of a leased property places the vendee into
the shoes of the original lessor to whom the lessee
bound himself to pay.
Right of lessee if new owner terminates the
unrecorded lease
The lessee may demand that he be allowed to gather the
fruits of the harvest which corresponds to the current
agricultural year and that the vendor indemnify him for
damages suffered [NCC, Art. 1676 (2)].
Fictitious sale of leased property
1. If at the time the supposed buyer demands the
termination of the lease, the deed of sale is not yet
307
registered in the appropriate Registry of Property
[NCC, Art. 1676 (3)].
2. If it is a simulated sale intended merely to extinguish
the existing lease. In the eyes of the law, it does not
exist (NCC, Art. 1409).
Effect: The false “vendee” cannot terminate the lease
even if the same is unrecorded.
Reason: To discourage the practice which has developed
in recent years of fictitiously selling the premises in order
to oust the lessee before the termination of the lease (Code
Commission).
Rights of the lessee who introduced improvements
(1990, 1996 BAR)
Introduction of valuable improvement on the leased
premises does not give the lessee the right of retention
and reimbursement which rightfully belongs to the
builder in good faith. Otherwise, such a situation would
allow the lessee to easily “improve” the lessor out of its
property (Rabuya, 2017).
The lessor shall pay the lessee one-half of the value of the
improvements computed at the time of the termination of
the lease if the following conditions are fulfilled:
1. That the lessee should have made the useful
improvements in good faith;
2. The improvements are suitable to the purpose or
use for which the lease is intended;
3. That the form and substance of the thing leased are
not altered or modified.
These requisites will prevent the lessee from making such
valuable improvements that the lessor may never recover
the property leased. It is the lessor who has the option to
appropriate the useful improvements and reimburse the
lessee therefor. It is discretionary with the lessor to retain
the useful improvements by paying one-half of their
value. The lessee cannot compel the lessor to appropriate
and reimburse him for the improvements.
A lessee who builds on the property leased is not a
possessor in good faith, thus, he has no right of retention
until reimbursed for the value of the improvement.
The lessor and lessee may stipulate that all improvements
introduced by the lessee shall pertain to the lessor.
However, if the value of the improvement is considerably
more than the value of the leased premises, merely
creating prejudice to the lessee instead of enforcing the
contract literally, Art. 1678 of the Civil Code may be
applied.
Ornamental Expenses
Expenses incurred which cater only to the personal
comfort, convenience or enjoyment of a person.
The lessee has no right of reimbursement for ornamental
expenses. He may remove them provided he does not
cause any damage to the thing leased. The lessor, if he so
 Civil Law
desires, may retain them after paying their value to the
lessee at the time the lease is extinguished.
SPECIAL RULES FOR LEASE OF RURAL LANDS
RURAL LANDS (NCC, Art 1680)
Having in view the legislative objective, the word “rural’’
has been defined as relating to or constituting tenement
in land adopted and used for agricultural or pastoral
purposes. It is one which, regardless of site, is principally
used for the purpose of obtaining products from the soil
as opposed to urban lands, which are principally for the
purpose of residence (Fabia v. Intermediate Appellate
Court, G.R. No. L-66101, November 21, 1984; De Leon,
2012).
---
Q: How may tenancy relationship be established?
A: By either verbally or in writing, expressly or impliedly.
Once such relationship is established, the tenant shall be
entitled to security of tenure.
---
Effect of sterility of land in case of rural lease
There is no reduction of rent.
Reason: The fertility or sterility of the land has already
been considered in the fixing of the rent.
Effect of loss due to a fortuitous event
1. Ordinary fortuitous event – No reduction. The lessee
being the owner of crops must bear the loss.
2. Extraordinary fortuitous event
a. If more than ½ of the fruits were lost, there is a
reduction (XPN: specific stipulation to the contrary)
b. If exactly ½ or less, there is no reduction.
NOTE: The rent must be reduced proportionately.
Fortuitous event
It is not enough that the event be an extraordinary one. It
should also be one that could not have been reasonably
foreseen (Cuyugan v. Dizon, G.R. No. L-208, August 29,
1947).
A reduction of rent applies only to leases of RURAL
LANDS
In all other cases, the rule is that a person must perform
his obligation, and unless performance is impossible
because of a fortuitous event, the law, or the act of other
party.
Rule for reduction of rent
The reduction of rent can be availed of only if the loss
occurs before the crops are separated from their stalk,
root, or trunk. If the loss is afterwards, there is no
reduction of rent.
308
The lessee is entitled to reduction of rent if the following
requisites are present:
1. The land leased is rural;
2. More than one-half of the fruits have been lost;
3. The loss occurred through extraordinary and
unforeseen fortuitous event; and
4. There is no specific stipulation that the lessee is
nevertheless not entitled to reduction.
Percentage of reduction
Article 1680 of NCC does not determine the percentage of
reduction of the rental to which the lessee becomes
entitled.
It is logical that the rent stipulated be reduced in the same
ratio that the actual receipts bear to the normal income
obtainable from the land leased. The rent must be reduced
proportionately (De Leon, 2005).
Duration of rural lease with an unspecified duration
The lease of a piece of rural land, when its duration has
not been fixed, is understood to have been for all the time
necessary for the gathering of the fruits which the whole
estate leased may yield in one year, or which it may yield
once, although two or more years have to elapse for the
purpose (NCC, Art. 1682).
---
Q: A rural lease was agreed upon to last for a certain
definite period. But the tenant planted fruit trees
which would require a long period of time to bear
fruit, as well as introduce certain more or less
valuable improvements. Has this act of the tenant
changed the duration of the contract?
A: NO, the duration of the lease has not been changed.
There was a fixed period for the lease and therefore the
nature of the fruit trees or valuable improvements is
immaterial (Iturralde v. Garduno, G.R. No. L-2997, January
16, 1908).
NOTE: If there is no stipulation to the contrary, pending
crops at the end of the lease belong to the lessee.
---
Rule for land tenancy on shares
This refers to the contracts of aparceria. Land tenancy on
shares are primarily governed by special laws (e.g.
Agricultural Tenancy Act, RA 1199), and suppletorily, by
the stipulations of the parties, the provisions on
partnership, and the customs of the place.
Special laws on land tenancy
Agricultural tenancy is classified into:
1. Share tenancy - where the produce is divided between
the landholder and the tenant in proportion to their
respective contributions; and
2. Leasehold tenancy - where rent is paid by the tenant
either in percentage of the production or a fixed amount
in money, or both.
 LEASE
NOTE: Agricultural share tenancy has been abolished. It
is declared contrary to public policy and shall be
automatically converted to agricultural leasehold (Sec. 4,
RA 6389) (De Leon, 2005).
Tenant
Rule on the ejectment of tenant
The tenant shall not be dispossessed of his holdings by the
landholder except for any of the causes hereinafter
enumerated and only after the same has been proved
before and the dispossession is authorized by the court.

A person, who, himself, and with the aid available from
within his immediate farm household, cultivates the land
belonging to, or possessed by another, with the latter’s
consent for purpose of production, sharing the produce
with the landholder under the share tenancy system, or
paying to the landlord a price certain or ascertainable in
produce, or in money or both, under the leasehold tenancy
system (Pangilinan v. Alvendia, G.R. No. L-10690, June 28,
1957).
Immediate farm household
This includes the members of the family of the tenant, and
such other person/s, whether related to the tenant or not,
who are dependent upon him for support, and who
usually help him operate the farm enterprise.
---
Q: Can a tenant work for different landowners?
A: It is prohibited for a tenant, whose holding is 5 hectares
or more, to contract work at the same time on two or more
separate holdings belonging to different landholders
without the knowledge and consent of the landholder
with whom he had first entered into the tenancy
relationship (Sec. 24, RA 1199).
---
Grounds for ejectment of the tenant on shares
It shall likewise be unlawful for any third party to
dispossess the tenant of his holding except by order of the
Court (Sec. 49, RA 1199, as amended by RA 2263).
Effect of expiration of the period of tenancy
Expiration of the period of the contract of tenancy fixed
by the parties does not extinguish the relationship. The
landlord is required by law, if the tenant does not
voluntarily abandon the land or turn it over to him, to ask
the court for an order of dispossession of the tenant (Sec.
49, RA 1199, as amended by RA 2263).
Extinguishment of the tenancy relationship due to
death
1. Death of tenant – Extinguishes relationship but
heirs and members of his immediate farm household
may continue to work on the land until the close of
the agricultural year.
2. Death of landholder – Does not extinguish the
relationship because his heirs shall assume his rights
and obligation.
SPECIAL RULES FOR LEASE OF URBAN LANDS

1. Voluntary surrender of the land; URBAN LANDS

2. Bona fide intention of the landholders to cultivate the
land himself personally or thru the employment of Lands leased principally for purposes of residence.
farm machineries;
3. Tenant violates or fails to comply with the terms and Repairs for which urban lessor is liable
conditions of the contract or the RA 1199;
4. Failure to pay the agreed rental or deliver the 1. Special stipulation;
landholder’s share
2. If none, custom of the place.
XPN: when cause by fortuitous event or force
majeure;
NOTE: In case of doubt, the repairs are chargeable against
5. Tenant uses the land for different purpose;
the lessor (NCC, Art. 1686).
6. Share-tenant fails to follow farm practices which will
contribute towards the proper care and increased
While it is the duty of the lessor to make on the property
production;
leased all repairs necessary in order to keep it in
7. Negligence permits serious injury to land which will
serviceable condition for the purpose for which it was
impair its productive capacity;
intended, the parties are at liberty to stipulate the
8. Conviction by a competent court of a tenant or any
contrary, in which case, the lessor is relieved of that duty.
member of his immediate family or farm household
[Gonzales vs. Mateo, 74 Phil. 373 (1942)]. The right to
of a crime against the landholder or a member of his
repair may be waived by the lessee or he may assume the
immediate family (Paras, 2008).
duty to repair (De Leon, 2010).
Sale or alienation of the land subject to tenancy
Lease duration (NCC, Art. 1687)
It does not extinguish the tenancy relationship. The
Application: Article 1687 of NCC is based on the
purchaser or transferee shall assume the rights and
presumed intention of the parties. It does not apply where
obligations of the former landholder in relation to the
there is a fixed period, whether such period is definite or
tenant.
indefinite.
In case of death of the landholder, his heir or heirs shall
likewise assume his rights and obligations.

309
 Civil Law
It contemplates a situation where neither of the parties c. Rent is paid monthly- month to month
being at fault, the lessor decided to terminate the contract d. Rent is paid yearly- year to year
of lease.
PARTNERSHIP
Some Jurisprudence on lease duration

1. A lease contract on a month-to-month basis is a lease CONTRACT OF PARTNERSHIP

with a definite period; it expires at the end of each month
without the need of a demand. [Sy Yong Gim vs. Sia Song
Partnership
Peck (C.A.) 50 O.G. 1180]. A previous demand by the lessor
to vacate can justify ejectment [Junson vs. Martinez, 405
It is a contract whereby two or more persons bind
SCRA 390 (2003)]. The lease is terminable at the end of
themselves to contribute money, property, or industry to
each month upon demand to vacate by the lessor.
a common fund, with the intention of dividing the profits
among themselves (NCC, Art. 1767).
2. A lease stipulating that the lessee will vacate as soon as
the lessor needed the premises, fixes a period (Lim vs.
NOTE: Two or more persons may also form a partnership
Legarda Vda. De Prieto, 53 O.G. 7678). If it is shown that
for the exercise of a profession (NCC, Art. 1767).
the lessor needs the property, the lease is considered
terminated as of the end of the month after proper notice
Essential elements of Partnership
or demand to vacate is given. (Junson vs. Martinez, supra.)
4. Agreement to contribute money, property or
3. Article 1687 of NCC finds no application in the case of a
industry to a common fund (mutual contribution to a
lease contract with a period subject to a resolutory
common stock); and
condition, i.e., “the lease period x x x shall continue for an
5. Intention to divide the profits among the contracting
indefinite period provided the lessee is up-to-date in the
parties (joint interest in the profits) (Evangelista v.
payment of his monthly rentals.’’ [Jespayo Realty Corp. vs.
Collector of Internal Revenue, G.R. No. L-9996, October
Court of Appeals, 390 SCRA 27 (2002)].
15, 1987).
4. The lessor is within his right to increase the rental each
Characteristics of Partnership
period (year, month, or day, as the case may be) subject to
existing laws; and the lessee is similarly within his right
1. Bilateral – it is entered into by two or more persons
to refuse to acquiesce. Upon this refusal, the contract of
and the rights and obligations arising therefrom are
lease between the parties is terminated. The lessor thus
always reciprocal;
has the right to demand that the lessee vacate the leased
2. Onerous – each of the parties aspires to procure for
property [Chua vs. Victorio, 428 SCRA 447, (2004)].
himself a benefit through the giving of something;
3. Nominate – it has a special name or designation in
2 Distinct Provisions in Art. 1687 of NCC
our law;
4. Consensual – perfected by mere consent, upon the
1. If the contract has no fixed duration, the law fixes the
express or implied agreement of two or more
term according as the parties have agreed to pay the
persons;
rentals annually, monthly, weekly, or daily; and
5. Commutative – the undertaking of each of the
partners is considered as the equivalent of that of the
2. Even if the parties have agreed as to the periodical
others;
payment of rentals, the law empowers the courts,
6. Principal – it does not depend for its existence or
nevertheless, to exercise their discretion in fixing the
validity upon some other contracts;
term, if the lessee has stayed in the premises for a certain
7. Preparatory – because it is entered into as a means to
length of time. It should be noted that the second portion
an end, i.e. to engage in business or specific venture
gives the court discretion and does not compel it to fix the
for the realization of profits with the view of dividing
duration of the contract.
them among the contracting parties; and
8. Profit-oriented (NCC, Art. 1770).
NOTE: The court is authorized to fix a longer term if the
lessee who is not at fault has been in occupation of the
Typical incidents of Partnership
premises for a certain period and the lessor decided to
terminate the lease. It may, however, legally refuse to do
1. The partners share in profits and losses (NCC, Arts.
so, if the circumstances surrounding the case warrants
1767, 1797-98);
such action (De Leon, 2005).
2. The partnership has a juridical personality separate
and distinct from that of each of the partners. Such
Summary of rules:
juridical personality shall be automatically acquired
despite the failure to register in the SEC (NCC, Art.
1. If there is a fixed period, lease will be for said period.
1768);
3. Partners have equal rights in the management and
2. If no fixed period, apply the following rules:
conduct of the partnership business (NCC, Art. 1803);
4. Every partner is an agent of the partnership, and
a. Rent is paid daily- day to day
entitled to bind the other partners by his acts, for the
b. Rent is paid weekly- week to week

310