1ST MEETING TRANSCRIPTION
buyer or the vendee.
Part 1 - Coolest Meg
And one of that is specially addressed or provided
for in the Civil Code is Sale. We have special
provisions on the Law on Sales.
You still recall your definition of a contract? But
what is a sale? According to 1458, one of the
contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing,
and the other to pay therefor a price certain in
money or its equivalent.
By the definition of sale, we already know the
obligations created by the contract. By the way,
going back to the definition, *went back to previous
slide* the first party here who obligates himself to
transfer the ownership of and to deliver a
determinate thing is called a seller or the vendor.
The second party who obligates to pay a price
certain in money or its equivalent is called the
*back to current slide
Obligations created by the contract of sale on the
part of the seller are 2, to transfer the ownership
and to deliver the determinate thing subject of a
contract. On the other hand, the obligation of the
buyer generally, because there are other
obligations, these are the main obligations, for the
buyer to pay the price.
Since a contract of sale, rather, since sale is a
contract, then necessarily all the essential
elements of a contract must be present. And you
have just learned the essential elements of a
contract - consent, subject matter, consideration.
And you can still recall the definition of consent
and you know the effect of a counter-offer because
you know that for there to be consent, the offer
must be absolutely accepted. So if there is a
counter-offer, there can be no meeting of the
minds, so there can be no consent. Like what
happened in Manila Metal Container Corporation
vs PNB, because Manila Metal here offered to
repurchase the property that was the subject of a
foreclosure by the PNB. So, Manila Metal obtained
a loan from the PNB, the loan was secured by a
mortgage, it failed to pay the loan so PNB
foreclosed the mortgage, PNB was the highest
bidder in the foreclosure sale, and now Manila
Metal wishes to repurchase the property. But the
price offered by Manila Metal was not acceptable
to PNB, and there was an offer, counter-offer,
counter-offer, counter-offer, counter-offer, it lasted
for more than 10 years. From a value of, an initial
offer of less than 2M pesos, because of the period
that lapsed, it came to a point that the value of the
property reached 30M already. But was there a
meeting of the minds because Manila Metal was
insisting that the contract of sale or deed of sale
should be executed in his favor because it has
already deposited the amount for the repurchase.
The court said no, because a qualified acceptance
or one that involves a new proposal constitutes a
counter-offer and a rejection of the original offer.
Consequently, when something is desired, which is
exactly what is proposed in the offer, such
acceptance is not sufficient to guarantee consent
because any modification or variation from the
terms of the offer annuls the offer. The acceptance
must be identical in all respects with that of the
offer so as to produce consent or meeting of the
minds.
Oh by the way I have to warn you that we will not
be deep diving into the law on sales, because
again we only have 3 weeks, 3 meetings to finish.
So my only expectation is for you to have at least a
working knowledge on the law on sales.
The second essential element is subject matter,
and going back to the definition, a subject matter is
a determinate thing. But is it really limited just to
a determinate thing? Can a generic thing be the
object of sale? Yes, most definitely! What is the
test? 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. So even if the object is
generic, the performance of the seller’s obligation
meaning delivery and transfer of ownership
necessitate physical segregation or particular
designation of the thing or the generic things,
making the subject determinate.
And then you have the third essential element of a
contract which must also be present in a contract
of sale which is consideration, in sale we call this
the price. It is not enough that the parties agree on
the amount of the price, it is also equally important,
this is part on the agreement of the price, for the
parties to agree on the manner of the payment of
the price.
What happened in Toyota Shaw vs CA? Actually
there was no clear, there can be no contract of
sale that can be gleaned from a document which
was dominated as an agreement between Mr
Sosa, the buyer, and Popong Bernardo of Toyota.
There were 3 items listed in the agreement, (1) all
necessary documents will be submitted to Toyota
Shaw a week after upon arrival of Mr Sosa from
Marinduque, (2) 100,000 will be paid by Mr Sosa
and (3) Toyota Shaw Inc will the light, the Toyota
light ace yellow pick-up under lease by Toyota
Shaw on a particular date. There is no statement
here of how the balance of the purchase price will
be paid. Maybe there know already what the price
was, but how the balance of the purchase price will
be paid is not indicated. The court said, the
provision on the down payment of 100,000 made
no specific reference to a sale, it could only refer to
a sale on installment basis. As the BSP executed
the following confirmed, but nothing was
mentioned about the full purchase price and
manner of installments, where to be paid. This
court had already ruled that a definite manner of
payment of the price is an essential element in the
formation of a binding and enforceable contract of
sale. So again, it is not enough that the parties
agree on amount of the price, but they must also
agree on the manner of the payment of price.
If all the elements are present, you know the effect,
there’s a contract. If any of the elements is absent,
there is no contract, we don’t even talk about a
void contract, there is no contract PERIOD. But if
there is a defect in one of the elements, or there is
illegality in one of the elements, then there is a
contract but the contract is void.
What are the characteristics of Sale? First is it
is a consensual contract. Again, going back to
the definition, by the contract of sale one of the
parties obligates himself to transfer and to deliver a
determinate thing, and the other to pay a price.
The definition does not say that by the contract of
sale one of the parties delivers and transfer
ownership and the other pays a price certain in
money or its equivalent. No, the contract is
perfected the moment they agree that one will
deliver and transfer ownership and the other
will pay the price. If they agree on the delivery
and transfer of ownership of a thing, and the
payment of the price, contract of sale is
perfected.
And what if there was previous transfer of
possession? Delivery here refers to transfer of
possession, not delivery transfer of ownership. But
they have not agreed on the price and the manner
of the payment of the price, can there be a contract
of sale that is perfected? No, because again an
essential element is lacking or is absent.
Another characteristic of sale is it is a bilateral
contract, meaning both parties are bound to
reciprocal prestations. The legal effects are first,
the power to rescind is implied, neither party
incurs delay if the other party does not comply, and
the moment one of the parties fulfills their
obligation, the default by the other begins. This is
on the presumption of the simultaneity in the
performance of the contract, because if they agree
that one of the parties will fulfill his or her obligation
at some future time, then fulfillment by one party
does not necessarily result in the default of the
other party.
What are the other characteristics? It is onerous
because it impose a valuable consideration as
prestation.
It is nominate, there is a specific name given to
it by law. I promise to deliver to you, for example,
an iPhone 14 Pro Max and you'd promise to deliver
to me also an iPhone 13 Pro Max, and we agree
that it is a contract of sale. Is it a sale? No!
Because in a contract of sale one party obligates
to deliver and to transfer a determinate thing and
for the other to pay a price certain in money or its
equivalent.
Another example, I deliver to you an Iphone 14 Pro
Max, your obligation is to return that same phone
after 2 months or after a week, you deliver to me
the very same phone/cellphone that I have
delivered to you, and then we agree that it is a
contract of sale. Is it really a contract of sale? Of
course not! We go again to the definition of sale,
only when one of the parties obligates himself to
deliver and to transfer the ownership of a
determinate thing and the other to pay a price
certain in money that you call a contract a sale.
The next characteristic is that it is a principal
contract, and you know what a principal contract
is. So a sale does not depend on another
contract for its existence. The parties in a
contract of sale enter into the contract to
achieve within its essence the objections of the
transaction and not just in preparation to enter
into another contract.
It is commutative because the fulfillment is
predetermined in advance.
Lastly, perfection of a contract of sale does not
transfer ownership of the thing to the buyer. It
is the delivery of the thing that transfers
ownership. Sale is merely a title that creates the
obligation to transfer ownership and deliver
possession to the buyer. Again, sale does not
transfer ownership, it is the delivery that transfers
ownership. Delivery is the mode, the legal
means by which ownership is transferred to
the buyer.
Are we good so far? We still have quite a lot of
slides to go but anyway we have until 12 o'clock to
finish the subject matter and we will finish before
12. (Nice ka judge)
Let’s compare sale with other contracts. Sale
against Agency to sell. What is the essence of an
agency to sell? The delivery of the thing to the
agent does not transfer ownership to him or to
her. What is the essence of sale? Delivery to
the buyer transfers ownership. So if delivery to
the agent does not transfer ownership to him, or
her, or them or it, if the agent consummates a sale
and receives the price from the buyer, the agent
does not become the owner of the price. The agent
must account for the price and deliver this to the
principal. If the agent fails to account for the price
received, or fails to return the thing if it is not sold,
then the agent may be held criminally liable for
misappropriation. If the buyer fails to pay the
price, there is no criminal liability, only civil
liability.
Now in Quiroga vs Parsons Hardware, Mr Quiroga
here manufactured Quiroga Beds and entered into
a contract with Mr Parsons, who owned Parsons
Hardware. They had a contract for the exclusive
sale of Quiroga Beds and some of provisions are
that Parsons shallorder the beds by the dozen, he
is entitled to a 25% commission, and he bound
himself to pay Mr Quiroga for the beds received,
TAKE NOTE, he bound himself to pay for the beds
received within 60 days from the date of shipment.
And then Mr Parsons (i honestly think she meant
Mr Quiroga) filed a case against Parsons
Hardware owned by Mr Parsons for breach of the
contract of agency. He claimed that their contract
is a contract of agency, and that Parsons
committed a breach and listed the act in breach,
allegedly in breach of that contract. Now, to hold
Mr Parsons liable for breach of the contract of
agency, the court had to determine what kind of
contract really was entered between the parties.
What is a contract of agency or agency to sell? Or
what is a contract of sale? If you look at the
provision or stipulation for a 25% commission on
sales, then we will think taken, if take that alone,
we would think that the contract is the contract of
agency. But there is another stipulation, Mr
Parsons was required or obliged to pay the price
within 60 days from the date of shipment, meaning
regardless of whether or not the beds were sold,
Mr Parsons had to pay for the beds received. The
court said the contract was a contract of sale not
an agency to sell. With respect to the commission,
the court said the commission simply means a
discount on the invoice price. The word agency
only expresses that Parsons was the only one that
could sell Quiroga’s Beds in the Visayas. But the
court said in the contract in question, what was
essential as constituting its cause on subject
matter is that Quiroga was to furnish Parsons with
the beds which Parsons might order at the price
stipulated and that Parsons was to pay the price in
the manner stipulated. These are precisely the
essential features of a contract of purchase and
sale. So since the court has determined that the
contract was a contract of sale, and the contract of
agency to sell then there was no breach committed
by Parsons.
Now how does sale differ from the contract for a
piece of work? If we are the customer, we order a
particular furniture from, for example there is a
manufacturer here near where I live in Mandaue,
so a particular piece of furniture. If we are the
customer, we are satisfied with what was
fabricated and delivered to us and we pay the
price. Do we concern ourselves with whether the
contract is contract of sale or contract for a piece
of work? No! As long as we are satisfied, we’re
okay.
But there are certain instances when we have to
determine whether the contract is a contract of
sale or contract for a piece of work, as discussed
in Del Monte Philippines v Aragones. Del Monte
entered into a contract with MEGA-WAFF for the
installation of modular pavements in Del Monte’s
warehouse in Cagayan de Oro. And these
pavements were very specific, these have to be,
these have to consist of S-shaped concrete blocks.
So what MEGA-WAFF did was enter into a supply
agreement with Dynablock, which is owned by Atty
Aragones. Atty Aragones, the owner of Dynablock,
was not in the business of fabricating these
specially shaped concrete blocks. In fact, they still
had to fabricate the molds and the machines for
the fabrication of the blocks. Now, MEGA-WAFF
failed, there was a disagreement because one
party was claiming that the other party was in
default. And so MEGA-WAFF failed to pay the full
consideration under the supply agreement to
Aragones. What Aragones did was to write to Del
Monte, take note that the contract for the supply of
the S-shaped concrete blocks was between
MEGA-WAFF and Aragones. Del Monte and
Aragones had no privity of contract, Del Monte
may not even know who Aragones is. What
Aragones wrote to Del Monte requesting Del
Monte to hold any payment to MEGA-WAFF
because he has a claim against MEGA-WAFF
which was not paid yet and which MEGA-WAFF
refuse to pay. Despite that letter sent by Aragones
to Del Monte, Del Monte still paid MEGA-WAFF,
fully paid MEGA-WAFF. So what Aragones did was
to file a case, collection case, against
MEGA-WAFF and Del Monte. So the court
determined what was the contract between
MEGA-WAFF and Dynoblock owned by Aragones,
was it a contract of sale? Or was it a contract for a
piece of work? The court said the supply
agreement is replete with specifications, terms or
conditions, showing that it was one for a piece of
work. There can be no gain saying that the
specifications or conditions in the supply
agreement and the admitted consequent directive
of Garcia, Garcia represents MEGA-WAFF, for
Aragones to fabricate machines for casting
S-shaped instead of Hexagon-shaped blocks show
that the concrete blocks were manufactured
specifically for and upon the special order of
Garcia, Garcia again represents MEGA-WAFF.
Therefore, invoking Article 1729 of the Civil Code,
the court held Del Monte liable. What does 1729
say? Those who put their labor upon or furnish
materials for a piece of work undertaken by the
contractor have an action against the owner up
to the amount owing from the latter to the
contractor at the time the claim is made. So
here, even if Del Monte has already fully-paid its
obligation under his contract with MEGA-WAFF,
because of its bad faith, it was already previously
notified by Aragones that Aragones has a claim
against MEGA-WAFF and yet it still paid
MEGA-WAFF, Del Monte was held liable and was
made to pay Aragones. I want you to take note and
remember this particular provision because many
lawyers have forgotten this particular provision.
Now this is especially important when you
represent a subcontractor, and that subcontractor
cannot claim from the contractor. You have to
determine the kind of contract you have, is a
contract for a piece of work, you have a cause of
action against the owner.
Now what about Barter? Why do we need to know
whether a contract is a contract of sale or a barter?
Because the statute of frauds apply to sale of real
property and personal property at the price of 500
pesos or more, you discussed that in Oblicon and
there is what you call a right of legal redemption,
which is one of the last topics that we’ll be taking
up 2 weeks from now. There is a right of legal
redemption accorded to an adjoining owner of
an urban land. So if a piece of urban land is
sold, but there are certain conditions not any
piece of urban land is subject to legal
redemption by the adjoining owner. So if a
piece of urban land is resold by the owner who
acquired it only for speculation purposes, the
adjoining owner can exercise right of
preemption or right of redemption, that is not
available in case of barter. So if the property is
delivered in exchange for another property,
there is a right of legal redemption.
What about donation sa imong mama? We said
earlier that sale is an onerous contract. But
donation is a gratuitous contract, it is an act of
liberality whereby a person called the donor
disposes gratuitously of a thing or right in
favor of another person whom we call the
donee who accepts it. So sale is essentially an
onerous contract whereas donation is a gratuitous
contract. Sale is perfected with your consent since
it is a consensual contract, whereas donation is a
formal contract which must comply with the
formalities mandated by law for its validity.
Now why is it important to know whether a contract
is a contract of sale or a donation? The tax
consequences are different, and more importantly
to determine the validity and/or enforceability of the
contract.
For example there is a purported contract of sale,
but the consideration is not commensurate to the
value of the thing, meaning there is inadequacy of
the price. Now mere inadequacy of the price does
not necessarily invalidate the contract of sale.
Even gross inadequacy of the price, it may void
contract of sale, but there might be an underlying
agreement like it is really intended as a gift to the
purported buyer. So if it’s really intended as a gift
or a donation, then it must comply with the
formalities of a donation. On the other hand, if the
value of the burden placed upon the donee is more
than the value of the thing given, then it cannot be
considered a donation, because we know that
donation is gratuitous. So it becomes an onerous
donation which may either be a sale or a barter. So
if it is now an onerous donation, which is either a
sale or a barter, then defects in the form of the
contract does not matter, it is irrelevant, because if
it is a sale or a barter, then it is a consensual
contract.
Which brings us now to a new topic, we are done
with comparing contract of sale with some
contracts. Let’s go to promise to sell.
A promise to sell may either be a bilateral promise
or unilateral promise. If it’s a bilateral promise,
meaning a promise to buy and sell, there’s a
promise to sell with a corresponding promise to
buy a determinate thing for a price certain then it
results in a reciprocal demandable contract. In one
case the court said, an unconditional mutual
promise to buy and sell, as long as the object is
made determinate and the price is fixed, can be
obligatory on the parties, and compliance therewith
may accordingly be exacted.
Now what about a unilateral promise? Only one
of the parties promises to do something,
maybe offer to purchase or offer to sell, usually
it is an offer to sell. So it is an accepted promise
to sell, you accept the promise to sell, but you did
not promise to buy, that is the second paragraph of
1479. For it to be binding on the promisor, it must
be supported by a separate valuable consideration
independent of the price.
We call this an option contract *next slide. An
option contract is a contract whereby the
owner of the property promises or agrees with
another that the latter shall have the right to
buy the former’s property at a fixed price within
a certain time, that’s how a case defined an
option contract. So if I offer to sell to you my car for
1M pesos, and you said I accept your offer let me
think about it give me 10 days to decide. We have
entered into an option contract. The law says that
for that to be binding on me, the
offerer/thepromisor, it must be supported by a
valuable consideration separate from the price.
If it’s a sum of money that is given to me by you,
it’s called option money, that is not part of the
purchase price, that is the consideration for the
option for you exclusively to decide whether to buy
the car or not within 10 days. If after 5 days you
come to me and say, “Mam, I have decided to
purchase the car,” and I say “Oh, I have changed
my mind, I am not selling it anymore.” What is your
remedy? File an action against me on specific
performance. We have a binding option contract,
and I am bound by my offer and promise to sell to
you within 10 days. The problem arises if the
option is not supported by a separate
consideration.
By the way, going back to the separate
consideration for the option, it is not necessary that
option money be paid, it can be other
consideration not necessary a sum of money for as
long as it is valuable. In one case, the sellers
owned 2 adjoining lots, parcels of land, so they
sold one of the parcels to the buyers. Lets just say
the market value at the time of the sale is 100
pesos per square meter, it was the prevailing
market value of the land. But it was sold at 150
pesos per square meter, what was the mark up
for? Because the buyers were given the option to
purchase the property at the same price and that
option was accepted by the buyers. SO they
agreed to pay for a much higher price for the first
lot because of the option given to them to
purchase the adjacent property at the same price
at some future time. The first question is, was
there an option money paid? No there was not, but
was there a valuable consideration for the option to
purchase the second lot? Yes there was, the
difference between the purchase price and the
market value, that was the consideration for the
option, only that the court did not anymore allow
the exercise of the option because the buyers tried
to exercise it after 10 years. And you know the
statute of limitations, actions upon a written
contract prescribe in 2 years, so that was the
reason why the court did not allow the exercise of
the option. But as to the existence of an option
contract, yes there was. As to the existence of a
valuable consideration, yes there was.
So let’s go to PNOC vs Keppel Phils Holdings, we
said earlier, again that a unilateral promise to sell
or to buy must have a separate consideration
independent of the price for it to bind the offeror.
So what if there was no valuable consideration,
separate consideration for the option, is it still
binding on the promisor? Yes, it's still binding but it
can be withdrawn by the promisor at anytime. But
the moment the offeree accepts the offer, it can no
longer be withdrawn, it is binding on the offeror
even if there is no separate consideration for the
option. So, PNOC v Keppel, which just reiterated
an en banc decision dated 1958, the court said
when an option to buy or to sell is not supported by
a consideration separate from the purchase price,
the option constitutes as an offer to buy or to sell,
which may be withdrawn at any time prior to the
communication of the offeree’s acceptance. When
the offer is duly accepted, a mutual promise to buy
and to sell under the first paragraph of Article 1479
of the Civil Code ensues and the parties’
respective obligations become reciprocally
demandable. It further said the absence of a
consideration supporting the option contract
however does not invalidate an offer to buy or to
sell, an option unsupported by a separate
consideration stands as an unaccepted offer to buy
or to sell which when properly accepted ripens into
a contract to sell. Please take note of this ruling of
the court in PNOC v Keppel, if you should be
consulted by your client whether the client is the
offerer or the offeree.
That is option contract, *next slide* we also hear of
that phrase, Right of First Refusal. Is Right of
First Refusal the same as Option Contract? It is
not. In an option contract, there is a determinate
thing and a definite price. What about right of first
refusal? There is an intention of the owner to sell.
There is even no offer on the part of the owner to
sell the property to the beneficiary of the right,
there is merely a promise on the part of the owner
that if he decides to sell the property, then the
owner would first negotiate its sale to the
promisee. So there is no firm offer to sell, there’s
just a promise that if I decide to sell, I will first offer
it to you. If we cannot agree on the price, or the
terms of the sale, I will offer it to other persons.
So a right of first refusal cannot be deemed a
perfected sale under Article 1458 nor an option
under Art 1479 because it merely pertains to a
specific property without containing an agreement
as to the price or terms of payment in case of the
exercise of a right of first refusal. It is a
contractual grant, not of the sale of the
property, but of the first privity to buy the
property in the event that the owner sells the
same.
How does option differ from right of first refusal?
The form of option contract, the law does not
specify that option contract should be in
writing, but the SC has declared that the right
of first refusal must be valid in a written
contract. In the case of Sen Po Ek Marketing
Corporation vs Martinez, the court said if the right
of first refusal is not stipulated in the lease
contract, it cannot be exercised and verbal grants
of such rights cannot be enforceable since the right
of first refusal must be clearly embodied in a
written instrument. But we have to qualify here, it is
not necessarily embodied in a lease contract, but
usually a right of first refusal is embodied in a
lease contract, but not always, what is important is
that it must be in writing. So you have a written
agreement granting the beneficiary a right to first
refusal, but the owner sold the property to another
person who was not aware of the grant, what is the
remedy of the grantee? At the most, according to
Ang Yu Asuncion vs Court of Appeals, it would
merely organize the grantee to sue for damages
under Article 19. However, if the buyer is aware of
the grant of the right of first refusal, we can charge
the buyer with bad faith. The grantee of the right
may sue for rescission of the contract, but it is not
enough that the grantee sues for rescission of the
contract because the reason for the action for
rescission is for the grantee to buy the property. If
the grantee does not intend to purchase the
property, then there’s no point in filing an action for
rescission. The next question would be, at what
price? Because at the grant of the right of first
refusal, price is not agreed by the parties. Well, the
grantee will pay that price which was agreed
between the seller and the buyer.
Which brings us now to absolute and conditional
sale. Do you have questions? No questions, we
will now proceed. No questions mean you did not
actually make an advance reading of the subject
matter. That’s okay with me. (Thank you Judge)
Absolute and conditional sale, the second
sentence of 1458 says a contract of sale may be
absolute or conditional. We’re talking here of a
contract of sale, which may be absolute or
conditional, we are not talking here of a contract to
sell.
According to Ramos v Hereula, a contract of sale
is absolute when title to the property passes to the
vendee upon delivery of the thing sold.A deed of
sale is absolute when there is no stipulation in the
contract that title to the property remains with the
seller until full payment of the purchase price.
Finally it said, the sale is also absolute if there is
no stipulation giving the vendor the right to cancel
unilaterally the contract the moment the vendee
fails to pay within a fixed period.
In Mascunana vs CA, this is a sale of a portion of a
bigger parcel of land, the seller undertook to have
the property surveyed and segregate the portion
purchased by the buyer, the seller undertook to
have a separate title issued in the name of the
buyer, and only after segregation and issuance of
the title in the name of the buyer that the buyer is
obliged to pay the balance of the purchase price.
This was an old case the price was just, would you
believe, 4690 pesos, you cannot even buy 1
square meter of property at that amount nowadays
in the city. Anyway, that was the condition, the
buyer will pay the balance of the purchase price
only after segregation of the property of that
portion purchased and the separate title issued in
the buyer’s name. Is this an absolute sale or a
conditional sale? The court ruled that the contract
was an absolute sale since the condition of the
balance of the purchase price will be paid upon
segregation and issuance of title in the name of the
vendee merely provides the manner by which the
purchase price is to be paid.
We have 2 kinds of conditional sale, we have an
executed contract and an executory contract.
An executed contract of a conditional sale is
when ownership is already delivered to the
buyer upon delivery but the buyer has not yet
fulfilled certain conditions, most often,
payment of the full purchase price. So the
non-payment of the price is a negative resolutory
condition, and you know what is a resolutory
condition, and you know the effects of a negative
resolutory condition. We will not discuss that
anymore, you have just discussed that a few
weeks ago.
A conditional sale can also be an executory
contract, executory in the sense that
ownership will not pass to the buyer. It will only
pass to the buyer at some future time upon the
fulfillment of some obligation, most often that
condition is the full payment of the purchase
price. The payment of the full purchase price is a
positive suspensive condition, that transfers
ownership.
So if it is an executed contract, ownership is
conveyed upon delivery. If the buyer defaults, the
remedy of the seller is to sue for the price. And
because ownership is already transferred to buyer,
even if he has not yet paid for the full purchase
price, the risk of loss is formed by the buyer. Why
what is our principle regarding loss under the Civil
Code? Res perit domino.
Now if it is an executory conditional sale,
ownership is not yet conveyed to the buyer,
because there has to be a fulfillment of some
positive suspensive condition, usually payment of
purchase price. If buyer defaults, seller is entitled
to damages. The risk of loss is generally borne by
the seller, because ownership is reserved by the
seller.
In Romero v CA, the term "condition" in the context
of a perfected contract of sale pertains, in reality, to
the compliance by one party of an undertaking the
fulfillment of which would beckon, in turn, the
demandability of the reciprocal prestation of the
other party. The reciprocal obligations referred to
would normally be, in the case of vendee, the
payment of the agreed purchase price and, in the
case of the vendor, the fulfillment of certain
express warranties. For example, timely eviction of
the squatters on the property.
In Coronel v CA, which exhaustively discussed
conditional sale as against contract to sell. In a
conditional contract of sale, upon the fulfillment of
the suspensive condition, the sale becomes
absolute and this will definitely affect the seller's
title thereto. If there had been previous delivery of
the subject property, the seller's ownership or title
to the property is automatically transferred to the
buyer such that, the seller will no longer have any
title to transfer to any third person.
Now this brings us now to a contract to sell. Again,
according to Coronel v CA, a contract to sell is a
bilateral contract whereby the prospective seller,
while expressly reserving the ownership of the
subject property despite delivery thereof to the
prospective buyer, take note of the terms
prospective seller, prospective buyer, so the
prospective seller binds himself to sell the property
exclusively to the prospective buyer upon
fulfillment of the condition agreed upon, usually, full
payment of the purchase price.
So what happened in Coronel was that the heirs of
Constancio Coronel executed a document, a very
simple document, a receipt of downpayment. Now
what were the conditions in this contract? The
buyer would make a downpayment upon the
execution of that document, the receipt of that
downpayment. Then, sellers, the heirs of
Constancio Coronel would cause the transfer in
their names of the title, because it was still in the
name of their predecessor in interest. So the
Coronels, the heirs would cause the transfer in
their names of the title of the property registered in
the name of their deceased father upon receipt of
the down payment. Upon the transfer in their
names of the subject property, the Coronels will
execute the deed of
absolute sale in favor of Ramona, the buyer, and
the latter will pay the whole balance of the
purchase price which was P1,190,000.00. Was this
a contract to sell or a conditional sale? In this case,
the court ruled that it is a conditional sale because
as we have discussed earlier, in a conditional sale
ownership is immediately transferred to the buyer
upon fulfillment of the suspensive conditional.
Whereas in a contract to sell, discussed again in
Coronel, upon the fulfillment of the suspensive
condition which is the full payment of the purchase
price, ownership will not automatically transfer to
the buyer although the property may have been
previously delivered to him. The prospective seller
still has to convey title to the prospective buyer by
entering into a contract of absolute sale.
In Reyes vs Salvador, the court said an agreement
is also considered a contract to sell if there is a
stipulation therein giving the vendor the rights to
unilaterally rescind the contract the moment the
vendee fails to pay within a fixed period and to
consequently open the subject property anew to
purchase offers. In the same vein, where the seller
promises to execute a deed of absolute sale upon
the completion by the buyer of the payment of the
price, the contract is only a contract to sell.
This might be a bit confusing to you because in
Reyes vs Salvador, the court said an agreement is
also considered a contract to sell if there is a
stipulation therein giving the vendor the rights to
unilaterally rescind the contract the moment the
vendee fails to pay the price. In other cases, there
can be no rescission of a contract to sell because
there is no contract to speak of in the first place.
So this will be a bit confusing to us, here there is a
stipulation to unilaterally rescind, and whereas in
other cases the court said there is nothing to
rescind because there is no contract of sale yet.
And then later this morning, we will take up
Maceda Law which requires rescission of a
contract to sell.
Question, if the owner of the property has
previously entered into a contract to sell with
another prospective buyer, and during the
existence of that contract the buyer has not yet
fulfilled the positive suspensive condition, this
owner sells the same property to another buyer
representing a different interest, would that sale be
valid? Answer is YES. Why? Because the owner is
still the absolute owner of the property. This is
without prejudice to damages that may be
recovered by the prospective buyer. And we will
say an example later.
So how does a contract of sale differ from a
contract to sell? Olivarez Realty Corporation vs
Castillo emphasized that the distinction is
important to determine the applicable laws and
remedies in case a party does not fulfill his or her
obligations under the contract. In contracts of
conditional sale, our laws on sales under the Civil
Code of the Philippines apply. On the other hand,
contracts to sell are not governed by our law on
sales but by the Civil Code provisions on
conditional obligations.
should be a deed of absolute sale, not just a
deed of conditional sale.
Which brings us to a new topic - object. Do you
want a break or you want to proceed? *May we
take a break judge?* Okay, let’s have a 10 minute
break? *Thank you Judge.
JEG

In a contracts to sell, failure to fully pay the

purchase price is merely an event which prevents
the prospective seller’s obligation to convey title
from acquiring a binding force. This is because
there can be no rescission of an obligation that is
still nonexistent, the suspensive condition not
having happened yet.

We refer to the determinate thing, which is the

subject matter of a contract of sale.

What are the qualities of an object? It must be

lawful; determinate or determinable; existing,
future, or contingent; and we will talk about
transferability of interest.

This is the pronouncement in Olivarez v Castillo. In

a conditional sale, the buyer automatically
acquires title to the property upon full payment
of the purchase price. This transfer of title is by
operation of law without any further act having
to be performed by the seller. In a contract to
sell, transfer of title to the prospective buyer is
not automatic. The prospective seller must
convey title to the property through a deed of
conditional sale. That is really the ruling of the
court, through a deed of conditional sale, this
First, it must be lawful. 1459 says that the thing
must be licit and the vendor must have a right to
transfer ownership thereof at the time it is
delivered.
In relation to that, you have just recently discussed
that all things which are not outside the commerce
of men including future things may be the object of
a contract. All rights which are not intransmissible
may also be the object of contracts, but no contract
may be entered into upon future inheritance except
in cases expressly authorized by law.
So, example of an unlawful object, not unlawful per
se, not the thing per se, but because it partakes of
a future inheritance. That what—that’s what’s
makes it—that’s what makes it—nag tongue
twisting na ko—that’s what makes it unlawful,
because it is still future inheritance. So, one
example is a piece of land. Land per se is not an
illegal object of sale, but because it is still
something that you expect to inherit, it
partakes of a future inheritance, and cannot be
a valid object of a contract of sale.
Also, property under the Comprehensive Agrarian
Reform Law. There is a 10-year period of limitation
within which the beneficiary cannot convey the
property.
And also, of course, contraband—your shabu… in
the Philippines, your marijuana… are unlawful
objects per se.
Now, the other qualit—quality of an object is that it
must be determinate or determinable. And you
know the test. It must be capable of being
segregated without further agreement between
the parties.
But what about sale of an undivided interest in a
parcel of land, because we said that the thing is
determinate or determinable? You cannot
determine it yet. You are a co-owner of a 1,000
square meter parcel of land. You have not
partitioned the land yet with your other co-owners.
Can you sell your undivided share? Yes. But it is
not determinate, yes. What will happen to the
seller buyer? What will be the portion owned by the
seller buyer? Well, the seller… rather, the buyer,
will own an indeterminate portion of the
property. If you sell your entire share in the
co-owned property, then the buyer becomes a
co-owner to the extent of the share that was sold.
Now what about in—in case of tangible goods?
There is a warehouse full of palay. You know what
palay is? That is unmilled, uh, rice.
Warehouse full of palay containing about 10
tons—10,000 kilos—of palay. And you buy 500
kilos, but it’s not physically segregated yet,
because you have no place to store 500 kilos of
palay. Is the sale valid? Yes, you become the
owner to the extent of 500 kilos.
If you purchase 15 or 11 tons of palay, but what’s
actually inside the warehouse is just 10 tons, then
the seller has to make good the deficiency.
There is no problem if the thing is already existing
at the time the contract of sale is entered into. But
can future things be the object of sale? Yes.
1461 says things having a potential existence
may be the object of a contract of sale. Even
sale of hope or expectancy is valid, on the
condition that the thing will come into
existence. But sale of vain hope or vain
expectancy is void. Things subject to a
contingency can be the subject of a contract of
sale.
We have Tañedo v. Court of Appeals. Lazaro
Tañedo here executed an absolute sale—deed of
absolute sale—in favor of his brother and the
brother’s wife—so the brother and his wife, over 1
hectare of whatever he would inherit from his
father. Meaning, he sold 1 hectare of his future
inheritance. We know that is void because that is
sale of future inheritance. The question is, because
after the death of their father, he executed an
affidavit of confirm—of conformity, affirming the
sale that he previously executed in favor of his
brother.
Question is, did this affidavit validate the previous
sale? Again, no, because, what have you learned
again in ObliCon which you just recently concluded
discussing? You cannot ratify a void contract.
Although, there was another sale that—deed of
sale that he executed after the death of his father.
And that was perfectly valid, because it did not
make reference to the void sale during the
death—during the lifetime, rather, of his father.
Now, Heirs of Arturo Reyes v. Beltran refers to a
contract to sell, but the condition is not payment of
the purchase price. This was subject to a
contingency. What was the contingency? That
Miguel Socco, the seller, would inherit—actually he
already inherited; only there was no settlement of
the estate yet of the decedent. So, there was no
partition yet of the estate. So he entered into a
contract to sell with Arturo Reyes over a parcel of
land that he expected to inherit. What he meant
was that he expected it would be adjudicated to
him during the settlement of the estate of the
decedent Elena Socco-Beltran—no, not Elena
Socco-Beltran. Uh, Constancia Socco.
Beltran was the one who was given that particular
parcel of land. So the contingency, the condition,
did not happen, because the condition was he
would sell the property to Arturo Reyes once he
inherits; meaning, once he becomes the absolute
owner of that particular parcel of land.
Unfortunately, it was not adjudicated to him. It was
adjudicated to Elena Socco.
So when Elena Socco filed an application, uh, for
the purchase of the property before the proper
government office, the heirs of Arturo
Reyes—because Arturo Reyes already
died—objected, because they claimed that the
property was theirs, it was purchased by their
father from Miguel Socco. Was there a contract of
sale between Miguel Socco and Arturo Reyes,
such that his heirs, meaning Arturo Reyes’ heirs,
would inherit that right from him? The court said
no. Petitioners, meaning the heirs of Arturo Reyes,
cannot derive title to the subject property by virtue
of the contract to sell. It was unmistakably stated in
the contract and made clear to both parties thereto
that the vendor, Miguel Socco, was not yet the
owner of the subject property and was merely
expecting to inherit the same as his share, as
co-heir of Constancia’s estate. Don’t be confused
by the phrase “merely expecting to inherit,”
because at the time the contract was entered into,
Constancia already died. So this was not a sale of
future inheritance.
So the court concluded: hence, there was no valid
sale from which ownership of the subject property
would have transferred from Miguel Socco to
Arturo Reyes. Hence, the latter conveys nothing
acquiring ownership—acquiring ownership over it.
Transferability of ownership… we discussed earlier
that it is delivery that transfers ownership. And
therefore, ownership of the seller is required at the
time of delivery, because as we previously said,
future things can be the object of a sale, for as
long as they are capable of coming to existence…
or things not yet owned by the seller but already
owned at the time of the delivery. That is perfectly
valid, because it’s only at the time of delivery that
ownership is transferred to the buyer.
What happened in Cavite Development Bank?
There is this ungrateful son, Rodolfo Guansing,
who executed an affidavit of adjudication of sole
heir—claiming that he was the sole heir of his
father, Perfecto. But at the time that he executed
this affidavit of adjudication, his father was still
alive. In other words, he killed his father in that
particular document. That’s why he was able to
transfer the title of this particular property in his
name. And what he did was to obtain a loan from
Cavite Development Bank, secured by a mortgage
of this property which is now registered in his
name. He defaulted in the payment of the loan,
and so Cavite Development Bank foreclosed the
mortgage. Cavite Development Bank was the sole
and highest—well, it is the sole, so therefore, it
was the highest bidder.
In the meantime, there was a pararrel—parallel
action filed by the father because the father
discovered what his ungrateful son did to him. So
the father filed an action for the reversion of the
title, back to his name. And if you are the son who
killed your father by executing an affidavit of
adjudication of a sole heir, would you contest the
action by your father for the reversion of the title in
his name? Of course you would not. And so,
Rodolfo did not oppose the action filed by his
father! And so the court granted the prayer and
ordered the reversion of the title back to the name
of the father.
What is the effect now of the foreclosure of the
mortgage? Was the foreclosure of the mortgage
valid? The court said no. Why was it not valid?
Because Rodolfo had no title over the property,
and so therefore, the mortgage was invalid. If the
mortgage was invalid, there was no valid—there
can be no valid foreclosure of the mortgage. If
there was no valid foreclosure of the mortgage,
then Cavite Development Bank did not as—the
highest bidder, presumably, in the foreclosure
sale—did not acquire any right. And since Cavite
Development Bank has no title over the property, it
could not convey title to Mrs. Lim, who entered into
a contract with Cavite Development Bank for the
purchase of the land.
So this was the discussion of the court: given
Cavite Development Bank’s acceptance of Lim’s
offer to purchase, it appears the contract of sale
was perfected, and indeed partially executed
because of the partial payment of the purchase
price, albeit denominated as option money. There
is, however, a serious legal obstacle to such sale,
rendering it impossible for Cavite Development
Bank to perform its obligation as seller to deliver
and transfer ownership of the property, because it
never acquired a valid title, because the
foreclosure was void. In this case, the sale by
Cavite Development Bank to Lim of the property
mortgaged by Rodolfo Guansing must therefore be
deemed a nullity, for the bank did not have a valid
title to the said property. To be sure, the bank
never acquired a valid title because the foreclosure
sale by virtue of which the property had been
awarded to it as highest bidder is likewise void,
since the mortgagor was not the owner of the
property foreclosed.
In Vagilidad… a co-owner here sold a definite
portion of a co-owned property. What did we say
earlier? You can sale—you can sell an undivided
interest in real property before partition; but
undivided interest, not a definite portion. So the
buyer becomes the owner of that undivided
interest. The buyer does not become the owner of
a particular portion.
But what happened in Vagilidad v. Vagilidad was
that this seller, this co-owner, sold a definite portion
of the co-owned land, with the metes and bounds
indicated before partition. That would have been
void because a co-owner cannot sell a definite
portion of co-owned property. But later, the entire
property was adjudicated to him because the other
co-owners have admitted that they have already
received their respective shares in the estate of
their predecessor-in-interest. So subsequently, this
seller became the absolute owner of the entire
property. Now, that validated the sale.
And we have discussed Heirs of Arturo Reyes v.
Beltran… said that Atur—Arturo Reyes could not
have transferred any right to his heirs because he
had no valid title over the property which was yet
to be sold to him. But the sale did not materialize
because the seller, or Miguel Socco, did not
become the owner of that property after the
settlement of the estate of Constancia Socco.
Price!
The third essential element of a contract of sale. It
signifies 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 debt of the buyer and agreed to by him.
Ideally it’s a sum certain in money. But
price—for—for there to be agreement with respect
to the price as we have discussed earlier, there
must also be an agreement with respect to the
manner that the price is to be paid.
The price must be real, it must be in money or its
equivalent, and it must be certain or ascertainable.
When is price considered real? If there is a legal
intention on the part of the buyer to pay, and a
legal expectation on the part of the seller to
receive. Legal intention to pay, and legal
expectation to receive.
Like Cruzado v. Bustos. We call him a poor
man—Agapito Cruzado applied for the position of
procurador in their municipality. While he had the
qualifications, he could not start discharging his
functions as a procurador, because he was
required to put up either a cash bond or a property
bond. He had no money! So he could not put up
the cash bond. He had no property! In fact, his
family was living in the property of Bustos. Bustos
was a landlady. She had a house in the poblacion.
She allowed Cruzado and his family to live in that
house. That’s how poor Cruzado was.
So that he could work as a procurador, he went to
Bustos, his kumadre, and asked her to execute a
deed of sale over a certain parcel of land, so that
he could use it as a property bond for him to be
able to work as a procurador. And so he was
accommodated by the kumadre. Now, a deed of
sale was executed by the kumadre in his favor.
How close was Cruzado and Bustos? Their
families were close, such that the son of Cruzado
married the daughter of Bustos! Now, this son,
named Santiago Cruzado, went over the files—the
records of his father—and discovered this deed of
sale executed by his mother-in-law in favor of his
father.
But this parcel of land was already sold by his
mother-in-law to another person. He wanted to
recover this property, claiming that it was sold by
his mother-in-law—that’s how ungrateful he
was—it was sold by his mother-in-law to his father.
It was determined tha t the sale was simulated
because the price was absolutely simulated. In
fact, the father never—during his lifetime—never,
never took possession of the property; and never
declared the property to be owned by him. It was
this ungrateful son who filed a case against his
own mother-in-law.
So the question is, can this son, Santiago
Cruzado, recover the property and be declared the
owner of this property purportedly sold by his
mother-in-law to his father? The court said no.
Santiago Cruzado did not acquire any right over
the land because his father, Agapito, could not
transmit any to him—the sale between Estefania
Bustos and the elder Cruzado being simulated.
The price of the land was not paid, and the
purported vendee or his heirs—Agapito Cruzado
and his heirs, this includes Santiago Cruzado—did
not at any particular point in time take possession
of the property. So earlier we had an ungrateful
son, now we have an ungrateful son-in-law.
Now Doles v. Angeles… Doles, uh, represented
her friends. Doles and Angeles maybe were
friends. Doles was the agent of a lender… no!
Angeles was the agent of the lender, Doles was
the agent of some of her friends who wanted to
borrow money. So they could not borrow money
from the lender, because they did not know each
other. But Doles and Angeles knew each other. So
through the representation of Doles to Angeles, the
loan was extended to these friends of Doles.
And the loans were granted by Angeles’ principal,
the real lender. These friends defaulted in the
payment of their loans; and so maybe, the lender
was demanding from Angeles—his agent—to
collect. And since, the loan was obtained through
Doles, who represented—maybe helped or
assisted her friends to obtain the loan—so Angeles
was demanding payment from Doles. Take note:
there was no privity of contract between Doles and
Angeles; the contract was between the friends of
Doles—the borrowers—and the principal of
Angeles, the lender.
Now, Angeles threatened to sue Doles for payment
of the loan. And so Doles was compelled to offer
an unpaid house and lot to Angeles, but did not
execute the corresponding deed of sale. This
would have been a dacion en pago, because this
would have been payment—delivery of real
property as payment for an obligation to pay a sum
of money. But the problem is, Doles did not owe
Angeles anything. Doles was not the borrower,
Angeles was not the lender. Why would the sale be
in favor of Angeles as payment for the loan? The
question now is, can Angeles, the purported buyer,
compel Doles, the purported seller, to execute the
corresponding document to transfer Doles’ land to
Angeles?
Yes, unfortunately, upon the instance of lawyers.
Unfortunately, upon the instance of lawyers to
deprive the Government of the rightful taxes owed
to it. If the price is false, would that affect the
validity of the contract of sale? No. But the
underlying deed or document is subject to
reformation. According to Dean Villanueva, if the
price of the covering instrument is false, the
contract of sale is valid, but the underlying deed is
subject to reformation to indicate the real
intention—to indicate the price upon which the
minds of the parties have met.
Now, many lawyers would draft deeds of absolute
sale with a very marked down price indicated, in an
attempt to avoid—no, not avoid—to evade
payment of the correct documentary stamp tax and
capital gains tax. But the BIR is wise! The BIR will,
uh, compute the tax based on whichever is the
highest between the market value indicated in the
tax declaration, the price indicated in the deed of
sale, and the zonal valuation. But in many
instances, the price is still much higher than the
zonal valuation. So it is sad that lawyers have
become instruments of defrauding the Government
of the rightful taxes owed to it.

The court said no. It explained: in view of the two

agents’ relationships, petitioners—referring to
Doles—and respondent—referring
Angeles—are not privy to the contract of loan
between their principals, since the sale is
predicated on that loan—so like a dacion en
pago—then the sale is void for lack of
consideration. So here, there was
consideration, because this is supposed to be a
dacion en pago, but Doles did not owe Angeles
anything.
Now, what if the price is false? Price is false if the
parties agreed on the price, but the covering
document did not indicate the real price agreed
upon by the parties. Is it being done nowadays?
to Okay, another requisite for a valid price is that it
must be in money or its equivalent. In most cases,
price is stated in a sum of money. But can there be
a sale even if the consideration or the price is not
in a sum of money? Yes.
no
In Torres v. Court of Appeals… incidentally, this is
a Lapu-Lapu case… the court said: in this case,
the cost of the contract of sale consisted not in the
stated peso value of the land, but in the
expectation of profits. So this is the
consideration—expectation of profits from the
subdivision project over which the land was
intended to be used. So the expectation of profits
was considered by the court as equivalent to the
price.
Another requisite for a valid price is that it must be
certain or ascertainable. No problem if the amount
is determined already by the parties, agreed by the
parties. But if the parties cannot agree on the
amount of the price, can there still be a valid sale?
And can price still be ascertained? Yes!
By a third person. So if the parties cannot agree on
the amount of the price, they can hire an appraiser
to determine the value of the property. But, of
course, they must agree to be bound by the
findings of the appraiser. If they do not agree to be
bound, then there’s no point in appointing a third
person, because they cannot agree still on the
price.
By the court, if the third person cannot determine.
But, of course, I have not seen an instance where
the court’s—the court’s intervention, uh, was
invoked to determine the price.
Another way of determining the price would be by
making reference to a definite day. For example,
uh, I offer to purchase—in Cebu what’s the…
okay… 500 kilos of Guadalupe Cebu mangoes,
so… we cannot agree on the price, so we agree
that whatever is the average price at Carbon
Market on Wednesday… what is the date on
Wednesday? Let’s check our calendar…
Wednesday, May 3. That will be the price. Do we
need to enter into another contract to determine
how much the average price is of Guadalupe
mangoes at Carbon Market on Wednesday? No!
So that’s how price is determined.
Or making reference to a particular exchange. I
offered to sell to you 1,000 common B shares of
PLDT… for how much? We cannot agree on the
price, but we agree that whatever is the opening
price of the Philippine Stock Exchange of this
particular class of shares will be the price. The
price is ascertainable.
By references to invoices… I have a business that
I want to sell out, because, uh, I am migrating to
another country. So, I’m selling the entire business.
So, for this particular furniture, I will—the price is
50% of invoice price. So we can always make
reference to the invoices. And then, by simple
mathematical computation, we can arrive at the
price.
But if the price cannot still be determined, the
contract is inefficacious, because, well, there
is—there can be no—there is no meeting of the
minds with respect to the price.
What about inadequacy of the price? The rule is
inadequacy of the price per se, does not affect the
contract. But it may show a vice of consent.
In Askay v. Cosalan… Askay was, uh, he claimed
to be an illiterate, old igorot who was taken
advantage of by his relative-in-law, Cosalan. He
said he was paid only 1 peso for this piece of
mining claim. But it was determined that before he
signed the deed of sale, the contents were
explained to him in his own language. Actually it
was not 1 peso; there were animals given, plus a
certain sum. And before he signed, he was asked
whether he understood the contents of the deed,
and he said yes! Now, after several years, he
wants the sale to be nullified, claiming gross
inadequacy of the price; claiming that he was
taken advantage of by the buyer.
What did the court say? Well, gross inadequacy of
the price naturally suggests fraud, especially if
taken in connection with other circumstances…
such as ignorance, or the fact that one of the
parties has an advantage over the other. But the
fact that the bargain was a hard one, coupled with
mere inadequacy of the price, where both parties
are in a position to form an independent judgment
concerning the transaction is not a sufficient
ground for the cancellation of a contract.
obligation under an existing valid contract while the
latter prevents the existence of a valid contract.
This is different from lack of consideration which
prevents the existence of a valid contract.

But Aguilar v. Rubiato was different… because

here, there were several parcels of land,
ohnd—owned by Rubiato—but it was sold by this
purported attorney-in-fact for a measly sum of 800
pesos, or 1,000 pesos, I’m not so sure anymore.
But the value of this property was more than
20,000 pesos, and Rubiato was a person of…
the… the Supreme Court was very charitable in
their description of Rubiato. Rubiato was a man of
ordinary intelligence.

But look at the difference in the price. From the
value of more than 20,000—26,000 pesos—it was
sold on pacto de retro for only 800 pesos, or 1,000
pesos. The court said: where the inadequacy of
the price in an agreement is so great that the mind
revolts at it, and is such as a reasonable man
would neither directly nor indirectly be likely to
consent to, a strong reason exists for annulling a
contract. What happened here was that, uh, the
court, in effect, considered the contract was merely
a contract of loan; an equitable mortgage. And so
Rubiato was made, uh, to return the purchase
price, because Aguilar filed an action for the
consolidation of her title over the lands. The court
did not grant that prayer, but the court ordered
Rubiato, the owner, to pay the amount—or to
return the amount—paid by Aguilar to that
purported attorney-in-fact, Manuel Gonzales Vila.
Now, what about earnest money? Earnest money
is something that is paid by the buyer to the
seller as proof of the perfection of a contract of
sale. So if it is proof of the perfection of the
contract of sale, it forms part of the purchase price.
So it is called earnest money because it’s not a
substantial amount of money in relation to the total
price agreed. This is just to show that the buyer is
really in earnest in purchasing the property. This is
given to bind the seller, so the seller can no longer
sell the property to another person. This forms part
of the purchase price in a contract of sale.

Now, what is failure of consideration? Failure of

consideration simply is non-payment of the
price. There was an agreement for the payment
of the price, but price was not paid. Will that
affect the validity of the contract? No.
In Buenaventura v. Court of Appeals, the court
said: it is not the act of payment of price that
determines the validity of a contract of sale. The
payment of the price has nothing to do with the
perfection of the contract. Payment of the price
goes into the performance of the contract. Failure
to pay the consideration is different from lack of
consideration; the former results in a right to
demand the fulfillment or cancellation of the
How is this different from option money? So this is
the distinction given in Oesmer v. Paraiso
Development Corporation: earnest money is part
of the purchase price while option money is given
as a distinct consideration for an option contract;
earnest money is given only where there is already
a sale, while option money applies to a sale not yet
perfected; and, when earnest money is given, the
buyer is bound to pay the balance, while when the
would-be buyer gives option money, he is not
required to buy, but may even forfeit it depending
on the terms of the option.
Serrano v. Caguiat said: it is true that an
article—1482 of the Civil Code—provides that
"Whenever earnest money is given in a contract of
sale, it shall be considered as part of the price and
proof of the perfection of the contract." However,
this article speaks of earnest money given in a
contract of sale. In the case of Serrano v. Caguiat,
the earnest money—it was called earnest
money—but it was given in a contract to sell. Since
earnest money was given in a contract to sell, in
that Serrano v. Caguiat case, Article 1482 which
speaks of a contract of sale does not apply. So,
you don’t even call it earnest money. Meaning,
if there’s a contract to sell, and earnest
money—in parentheses—is given, that is not
proof of the perfection of a contract of sale, it’s
still a contract to sell.
Ahh, there’s a question. Is earnest money
considered as down payment? Sort of, yes! Down
payment in a contract of sale; not down payment in
a contract to sell, because you can have down
payment in a contract to sell.
Okay, can we proceed now to… rules in ordinary
sales.
Since sale is a consensual contract, it is perfected
the moment there is a meeting of the minds on the
thing which is the object of the contract upon the
price. We have to qualify, including the manner of
the payment of the price.
So, form is not material for the validity of the
contract. In Caoili v. Court of Appeals… the court
said: the absence of a formal deed of sale does
not render the verbal agreement null and void or
without any effect. The provision of Article 1358 on
the necessity of a public document is only for
convenience, not for validity or enforceability. It
does not mean that no contract has been
perfected, for as long as the essential elements of
consent of the contracting parties, object, and
cause of the obligation concur.
Now what if you have a document executed for the
sale of a certain piece of real property but the
technical description is not indicated? Will that
invalidate a sale? Again, no! In Naranja v. Court
Appeals… the court said: the failure of the parties
to specify with absolute clarity the object of a
contract by including its technical description is of
no moment. What is important is that there is, in
fact, an object that is determinate or at least
determinable, as the subject matter of sale. The
form of a deed of sale provided in Section 127 of
Act No. 496 is only a suggested form. It is not a
mandatory form that must be strictly followed by
the parties to a contract.
Now, in Limketkai Sons v. Court of Appeals… there
is now a deed of sale but unsigned. If it’s not
signed by the parties, well, naturally it’s not
notarized. No notary public worth his salt would
notarize an unsigned document.
So what did Limkat—Limketkai say? The fact that
the deed of sale still had to be signed and
notarized did not mean that no contract had
already been perfected. The requisite form under
Article 1458 is merely for greater efficacy or
convenience and the failure to comply therewith
does not affect the validity and binding effect of the
act between the parties.
But there are contracts which have to be at least in
writing for enforceability; again, not for validity
because a sale is a consensual contract. Contracts
under the statute of frauds… sale of realty… sale
of chattels, goods, and… [(THINGS IN ACTION?)
TIME STAMP 46:09-46:10, INAUDIBLE, GINOO
KO!] of the price of not less than, well, 500 pesos,
because this was enacted in the 1960s.
Perfection!
We know that since a sale is a consensual
contract, it is perfected the moment there is
consent on the subject matter and the price, even
if the thing is not yet delivered. Delivery is not a
condition for the perfection of the contract of sale.
Now, in Coronel v. Court of Appeals… I want you
to read Coronel v. Court of Appeals if you have not
read it, because iz—it dizkase—it discusses
several principles of law. It discusses about
conditional sale, contract to sell, perfection of sale.
It’s quite long, but worth the read.
Okay, what did the court say in Coronel? Although
the document drawn by the Coronels was
denominated “Receipt of Down Payment,” from
that moment on, there was a perfected contract of
sale, albeit conditional, since there was no express
reservation of title.
Where is a contract of sale perfected? Well, in the
place where the meeting of minds took place! Now,
letter B here… doesn’t apply, apparently,
nowadays, because in case of acceptance through
letter or telegram, perf—place of perfection would
be the place where the offer was made. Maybe
some of you will ask: what’s a telegram?! Ask your
grandparents.
But, expenses, I want you to take note of this. This
is very, very important. This is one of the issues in
many cases brought to court. By default, the
seller shoulders the expenses of the execution
and registration of the sale. By default, the
seller shoulders the expenses of putting the
goods in a deliverable state. So that is by
default by a specific provision of law. But, why
is it that many cases are brought to court where
the buyer files an action for reimbursement of
expenses? Well, the law is clear. So what is my
advice? When you are asked to draft contracts of
sale, please, as a favor to your clients, and in order
to prevent future litigation, indicate who will pay
what expense. Even if we know that by default, the
seller shoulders these expenses. But there’s no
harm—in fact, you will be extending a favor to your
client—there is no harm if you indicate as one of
the stipulations in the contract that you draft which
party will shoulder what expense. That will prevent
future litigation. Take note: lawyering is not a
money making venture. You work as officers of the
law.
Okay, it is now special sales. Auction sale… this is
a voluntary auction sale. This does not refer to
involuntary sales like execution sales, or
foreclosure sales. So this is a voluntary sale.
Like your favorite K-pop artists would sell in
auction their memorabilia. So, what are the rules?
For separate lots, separate sales. Now, since there
are several prospective buyers, how do we know
that the sale is perfected? By the fall of the
hammer—usually by the fall of the hammer—or
some other customary manner.

Now, since this is a voluntary sale, can the seller

bid? And then, our question is: why would the
seller bid or cause others to bid for him, or her, or
it, or them? What is the purpose of allowing the
seller to bid?! Well, to rig the price! And so, the law
has already provided a prohibition that the seller
can only bid or cause others to bid on his, or her, Sale by sample or description! If it’s a sample by
or its, or their behalf if it is expressly reserved. So, description—if sale by sample, I’m sorry—the bulk
if it is expressly reserved, prospective buyers—or must correspond to the sample. In sale by
the bidders—are already forward that somebody description, the thing must correspond to the
among them is an agent of the seller who’ll make description.
bids to up the price.
So in one case… uh… the buyer ordered a
Now, the auctioneer may withdraw the goods at refrigeration machine from the seller, and
any time before the fall of the hammer. Unless, the submitted the description of this refrigeration
auction has—was announced to be without system machine. And what was delivered was
reserve. exactly according to the description of the buyer.
Unfortunately, the buyer could not use it in the
Now, in Leoquinqo v. Postal Savings Bank… business, because it was not meant to be used in
Postal Savings Bank, um, posted an a bigger area. So, the buyer could not use the
announcement for an auction sale of a certain thing for the purpose for which it was intended, and
property that may be acquired in a foreclosure the buyer refused to pay the balance of the
sale. But, in that announcement, it reserved the purchase price. Question is: can the sale be
right to reject any and all bids. Leoquinqo was the rescinded because the buyer cannot use the
highest bidder. Unfortunately, his bid was rejected thing? The court said no! This is a sale by
by the bank. In fact, he was notified of the rejection description, what was delivered was exactly
of his bid, but he insisted! Maybe… he considered according to the description of the buyer. And
it a good bargain. But, well, his bid was not therefore, the buyer—even if he cannot use it for
accepted by the bank, it was rejected, and he was the purpose it was intended for—he is obliged to
duly notified. He insisted that a deed of sale be pay the price.
executed in his favor. The question is: can he insist
that a deed of sale be executed in his favor, him
being the highest bidder in the auction sale? The
court said no. The court said: the owner of property
offered for sale at auction has the right to prescribe
the manner, conditions and terms of sale, and
where these are reasonable and are made known
to the buyer, they are binding upon him, and he
cannot acquire a title in opposition to them, and
against the consent of the owner.

Again, I have to emphasize this: the rules here

pertain to voluntary auction sales, because in
involuntary sales—auction sales—like execution
sales, or foreclosure sales, the owner of the
property can bid.
Recto Law!
This is Article 1484 of the Civil Code. Recto Law is
not a separate law. There is no separate Republic
Act for the Recto Law; it is found in Article 1484 of
the Civil Code. Why is it called the Recto Law? chattel mortgage registry… what we have in the
Maybe it was introduced by Senator Recto. Not office of the Register of Deeds is a personal
Ralph Recto, most definitely. Maybe Ralph Recto property security registry. So, that’s where you
was not yet born in 1950—or 1949—when the Civil register your security interest.
Code was enacted.
So, in relation to the personal property security
So, this is sale of personal property payable in interest, if the secured creditor enforces the
installments—that is called the Recto Law. So, do security interest, and takes possession of the
not confuse this with the Maceda Law. The property—that is, uh, your equivalent to
Maceda Law is a separate, more recent law foreclosure of mortgage—then the seller can no
enacted by Congress. It has a separate Republic longer recover the deficiency from the buyer. Now,
Act number… Recto Law, again, is found in the take note also that Article 1484 is not directly
Civil Code. amended, or modified, or repealed by the Personal
Property Security Act. It’s not specifically
So what are the alternative remedies of the seller? mentioned. Maybe the, uh, crafters—the
This is sale of personal property on installments. proponents of the law overlooked—just overlooked
You have, uh, alternative remedies available to the this.
seller…
Can the buyer and the seller enter into an
Exact fulfillment! Meaning, sold for the price. agreement for the buyer to waive—especially this,
number three—that the buyer agrees to pay the
Or, rescind the contract if the buyer fails to pay two unpaid balance of the purchase price, even if the
or more installments. Installments can be weekly seller has taken possession of the property? That
or monthly. waiver is void.
And the third, to foreclose the chattel mortgage on
the thing sold if the buyer fails to pay two or more
installments. And the law further says that if the
seller chooses to foreclose the chattel
mortgage—chooses number three—then the seller
can no longer recover the balance of the price…
for any unpaid balance can no longer be
recovered. This has caused a bit of confusion
nowadays, because nowadays—at this very
moment that we are talking—there is no more
chattel mortgage, we only have the Personal
Property Security Act. So therefore, if there is no But, can the parties stipulate that in case of, for
more chattel mortgage, can a security be example, rescission of the contract—number two,
constituted on the thing sold to pay for the balance cancellation of the sale if the buyer fails to pay two
of the purchase price, because this is a sale on or more installments—can the parties stipulate that
installments? Yes, we call that the purchase money whatever installments made by the buyer shall be
security… forfeited in favor of the seller? Yes! That is
perfectly valid, unless it is unconscionable. What is
We have a new term: purchase money. So, the
unconscionable is a question of fact.
seller and the buyer can create a security interest
by executing a security agreement over the thing
sold to secure payment of the price. They may still
use a chattel mortgage, because that has—that is
what has been, uh, used—or that’s the term that
we are used to using. But take note: even if you
call the contract as a chattel mortgage, you can no
longer register a chattel mortgage in the office of
the Register of Deeds because there is no more

Now, the provisions of the Recto Law—Article
1484—are applicable to contracts denominated as
lease of personal property with option to buy. Now,
forget about lease of condominium units with
option to buy… that is not covered here. This is
lease of personal property with option to buy. We
often see this in car plans offered by employers to
some of their employees. So, the court has
already—by law, it is recognized that this…
[(HEAMS?) TIME STAMP 1:03:38-1:03:39,
INAUDIBLE.] leases of personal property with
option to buy are considered sales of personal
property on installment. Such that, if there’s failure
to pay rentals, um, the purported lessor
repossesses the property, then there is no more
right to recover the unpaid rentals.
In Elisco Tools Manufacturing Corporation…
Rolando Lantan was an employee of Elisco, and
he availed of this car plan of the company. So, a
certain amount was deducted from his salary as
rental, and the agreement was that after a certain
number of years, uh, the prop—the car would be
sold to him. Unfortunately, Elisco ceased
operations. And so, Lantan, also ceased becoming
an employee of Elisco. But he continued paying
the rentals, even after the, uh, he was no longer
employed by the company. Maybe some auditors
of Elisco conducted an audit and discovered that
there is this car that’s still in the possession of a
former employee, and so we should get this back
and demand payment from him for rentals!
And so, a case was filed for the recovery of the
property. In fact, a writ of replevin was issued by
the court! And Lantan was dispossessed of the
proper—of the car—it was delivered to Elisco
during the trial. It was discovered and
determined—not discovered—it was determined
and established that, in fact, Lantan has fully paid
the rentals. And so, the car should be his already!
But he was deprived of possession, pursuant to
that writ of replevin.
So what was the remedy, what was the ruling of
the court? The court said: return the car to Lantan!
And, Elisco, you pay rentals to him. Take note that
it was Elisco which was demanding payment of
rentals from Lantan. But the court determined that
actually Lantan has already fully paid the price by
the rentals he paid, even after the cessation of his
employment with Elisco. So, Elisco was ordered to
return the car and pay rentals to Lantan.
The court said in this case: the agreement was a
sale. The court has long been aware of the
practice of vendors of personal property of
denominating a contract of sale on installment as
one of lease to prevent the ownership of the object
of the sale from passing to the vendee until and
unless the price is fully paid.
Now, what about PCI Leasing and Finance
Incorporated v. Giraffe-X Imaging? This was a
contract of lease! The contract here used was a
contract of lease, not a contract of lease with
option to buy. This was a contract of
lease—Giraffe-X failed to pay the monthly rentals.
It was a substantial amount, maybe business was
not good. So, PCI Leasing sent demand letters,
but what was the tenor of these demand letters?
There was a common tenor. If you pay, you can
keep the machines… if you pay, you can keep the
machines. But still, Giraffe-X was not, uh, able to
pay the rentals.
So, this was recovered—the machines—were
recovered by PCI Leasing, and still demanded
payment of accrued rentals. The court said no
more! In choosing, through replevin, to deprive
Giraffe-X of possession of the leased equipment,
PCI Leasing waived its right to bring an action to
recover unpaid rentals on the said leased items.
Paragraph 3, Article 1484, in relation to Article
1485 of the Code, which we are hereunder
re-reproducing cannot be any clearer.
As we articulated in Elisco Tool Manufacturing
Corporation v. Court of Appeals, the remedies
provided for in Article 1484 of the Civil Code are
alternative, not cumulative. The exercise of one
bars the exercise of the others. This limitation
applies to contracts purporting to be leases of
personal property with option to buy by virtue of
the same article. The condition that the lessor has
deprived the lessee of possession or enjoyment of
the thing for the purpose of applying Article 1485
was fulfilled in this case by the filing by
petitioner—PCI Leasing—of the complaint for a
sum of money with prayer for replevin to recover
possession of the office equipment. By virtue of the
writ of seizure issued by the trial court, the
petitioner—PCI Leasing—has effectively deprived
respondent—Giraffe-X—of their use, a situation
which, by force of the Recto Law, in turn precludes
the former from maintaining an action for recovery
of accrued rentals or the recovery of the balance of
the purchase price plus interest… because, here,
even if the contract was denominated a lease
contract, the court considered the contract as a
lease with option to buy. Again, because of the
tenor of that—the demand letters… if you pay, you
can keep.
This brings us to… Maceda Law! Maceda Law is
not found in the Civil Code, it is actually Republic
Act No. 6552. The formal name of the law is Realty
Installment Buyer Protective Decree. Maybe, it was
Senator Maceda who was the principal author of
the law, that’s why it’s called the Recto—the
Maceda Law.
So, if the Recto Law… I have to emphasize,
because many students are confused, even after
graduating from law school. They’re confused:
which one is Maceda Law? Which one is Recto
Law? So, if the Recto Law refers to sale on
installment of personal property, which is found in
Article 1484…
Maceda Law addresses realty—addresses sale of
realty—on installment. And, this covers not just
contracts of sale, but also contracts to sell.
But, the law does not cover all installment sales of
real property, because sale of industrial lots, sale
of commercial buildings, sales to tenants under the
Comprehensive Agrarian Reform Law, are not
covered.
What are the rights of the buyer under the law? To
update payment without additional interest; to
assign/reinstate contracts; to advance payment
without interest.
BANJO
But we are more interested in this, what are the
rights of the buyer who has paid at least two years
of installments. When we say who has paid at least
two years of installments, this refers to the number
of months of payment. Not the number of months
that the contract is effective.
So what are then the rights of the buyer who has
paid at least 2 years? Meaning 2 years’ worth of
installments, 24 months’ worth of installments.
Even if the contract has been existing for more
than 24 months, if he paid 2 years’ worth of
installment then the buyer is considered to have
paid 2 years of installments. The right to pay
without interest the unpaid installments, not the
entire balance of the purchase price, because what
is our rule in case of payment in installment. Non
payment of an installments results in a default of
only that particular installment. Unless , there is an
acceleration clause. So to pay without interest the
unpaid installments within the grace period, and
what is the grace period? One month for every
year of payment. If the buyer still fails to pay within
the grace period, the seller may opt to rescind the
sale.

Earlier I said, that when you talk about a contract

to sell, failure of the buyer to fulfill the suspensive
condition, which is usually payment of the full
purchase price, is not considered a breach of
contract, because there is no contract of sale yet,
therefore there is nothing to rescind.
But under the Maceda Law, there has to be a
cancellation or rescission of the contract to sell.
Maceda Law again covers both contracts of sale
and contracts to sell. Usually if it’s an installment
sale of real property, the contract entered into is a
contract to sell.
So, here our buyer still fails to pay within the grace
period, the seller here decides to rescind the sale
so that it can sell the property to other buyers, so
the right of the buyer is to be refunded the cash
surrender value of his payment. And the cash
surrender value is 50% of the total payments
made. There is a question, is the cash surrender
value susceptible to deductions? The law does not
mention. Like commissions, incentives, taxes paid;
you have not paid taxes yet, there is no tax yet,
there are no taxes paid yet in a contract to sell.
Take note that the buyer is entitled only to the cash
surrender value of total payments made, the law
does not say less commissions, so my take here
that the commissions should be deducted to the
other 50% pertaining to the seller. The buyer
should be entitled to, of the total payments that
was made. Now cancellation does not
automatically happen. It takes place only after 30
days from receipt by the buyer of the notarial
notice or demand for cancellation and of the full
payment of the cash surrender value.
Take note that in Pagtalunan, this was
emphasized. The cancellation of the contract
must be in accordance with Sec. 3(b) of R.A.
No. 6552, which requires a notarial act of
rescission and the refund to the buyer of the
full payment of the cash surrender value. Mere
demand letter even if it is a lawyer's demand
letter is not the same as notice of cancellation
or demand for rescission by a notarial act. So a
demand letter signed by a lawyer, a mere
demand letter does that comply with the
requirement? No! it must be notarized. For
example, Ms. Evelynn, the letter is addressed to
Ms. Evelynn, one of the buyers of a particular
subdivision lot. Cebu City, and then subject,
notarial cancellation of contract to sell.
Dear Ms. Evelynn,
This refers to the lot that you purchased from Cebu
Homes per contract to sell dated chu2. Located in
Cebu City. As of December 31, 2022, your
outstanding obligation amounted to P1M, and
despite written demands of the lapse of the grace
period provided by law. Your past due obligations
in Cebu Homes remains unpaid, in view thereof,
please be informed that your rights under the
contract to sell is hereby canceled effective 30
days from receipt of this order. I hope you will give
this matter your most preferential attention.
Very truly yours,
Atty. So and so

That is an example of a notarial notice of

cancellation of a contract to sell.

Now what about a buyer who has paid for less
than 2 years. Does this buyer have rights? Yes, the
buyer can still pay the unpaid installment within a
period of not less than 60 days, from the date the
installment became due. Take note the payment of
the grace period is counted from the date the
installment payment became due, the law is clear,
the law did not say that the grace period is counted
from default. Because we define default as what
happens after demand. But here the law is clear
from the day the installment became due. So
atleast 60 days. Is the contract automatically
rescinded after 60 days? IDK because if the seller
decides to cancel the contract again it must send a
notarial notice of cancellation or notarial demand of
cancellation to the buyer, that no payment of the
cash surrender value anymore, does it need to say
that once the buyer receives the notarial notice of
cancellation then the buyer will count just 30 days
okay let's count 30 days and after 30 days the
contract is canceled? Can the buyer still pay
within the 30 day period? The court said yes.
You can still pay within the 30 day period.
Let's look at some cases involving the Maceda
Law
Ramos vs. Heruela, this breaks my heart. Because
here the buyers paid less than 2 years of
installments and then they failed to pay further
installments, then after many years, they allowed a
relative to construct a house in this particular lot,
for which they have not paid. And after many years
later, the owners filed a case of recovery of the
property, and the Heruela spouses, through their
brilliant lawyer, invoked the Maceda Law, and the
court said, there was no cancellation of the
contract to sell, because they were not afforded
the grace period to pay, and there was not notarial
demand or notice for cancellation. The court said,
there being no valid rescission of the contract to
sell, the action for reconveyance is premature,
hence, the Heruela spouses have not lost the
statutory grace period within which to pay. I said
earlier, this case breaks my heart, because at the
time that the contract to sell was entered into the
price was low, and at that time the case was filed
and finally decided, the value of the property has
immensely increased. And hence adding more
insult to injury, was that the legal interest to be paid
by the Heruela Spouses was to be counted only
from 1998. When the complaint was filed. For
those who are from CDO this is a Cagayan De Oro
case.
Active Realty, here the buyer, this was a 5 year
contract, installment contract for the payment of
the property for a period of 5 years. The buyer
here has paid 4 years’ worth of installments, and
then delayed in the payment for 3 months, then the
buyer, Daroya, offered to pay the unpaid
installments. Active realty refused to accept. Why?
It has sold the property to another buyer. If you
remember earlier, there was a slide, (nibalik sa
contract to sell slide na question) Can the owner
sell the property which was previously subject of a
contract to sell? Lets see here. So the buyer here,
Daroya, paid 4 years of installments and then
defaulted in 3 months. When she offered to pay
the unpaid installments, she was rejected, because
active had already sold the property. The contract
price here was I think 400K, inclusive of interest.
So Active canceled the sale, without affording
Daroya, the grace period to pay without interest
the unpaid installments. In fact active refused to
accept the tender of Daroya. So it canceled the
sale, so this matter was brought to court. And what
was the decision of SC? First, Going back to the
previous question. If active realty canceled the
sale without complying with the requirements
of the Maceda Law, would it validly sell the
property to this other buyer? Yes, the sale was
valid. In fact the court recognized that even if
we allow Daroya the grace period to pay. It
would be useless, because active has already sold
to another buyer at a much higher price, more than
twice the contract price of Daroya. Maybe that was
the primary reason why active refused to accept
Daroya’s offer to pay the unpaid installments. So
what was the equitable decision of the court? For
failure to cancel the contract in accordance with
the procedure provided by law, referring to the
Maceda law. We molded the contract to sell
between the parties that remains valid and
subsisting. Following section 3(a) of RA 6552,
respondent Daroya has the right to offer to pay for
the balance of the purchase price without interest,
which he did in this case. Ordinarily, petitioner
Active Realty would have had no other course but
to accept payment. However, Daroya can no
longer exercise this right as the subject lot was
already sold. So useless. So what was the
equitable remedy? It ordered Active Realty to
refund to Daroya the purchase price it received
from the second buyer which was 875k. That is the
consequence of not canceling the sale pursuant to
the Maceda Law, and selling the property at a
much higher price to another buyer. So, if you are
representing the developer please remember this
case. If you are representing the defaulting buyer,
also please remember the rights of your client as
discussed in this case.
Now a relative of the Maceda Law is PD 957. The
Subdivision and Condominium Buyers’ Protective
Decree. This addresses contracts involving
subdivision lots and condominium units so not
just any real property. The Maceda Law, covers
all real property except industrial lots, commercial
buildings, and lots sold to beneficiaries under the
comprehensive agrarian reform program of the
government. But PD 957 specifically addresses
subdivisions and condominiums. Now the law
mentions the HLURB which is being replaced by
the department of human settlements and urban
development. Let’s just take up some cases under
the law. Under PD 957, before a developer can
mortgage the project to a bank, it must first
obtain the approval of the DHSUD, if it fails to
obtain the approval of the DHSUD, the
mortgage may be declared void. That’s what
happened in Far East Bank and Trust Co. vs.
Marquez. The court said under PD 957, the
mortgage of a subdivision lot or a condominium
unit is void if executed by a property developer
without the proper approval of the DHSUD. That is
informed ??? has been constituted over the entire
property which a subject unit is merely a part, does
not affect the invalidity of the lien over the specific
portion of issue, what was declared void here was
only the property purchased by marquez not the
entirety of the property. It was only Marquez who
filed the case.
Tamayo. In case the developer of a subdivision or
a condominium fails in its obligation under section
20, section 23 here gives the buyer the option to
demand reimbursement of the total amount paid.
Under PD957, the fault is in the part of the
developer, therefore the buyer may opt to demand
reimbursement of the total amount paid, not just
cash to render value. The other option is to wait for
further development of the subdivision, and when
he does, the buyer may suspend payment of
installment until such time that the owner or
developer had fulfilled his obligation to him, let’s
discuss in relation with the Maceda Law. In
Maceda Law, it is the buyer who defaults in the
payment of installments. And if the buyer fails to
pay within the grace period for as long as the
buyer has paid at least 2 years’ worth of
installments, if the seller decides to cancel the
same, the buyer is entitled to recover the cash
surrender value, which is 50% of the total amounts
paid for the first 5 years, if he has paid more than 5
years, then he has an additional 5% increment per
year, but not more than 90%. In PD 957, it is the
developer who defaults in the performance of its
obligation by failing to develop the property
according to the timetable submitted to the
DHSUD. So 2 options available to the buyer. Either
demand reimbursement of the total amount paid,
or wait for further development and in the
meantime suspend payment of the installments.
Take not the buyer cannot just unilaterally suspend
payment of the installments because of the
developers failure to develop the subdivision, the
buyer must notify the developer that he or she, is
suspending payment of installments because of
the developers failure to comply with its obligation.
Why is a notice required? Because if the buyer
merely unilaterally suspends payment, without
notifying the developer then, he or she may be What about the buyers of the urban poor lots? Are
considered a defaulting buyer, therefore the they protected?
Maceda Law applies to him or her not PD 957.
Well the Maceda Law does not distinguished, that
Now Cantemprate, the law provides that before the is under the Maceda Law, this is not under PD 957
developer can start selling condominium units or
subdivision lots, it must first obtain a license to sell But it also depends on the contract they enter into.
from the DHSUD. Now what if, it fails to obtain a But take note, under the Maceda Law, waiver of
license to sell and proceeds on selling. The the rights is VOID.
project, would seek validity of the same be
Take note, this is sale on Maceda Law, pertains to
affected? (di ko kagets unsa iya gisulti dinhi im
a sale on installment where the contract is
sorry jud) The answer is no. Because you look at
between the seller and a buyer. If you obtain a loan
the essential elements for a valid contract of sale,
to pay for the lot, and you default in the payment of
you have consent, object and consideration. But in
the loan, Maceda Law does not apply.
Cantemprate the court said, the failure by the
developer to obtain a license to sell subdivision
lots does not render the sale void on that ground
alone. Especially, when the parties have impliedly
admitted that there was already a meeting of
minds as to the subject of the sale and the price of
the contract. The absence of the license to sell
only subjects the developer, CRS Realty and its
officers, civilly and criminally liable for the same
violation under PD 957, and related rules and
regulations. The absence of the license to sell
does not affect the validity of the already perfected
contract of sale between petitioner and respondent
CRS. In general, someone who can enter into a contract
can enter into a contract of sale. Because what is
required is just legal capacity.
( 3rd vid)

But there are certain people, who are disqualified
from selling property. Such as; husbands or wives
or spouses, including common law relationships
(living as husband and wife without the benefit of
marriage). In Ching vs. Goyanko, the court
explained why sale between persons living as
husband and life without the benefit of marriage is
also prohibited. The courts said the proscription
between spouses even applies to common law
relationships. The prohibitions apply to a couple
living as husband and wife without the benefit of
marriage, otherwise, this is a very conservative
declaration by the SC, the condition of those who
incurred guilt, would turn out to be better than
those in legal union. Well, I do not know if people
who live together as husband and wife without the
benefit of marriage, feel guilty about the
relationship. But that’s what the court said.
What about spouses?
One spouse cannot sell property without the
consent of the other. If under the Civil Code, SC
said it's merely voidable; it's not void. But under
the family code, you know it is void.
Persons in trust relationship
Sale to executor or administrator of the property
under administration. An administrator cannot
acquire by sale, a property under administration.
That is prone to abuse.
Purchase by an agent of the property entrusted by
the principal is prohibited, unless of course, if the
principal themselves sell the property to the agent.
But if the agent, as an agent, purchases the
property entrusted by the principal, that is
prohibited.
It's also prohibited for guardians to acquire the
property of the ward. In the case of Phil. Trust Co.
vs Roldan, the guardian here obtained permission
from the court to sell property of the ward to
purchase another property. It was granted by the
court, what the guardian did is she sold the
property to her brother-in-law. And shortly after, the
brother-in-law sold the property to her, in order to
circumvent the prohibition. The court still annulled
the sale. The court said guardianship is a trust of
the highest order, and that the trustee cannot be
allowed to have an inducement to neglect his
ward’s interest and in line with the court's suspicion
whenever the guardian acquires the property. It
annulled, it did not declare null and void therefore
the contract is voidable.
Sale to a public officer. Maharlika Broadcasting vs
Tagle. Tagle here, was an employee of GSIS and
GSIS sold property in an option sale. Mr. Tagle
here knew that he was prohibited from participating
in the option sale, because he was employed by
the GSIS. So what he did was he had his wife
participate in the bidding. Maharlika Broadcasting
questioned the participation of Mrs. Tagle in the
bidding. The Court said Mrs. Tagle, acts for and in
the name of her husband, in any transaction with
GSIS, if he is allowed to participate in the public
bidding of properties foreclosed or confiscated by
the GSIS. There will always be suspicion among
other bidders and the general public. That, the
insider official had access to the information and
connections with his fellow GSIS officials as to
allow him to eventually acquire the property. That
is precisely the need per stall such suspicion and
to restore confidence in the public service. The civil
code now declares such transactions VOID. From
the beginning and not merely voidable.
Sale to attorney. Gurrea vs Suplico. The
agreement between Atty. Suplico and his client
agreed that he would be paid on a contingency
basis, he would be entitled to a share of whatever
property that would be awarded to his client.
During the pendency of the estate proceedings.
The property was already distributed among the
heirs, the only thing that was lacking was for the
court to declare the proceedings terminated. So it
was towards the end already, very close to the
finish line. Atty. Suplico calls his client to exercise
the deed of conveyance in his favor, because that
was their agreement. But then the client died and
the heirs questioned the transfer. The court said
having been established that the subject property
was still the object of litigation, at the time the
subject deed of transfer of rights and interest was
executed. The assigning of rights and interest of
the subject property in favor of Atty. Suplico, is null
and void, for being violative of ARTICLE 1491 of
the Civil Code. Which expressly prohibits lawyers
from acquiring property or rights which may be the
object of any litigation in which they may take part
by virtue of their profession. Transfer is prohibited.
WHAT ABOUT MORTGAGE, just to secure the
client's obligation to the lawyer is mortgage
allowed? Also no, in Fornilda vs. RTC. The fact
that the properties were first mortgaged and only
subsequently acquired in an option sale long after
the termination of the intestate proceedings will not
remove it from the scope of the prohibition, to rule
otherwise would be to countenance indirectly what
cannot be done directly, so mortgage is prohibited.
What is the rule when an incompetent buys? The
incompetent must pay a reasonable price for the
necessaries delivered to them.
What are the effects of the forbidden saled
between husband and wife? Void.
Sale by one spouse only, it depends, under the
Civil Code voidable, under the family code void.
Between Persons in public trust relations? It is
void, as what we have seen in, Maharlika vs Tagle
But Persons in private trust relations, as what is
seen in Phil. Trust Co. vs Roldan, it is merely
voidable.

What about demand for delivery? Is it also

prohibited? In Ramos vs. Ngaseo, the court said
mere demand for delivery of the litigated property
does not cause the transfer of ownership, hence,
not a prohibited transaction within the
contemplation within ARTICLE 1491. Even
assuming arguendo that such demand for delivery
is unethical, respondents’ act or Atty. Ngaseo’s act
does not follow in the purview of 1491. So for
lawyers, if it involves property which is still under Our Civil Law principles and Laws were
litigation, you can only remind your clients, please copied/borrowed from Roman principles and
remember your obligation to deliver to me a portion common law principles, and Roman Law.
of what you have received. But after termination of
the litigation, go ahead, demand the delivery of
property.

From the moment of the perfection of the contract

of sale, the risk is borne by the buyer, but
ownership is only transferred upon delivery. So in
other words whether or not there is delivery upon
perfection of the contract the buyer bears the risk
of loss.
Under common law, ownership is transferred to the
buyer upon perfection of the contract. And the
owner bears the risk of loss. Even if there is no
delivery yet, because the ownership is already
transferred the moment the contract is perfected.
The buyer is the Owner of the property. Pursuant
to res perit domino, buyer is liable or shall bear the
risk of loss. Either way both under Roman law and
common law principles from the moment of the
perfection of the contract the buyer bears the risk
of loss.
What about under the civil code? The civil code,
we adopted the roman law principle that ownership
is transferred by delivery. We also adopted the
common law principle of res perit domino.
So, not necessarily the buyer does not bear the
risk of loss from the perfection of the contract.
Because the buyer becomes the owner only upon
delivery.
So what are the effects of the loss of the things
sold. Before perfection, because of res perit
domino, then the purported seller bears the loss.
At the time of perfection, the contract is inoperative
because there is no object.
If there is partial loss then it is the option of the
buyer to proceed with the contract orr to withdraw
from the contract.
If there is merely deterioration or damage, if it is
material then it is equivalent to a total loss,
therefore the contract is inoperative.
The issue arises, when the loss occurs after
perfection but before delivery. But if it's through the
fault of one party, the party at fault is liable. A
Fortuitous event. We have conflicting opinions
from our civillists. According to Paras, the
obligation to deliver is extinguished, but the
obligation of the buyer to pay is not extinguished.
Pursuant to Article 1262, what does it say, an
obligation which consists in the delivery of an
indeterminate thing shall be extinguished if it
should be lost or destroyed without the fault of the
debtor and before he has incurred in delay. So
1262, and you have discussed that in your
Oblicon.
According to Padilla, when the subject matter of
the sale is lost without the fault of the seller, he is
released from his obligation to deliver the thing,
when the buyer’s obligation to pay subsists. The
effect is that the buyer assumes the risk of loss of
the object of sale from the time of perfection up to
the time of delivery.
What is another justification, because under 1164,
and you have discussed this just very recently, the
creditor has the right to the fruits of the thing from
the time the obligation to deliver it arises. So if the
creditor has a right, in relation to a contract of sale,
the creditor here refers to the buyer. So, lets
modify this, if the buyer is the creditor we’ll change
the parties, the buyer has the right to the fruits of
the thing from the time the obligation to deliver it
arises. However, he shall acquire no real right until
the same has been delivered to him. So if the
buyer has the rights to the fruits from the time of
the perfection of the obligation, the consequence is
that, the buyer should also bear the loss, from the
time of perfection before delivery. Which is
apparently consistent with 1262.
But, Tolentino has a different view, he said the
vendor should bear the loss and the vendee shall
not be bound for the price for the following
reasons. It is fundamental in the new civil code,
expressed in 1477 and 1496 that ownership is
transferred by delivery. Hence, before delivery the
vendor owns the thing and should suffer the loss,
precisely, res perit domino. Second, the obligations
of the vendor and the vendee are reciprocal,
therefore one depends upon the other, if the
obligation of the vendor to deliver is extinguished,
the correlative obligation of the vendee to pay
which depends upon it cannot remain subsisting.
Lastly, 1480 paragraph 3 is not an exception but is
an expression of the general rule, that risk is not
imputed to the vendee until after delivery.
Now my personal view is that, if the thing is lost,
after perfection but before delivery through a
fortuitous event, that the contract of sale should be
extinguished totally, meaning both the obligations
of the vendor and the vendee should be
extinguished. Which is just equitable because the
very reason where the vendee promised or
undertook to pay the price is because of the legal
expectation to receive and become the owner of
the thing. Which the vendor cannot now perform.
Okay document of title is any document used in
the ordinary course of business in the sale or
transfer of goods as proof of possession or control
of the goods, or authorized in the possession of
the government of transfer or received either by
imbursement or by delivery of goods represented
by such document.
If you have taken up NIL either in the undergrad or
are there 2nd year students joining us now? Wala?
So the 2nd year law students are taking up NIL
now. If you’ve taken up NIL before, forget for a
moment NIL because you have not totally different
because there are different provisions on certain
aspects of the documents of title
But just like any other negotiable instrument, a
document of title can be issued either as
negotiable document or non negotiable document,
a negotiable document title is one where it is
stated that the goods refer to therein will be
delivered to the bearer or to specific person or
order or to the order of any person named in the
document. If the goods are deliverable to bearer,
or to pedro in order, or to the order of pedro, then
the document is a negotiable document title, but if
the words non-negotiable are also stamped on the
face of the document would it affect the
negotiability? No it will not.
Now what about a non-negotiable document of
title, well it is one where it is stated that the goods
will be delivered to the bailor or depositor or to any
other specified person. The party who issues the
document is called the bailee, because it is the
bailee who receives the goods. The person who
delivers the goods to the bailee is called the bailor.
If you talk about bill of lading, the bailee here
would be the shipping company, the shipper would
be the bailor.
 Okay Juan endorses the document to Pedro,
Pedro goes to the bailee and demands delivery of
the goods to him. But the bailee, refuses to deliver
the goods to Pedro. Can Pedro hold Juan liable?
For the failure of the bailee to deliver the goods to
him. The answer is no. The endorser is not liable
for the failure of the bailee or previous endorser, to
fulfill their respective obligations.

2 ways by delivery and by endorsement. Letter b

here by endorsement must be coupled with
delivery. So in what form must the document be for
it to be negotiated by mere delivery, no more,
nothing to be done on the document, just deliver it
and that’s negotiation already. When on its terms
the goods are deliverable to the bearer. (ambot
unsa iya gimean I promise mao ni iya gisulti). And,
even though the goods are deliverable to the order
of a specified person. On the face of the Now what are the warranties of a person
document, here, the goods are deliverable to the negotiating. Take note that the document is
order of Pedro, but Pedro endorsed in blank or genuine, that the endorser has a, or the person
endorsed it to bearer. What is endorsement in negotiating or transferee, has the right to negotiate
bearer, you just signed. What is endorsement to or transfer knowledge of known fact that which
bearer, delivered to bearer. Then it is converted would impair the validity of worth of the document.
into a bearer document. And it can be renegotiated And right to transfer the title of the goods. Take
by mere delivery. Can it be negotiated by note, there is no warranty, if the person
endorsement? Yes! Now another question, if the negotiating, that the bailee will deliver the goods.
goods are deliverable to the bearer can it be
negotiated by endorsement? Yes! But it can also
be negotiated by mere delivery. Now by
endorsement, coupled with delivery, what form
must the document be? Well by its terms the
goods are deliverable to the order of a specified
person named therein. So there has to be
endorsement by that person. So there are 3 kinds
of endorsements, There is endorsement in blank,
by merely signing. Endorsement to bearer, by
writing delivery or deliverable to bearer and then
signed.

What are the rights acquired by the transferee to a

And then Special endorsement, or endorsement to
a specified person, deliver to Pedro, signed juan.
Now if its deliver to Pedro, signed juan, there is no
word of negotiability, theres no deliver to pedro
order, is the negotiability affected? No not at all.
duly negotiated document of title. Such title to the
goods, we always refer to the goods not to the
document, because the document itself, by itself
has no intrinsic value. It is the goods represented
by the document that has value. Okay such title to
the goods as against the person negotiating, so
between the person negotiating and the holder, or
the transfer of document of title, the transferee has
a better right. Such title to the goods as the person
to whose order the goods are deliverable. To the
person who initially delivered the bailor to deliver
the goods to the bailee. So if the bailor stole the
goods from another person, in other words the
bailor has no title over the goods, then nothing is
transferred to the transferee, the transferee
acquires no title over the goods, Why? Because
the bailor has no title in the first place. Take note,
our mantra in sales is nemo dat quod non habet,
you cannot give what you do not have. And the
third right is very important. The direct obligation of Now what about if it’s a non-negotiable document
the bailee to hold possession if the goods for him. of title. Does the transferee acquire any right at all?
No need to notify the bailee that you are now the Yes! The transferee acquires title to the goods as
new owner of the goods. The bailee will not against the transferor. If the transfer has no rights
release the goods even if there is a writ of over the goods because he stole the document.
attachment. For as long as the document is not Then no title passes to the transferee. Or if the
surrendered to him. transferor stole the goods, he has no title over the
goods. Then no title passes to the transferee. The
transferee also has the right to notify the bailee of
the transfer. Because it is only thereafter, meaning
after notification to the bailee, that the transferee
holds the bailee liable for the possession of the
goods for him. Compare this with the rights of the
transferee of a duly negotiated document of title.
The transferee acquires the direct obligation of the
bailee to hold possession of the goods for him.
Even without notifying the bailee. But, if it’s a
non-negotiable document of the title, you have to
notify the bailee that you are now the new owner of
the goods, and it is only thereafter that you acquire
the obligation of the bailee to hold the goods for
you. And therefore to not surrender the goods to
any other person. Unless it is attached by your
Now if you have an order document, because the own creditor. Because you are already the owner
goods are deliverable to the order of Pedro. And of the goods.
Pedro merely transferred the document to you,
merely delivered the document to you without
endorsing it. Between Pedro and you, you have a
better title over the goods. But you go to the bailee
and demand delivery of the goods to you, the
bailee does not find any order of pedro, he does
not find any signature of pedro, the bailee will not
honor that. So what will you do? You compel the
transfer, you compel Pedro to endorse the
document. You go back to the bailee and demand
delivery of the goods the bailee has to honor,
because it was now properly endorsed to him.

If the goods are covered by a negotiable document

of title. The goods GENERALLY, cannot be
attached. UNLESS, the document is surrendered.
Back to rights acquired duly negotiated slide

Let us go back here again, we have acquired the

direct obligation of the bailee to hold possession of
the goods for you. That’s why, if a creditor of your
transferor presents a writ of attachment to the
bailee, the bailee can rightfully refuse. Why? What
is the rule? Surrender to me the negotiable
document of title. If the party attaching the goods
cannot surrender, then the bailee cannot be
compelled to surrender the goods. What are the
EXCEPTIONS? Of course, if the document is
surrendered, or when the negotiation is enjoined
by the court. But if its not covered by a
non-negotiable document of title.

LETS GO BACK HERE. BALIK SA RIGHTS

ACQUIRED BY a non-negotiable slide.

To notify the bailee of the transfer. So you are the

transferee of a non negotiable document of title,
you have not notified the bailee that you are now
the owner of the goods, in the meantime a creditor
of your transferor obtains a writ of attachment from
the court and the sheriff goes to the bailee and
presents the writ of attachment. Will the bailee
honor the writ of attachment? Yes, why? Because
as far as the bailee is concerned the owner of the
goods is still your transferor. But after you notify
the bailee that you are now the new owner of the
goods. The consequence being, that you now
acquire the obligation of the bailee to hold the
goods for you. If a creditor of your transferor,
through the sheriff, presents a writ of attachment to
the bailee. Then the bailee can now validly refuse
to honor the attachment. Why? Because the goods
are owned by you and not by your transferor
anymore. So these are the effects, if the goods are
covered by a negotiable document of title and a
non-negotiable document of title.
2ND MEETING TRANSCRIPTION
*T/N: the recording starts 10mins late* sa first
meeting sad ill try to find

But there are exceptions when title passes even

when there is no delivery; meaning there is no
transfer of possession, (deliver in the sense of
transfer of possession to the buyer):
1. When the buyer unjustifiably refuses to
accept, the law says that ownership is
nevertheless transferred to the buyer

Now what is the effect?

● If ownership is transferred to the buyer,
despite nonacceptance (because the non
acceptance is unjustified) if the buyer has
not yet paid the price, the buyer is obliged
to pay the price
● If the thing is lost, the buyer bears the risk
of loss even if there is no actual delivery
made to him or to her.

The 2nd exception where ownership is transferred

even without actual delivery to the buyer is:
2. When the goods are delivered to the carrier
for transmission to the buyer, because the
general rule us that delivery to the carrier is
delivery to the buyer, that is the general
rule.

There are also instances when there is delivery

(meaning transfer of possession) but ownership is
not transferred to the buyer; first is:
1. Delivery on approval or trial
● When is ownership transferred to the
buyer? When the buyer signifies
 acceptance or approval or even if the buyer
does not signify his or her approval or
acceptance, if the buyer performs an act
signifying adoption of the contract; for
example: offering the thing for sale, this is
an act of _____;
● another instance if the buyer retains the
thing beyond the trial period; if there is a
trial period agreed beyond reasonable time
without giving notice of rejection of the
thing
2. In case of (express) reservation of title
● This is an express reservation on the part
of the seller like in a contract to sell where
the seller expressly reserves his ownership
until after fulfillment of a suspensive
condition.
3. In case of implied reservation of title
(1503)
● The instances are enumerated in 1503.
When the goods are deliverable to the
seller: the good are delivered to the carrier
but by terms of the bills of lading the goods
are deliverable to the seller not to the
buyer, that is an implied reservation of title.
Or if there is a negotiable bill of lading
issued (remember? Negotiable document
of title?) here your undertakes to deliver the
goods to the order of the seller or to the
order of the seller’s agent; that is an implied
reservation of title
● Second is, if by the bill of lading, the goods
are deliverable to the order of the buyer or
his agent BUT the seller retains the bill of
lading; this is also an implied reservation of
title
● And lastly, if a bill of exchange is delivered
together with the bill of lading to the buyer;
a bill of exchange is an order directing the
buyer to pay and that must be accepted by
the buyer, if the buyer dishonors the bill of
exchange or the demand draft then he or
she must return the bill of lading to the
seller because he or she is not willing to
pay. So it does not transfer ownership
unless or until the buyer accepts the bill of
exchange or the demand draft
4. Double sales (1544 applies)
● In the case of double sales (we will be
discussing double sales later…)
● Double sales is when there is one seller
selling the same property to the two
different buyers representing different
interests. One buyer has in his possession
a public document of sale and has
registered the sale, the other buyer did not
register the sale, has no public document of
sale BUT is in actual possession of the
property, we are talking here of real
property. Now the buyer who is in actual
possession cannot be deemed the owner of
the property if the other buyer first
registered the sale in good faith. Even if
there is possession, if this possessor did
not register the sale and the registrant
acted in good faith, then it is the registrant
who has not actual possession who has a
better right over the p
5. When the seller is not the owner
● And lastly ofcourse, if the seller is not the
owner then delivery will not transfer
ownership to the buyer EXCEPT if the real
owner is in estoppel, if the sale is made
under recording laws(???), if the sale is
made under statutory power to sell (such
as in an execution sale) or the sale is in
merchant store fairs or markets(???)
Where and when must delivery remain?
When must delivery be made?
It must be delivered according to the agreement of
the parties, if there is no stipulations as to time of
delivery then delivery must be made within
reasonable time. Now in the old old case, this case
is more than 100 years old: Smith Bell & Co. v.
Matti, the contract was entered into in August of
1918, for several items: two steel tanks to be
delivered within 3 or 4 months, that is 3 or 4
months from august 1918, and two expellers to be
shipped from san francisco, california in september
1918 or as soon as possible, and two electric
motors to be delivered approximately 90 days but
not guaranteed. Now what were the actual dates of
delivery or shipment?
For the two steel tanks which was to be delivered
3-4 months - these were actually delivered in april
1919, this was after 8 months
The two expeller which were supposed to be
shipped in september - were actually shipped in
october
And lastly, the electric motors which were
supposed to be delivered approximately within 90
days (but not guaranteed were) actually delivered
on february of 1919 or after 6 months
But taking the circumstances attending of that
time, the court said, we hold that the said
machinery was brought to manila by the plaintiff
within a reasonable time, therefore, Smith Bell has
not been guilty of any delay in the fulfillment of its
obligation. Now you have discussed just maybe a
few weeks ago that there are instances when the
debtor is charged/guilty of default even if there is
no demand from the creditor when time is of the
essence. Now when do you consider time to be of
the essence in a contract of sale? Is it implied?
Answer is no. In Lorenzo shipping, the court said in
determining whether time is of the essence in a
contract, the ultimate criterion is the actual or
apparent intention of the parties and before time
may be so regarded by a court there must be a
sufficient manifestation, either in the contract itself
or the surrounding circumstances of that intention.
And then Lorenzo shipping cited this old old case
of Smith Bell & Co. v. Matti, citing smith bell, the
court said: when the time of delivery is not fixed or
is stated in general and indefinite terms, time is not
of the essence of the contract. In such cases,
delivery must be made within a reasonable time.
Again, what is a reasonable time is a question of
fact.
Now place of delivery:
Where must delivery be made?
First, wherever is the place stipulated by the
parties or whatever is the place of delivery as
established by usage. Now in the absence of
stipulation or usage of trade, delivery shall be
made in the place of business of the seller if not
the residence of the seller. Now if the thing is not in
the place of business or residence of the seller, it is
somewhere else, then delivery shall be made in
the place where the thing is at the time of the sale.
If you notice, we have the same rules in obligations
and contracts, you just replace the seller with the
debtor because in so far as the obligation to deliver
is concerned in a contract of sale, the seller is the
debtor.
In connection with the obligation to deliver, the
seller must arrange the transportation of the goods
to the place agreed on reasonable terms. So if it is
agreed that delivery shall be made at a certain
place then the seller must make arrangements for
transportation on reasonable terms. If it is usual to
insure the goods, then the seller must notify the
buyer of the need to insure because if he fails to
perform this task then he bears the risk of loss.
Now we will just very very briefly discuss of the
unpaid seller of goods. The premise here is that
ownership is already transferred to the buyer but
the goods are not yet in the actual possession of
the buyer. There are four rights enumerated in the
law but if you noticed there is number 2: stoppage
in transitu, that is no longer practiced nowadays
because the only ground of stoppage in transitu is
the insolvency of the buyer and you do not acquire
knowledge/notice of the insolvency of the buyer
overnight. Nowadays when you ship goods from
manila to mindanao, like davao, it takes only two
days, unlike maybe in the 1950’s or earlier than
that when the law was drafted when it would take
weeks or months before the goods arrive at the
destination. But now we communicate in real time
and sometimes goods are transported in air cargo,
so in just a matter of hours, the goods arrive at the
destination, so there is no time to stop the goods in
transit.

So first right of the unpaid seller is the right of
retention or possessory lien, the premise here is
that the goods are still in the possession of the
seller although already owned by the buyer.
Exercising possessory lien is to refuse to deliver
the goods to the buyer under what instances?
1. First is, if the sale is made without
stipulation as to credit and the seller does
not tender payment because the
presumption is if there is no stipulation that
the sale is on credit then there must be
simultaneous performance with the buyer
and seller but if the buyer does not tender
payment then the seller has the right to
retain the goods
2. Second is the if there is a stipulation as to
credit but the period has expired already
without the buyer tendering payment to the
seller
3. And lastly, when the buyer becomes
insolvent
In any of these three instances, the seller is
justified in exercising possessory lien. Now if the
lessor has already exercised possessory lien, what
will he or she do with the goods? Now we go to
number three:
Right to resale or right to resell
Well this right is not always present every time
possessory lien is exercised because there are
only three instances where the seller can exercise
this right:
1. First is if the goods are perishable
2. Second is when the seller expressly
reserves the right to resell incase of default
on the part of the buyer
3. And third is, even if there is not express
reservation on the part of the seller to resell
their goods in case of default, but if the
buyer has been in default for an
unreasonable time (again what is an
unreasonable time is a matter of fact)
In any of these instances, if the seller has
previously exercised possessory lien then the
seller may resell the goods
Then the next question: is it required for the seller
to notify the buyer of the intention to resell?
Answer is no. Is it required of the seller to notify
the buyer of the place and time of the resale?
Again the answer is no. However, if the reason r
the ground of the resale is the default of the buyer
for an unreasonable time (third instance) then
notice of the intention to resell is material to
establish the fact of default. Why do you need to
establish the fact of default for an unreasonable
time? Because if the goods are sold at a loss, the
seller can recover the loss from the buyer (the first
buyer). If the seller to attempts to recover the loss
from the first buyer, that first buyer may raise the
defense that he or she was not in default for an
unreasonable time. Therefore, if only to establish
that fact of an unreasonable time, notice is material
that it will not affect at all the validity of the resale.
Why do we say resale, btw? Because the goods
have been previously sold to the buyer. In fact, the
premise is: ownership has been transferred to the
buyer.
Number 4 here: right of the unpaid seller is to
rescind the sale. And there are only two instances
when the seller can rescind the sale:
1. First is when there is an express
reservation of the right to rescind the sale
incase of default
2. And second is when the buyer has been in
default for an unreasonable time.
How is rescission manifested? By giving notice to
the buyer of the intention to rescind or by some
other overt acts manifesting an intention to rescind
which need not be communicated.
Completeness of delivery
Even in your obligations and contracts, we learned
that the creditor cannot be compelled to accept
partial performance on the part of the debtor. Also,
we also learned in oblicon that the debtor is
obliged to deliver not only the thing but also the
fruits and accessions from the time of the
perfection of the contract when the creditor
acquires a personal right over the fruits but only
acquires a real right over them upon delivery. That
is also true in sales. All that is mentioned in the
contract including accessions and accessories
must be placed in the control of the buyer

Now what if there is a deficiency in case of sale of
real property? Sale of real property in the
Philippines can be effected two ways: [1] first is
sale per unit of measure, the unit measure of sale
of real property in the Philippines is m^2, [2] the
other mode is sale for a lump sum, regardless of
the area, so single price only. So if the property is
sold per unit of measure (meaning per square
meter) if there is a deficiency in the area of at least
10% the remedy of the buyer is either: (a) for
reduction of the price or (b) rescission of the
contract. Take note, rescission can be availed of
only if the deficiency is at least 10 percent of the
area. If the deficiency is less than 10% of the
area… what is 10% of the area? For example the
agreement is for the sale of 100 sq.m. of the parcel
of land but the actual area delivered is 87%, the
deficiency is more than 10%, because 10% of
100sq.m. is 10 sq.m., in that case, the buyer has a
choice either to sue for reduction of the price or
sue for rescission of the contract. Now, if the
deficiency is less than 10% of the area but the
buyer would not have purchased had he or she
known of the deficiency in the area, then the buyer
is entitled to rescind nevertheless even if it is less
than 10%. Now what if there is an excess? Can the
buyer refuse to accept delivery at all? Answer is
no. Buyer must accept the area agreed, buyer may
reject the excess or accept the excess. Now if the
buyer accepts the excess then the buyer must pay
at the contract rate.
Now if the real property is sold for a lump sum or a
single price, the general rule is that there shall be
no increase or decrease in the price on account of
a greater or lesser area. So regardless of the area,
everything within the boundaries must be delivered
to the buyer. So if it is sale for lump sum or single
price, the boundaries of the property are indicated
in the contract, so regardless of everything in the
boundaries must be delivered to the buyer,
regardless of the apparent deficiency or excess in
the actual area.
Now if the seller does not deliver everything within
the boundaries then the buyer is entitled to a (a)
reduction of the price or (b) recision of the contract.
Again because the rule is there should be no
increase nor decrease in the price but of course,
the difference in the area must not be
unreasonable. In one case, the difference of the
area was one hectare, because it was stipulated in
the contract that the property consisted of 5
hectares when it was only 4 hectares, the court did
not consider the deficiency of the area as material.
Now when may the buyer sue for reduction of the
price or recission of the contract? The law says:
within 6 months from delivery.
Here is where Cebu Winland emphasized the
concept of delivery. From what point in time doe
we reckon the 6 month period? So in the cebu
winland case, the court said: delivery as used in
the law on sales refers to the concurrent transfer of
two things: possession and ownership. Because
in the cebu winland case, there was this contract to
sell over two condominium units. So in the contract
to sell the area of the two condo units was
indicated, and there was express reservation of
title on the part of the seller, in fact there was a
stipulation that the deed of absolute sale would be
executed only upon full payment of the purchase
price. In the mean time, the buyer was allowed to
take possession of the two condo units. When the
buyer fully paid the price, the seller sent the deeds
of absolute sale over the property, and then the
buyer noticed that the area indicated was smaller
than the area previously agreed, then the buyer
caused a survey of the two units and it was
determined that there was deficiency of about
30sq.m. in each unit. Substantial difference in the
area, substantial deficiency of more than 10%. So
the buyer sued for recovery of the price
corresponding to the deficiency on the area. The
seller invoked prescription, because the seller said
that the buyer was already in possession for more
than 6months, the condo units were delivered
more than 6months, in fact, several years prior.
The court said, there was no delivery yet, and
therefore, the action has not prescribed yet
because delivery, as used in the law of sales,
refers to the concurrent transfer of two things:
possession and ownership. I WANT YOU TO
TAKE NOTE OF THAT.

Now for movables.
If there is a deficiency in quantity or quality, the
buyer may refuse to accept. Period.
But can the buyer accept? Yes.
If the buyer accepts, knowing that the seller can
no longer complete delivery, then the obligation
of the buyer is to pay at the contract rate. But if the
buyer accepts NOT knowing that the seller can no
longer complete the delivery and in the mean time,
has consumed or has disposed of the goods
before the buyer learns that the seller can no
longer complete the delivery, then the buyer is only
obliged to pay a fair value for the goods, not the
contract rate. In other words, the buyer will pay a
much lesser price than the contract rate. Why?
Because we have to consider here the loss or the
damage suffered by the buyer because of the
incomplete delivery. Now if what is delivered by the
seller is in excess of the quantity ordered, the
buyer must accept the quantity agreed and he or
she may reject the excess. Or the buyer may
accept the excess and pay at the contract rate.
Now if the goods are mixed with the others, the
buyer is obliged only to accept the goods covered
by the contract. But if it is impossible to segregate,
or the thing is indivisible, then the buyer can reject.
When is the seller excused from delivering?
In cash sale: if no payment is made unless a
period for payment is stipulated
In sales on credit: if the right to the period is lost,
under 1198, and you’ve memorized that, I’m pretty
sure.
And also, the seller is excused from delivery if the
seller has previously exercised possessory lien.
Double sales
When we say double sales, as I have previously
mentioned, we are looking at a scenario where one
seller sells the same property to two buyers
representing conflicting or different interests.
In the case of sale of real property, two whom shall
ownership belong? The law says, it shall belong to
the person who first registers the sale in good faith.
Now Gabriel v. Mabantay emphasized that the
requirement of the law is two-fold: acquisition in
good faith, and registration in good faith.
Meaning, if the buyer has previous knowledge that
the property has been previously sold to another
person or that another person is claiming
ownership over the property and yet the buyer
proceeded with the sale and registers the sale, that
buyer cannot be considered a registrant in good
faith.
In fact in Coronel v. CA, the same case that we
previously discussed last week, the second buyer
here, Catalina Mabanag registered the sale, but
when she registered the sale, there was already a
notice of lis pendens annotated on the title by the
first buyer Alcaraz. The court said, the notice of lis
pendens by the first buyer before the registration of
the sale by the second buyer does not make the
latter a buyer in good faith, if a vendee in a double
sale registers the sale after he has acquired
knowledge that there was a previous sale of the
same property to a third party or that another party
claims said property in a previous sale, the
registration will constitute a registration in bad faith
and will not confer upon him any right.
Now if there is no registration, to whom shall
ownership belong? Then we go to the second rule:
the person who takes possession in good faith.
Now what have we learned in delivery?
“Constructive delivery: execution of a public
document for as long as there is no legal
impediment in effecting actual or transferring
actual possession to the buyer,” that is tantamount
to delivery. So constructive execution of a public
document is delivery that means it transfers
constructive possession to the buyer.
Back to double sales:
The law says,if there is no registration then the
person who has possession has the better right
over the property. In one case, and this is an actual
case, the first buyer did not take actual possession
but the seller executed a public document, but this
first buyer did not register the sale so there was no
registration, but again the first buyer has a public
document of sale. The second buyer had a private
document of sale, meaning not notarized, there
was a deed of sale but not notarized, but the
second buyer, took actual possession of the land.
The question is, who has a better right over the
property? The court said: the first buyer who had a
public document because in Sanchez v. Ramos,
the court said: the possession mentioned in 1473
includes not only the material but also the symbolic
possession which is acquired by the execution of a
public document. Now there is no registration,
there is no possession, both buyers are in
possession of private documents of sale, then
ownership shall pertain to the buyer who presents
the oldest title. Oldest title here does not refer to
the certificate of title because if you have one older
title and one newer or recent tile, the older title has
already been canceled by the newer one. So
oldest title here refers to the document of sale.
Now for movables, well, ownership is transfered to
the person who has first taken possession in good
faith. If you have noticed, we always mention of
good faith, “person who first registers in good
faith.”
But what is good faith?
Wayne/Quay/Kay v. Henson says: a purchaser in
good faith is one who buys property of another
without notice that some other person has a right
to or interest in such property and pays a full and
fair price for the same at the time of such purchase
or before he has notice of the claim or interest of
some other person in the property. Good faith
consists in an honest intention to abstain from
taking any unconscious advantage of another.
Good faith is an opposite of fraud and of bad faith
and its non existence must be established by
competent proof. Good faith or the lack of it is, in
its last analysis, a question of intention. But in
ascertaining the intention by which one is actuated
on a given occasion, we are necessarily controlled
by the evidence as to the conduct and outward
acts by which alone the inward motive may, with
safety, be determined. So that ends… yes there, is
a question:
Q: for double sale, does public document also
include tax declaration for properties?
A: no, tax declaration is not a public document.
Public document here refers to the document of
sale, the deed of sale. We are not talking of titles
here. So public document here refers to the
document of sale: the contract sale or the deed of
absolute sale, not tax declaration. Does that
answer your question? … Shall we have a short
break? I have no more voice. So next we will take
up conditions and warranties. Let’s have a 5 min
break.
—-----------------------------------------------------------------
Okay conditions and warranties
You have also just discussed conditions in
obligations and contracts.
And you have defined what a condition is and you
have discussed the consequences of the non
fulfillment or fulfillment, especially of a suspensive
condition. Now in relation to sales, if one of the
party’s obligation is dependent upon the fulfillment
of a positive suspensive condition, and that
condition is not fulfilled, then this party may refuse
to proceed with the contract, or this party may
waive the fulfillment of the condition and proceed
with the contract. Now if the condition, which as we
have defined in oblicon is an uncertain event which
may or may not happen, is promised by one party
that it WILL happen then it partakes of a
WARRANTY especially if the other party,
especially the buyer, relies on that affirmation that
the condition will happen, then it pratakes of an
express warranty. What is a warranty?
This concept of warranty is actually a description of
what an express warranty is. But we have two
kinds of warranties: we have:
1. express warranty and
2. implied warranty
An express warranty is an affirmation of fact or
promise by the seller relating to the thing, inducing
the buyer to purchase the thing in reliance of that
affirmation or promise. Note about seller’s opinion.
Is a seller’s opinion equivalent to an express
warranty? Generally, no. Like if I offer to sell to you
my 7 year old laptop computer and I tell you it
works like new, would you believe me? Would that
be an inducement to you to purchase the laptop
from me knowing that it is a 7 year old laptop?
Does a 7 year old laptop work like new? Of course
not and you cannot claim that you relied on my
statement but you were induced to purchase
because of my statement, especially that I am no
expert on computers. You know more about
computers than I do. So again, the general rule is,
a seller's opinion is not a warranty, unless the
seller is an expert whose statement was relied
upon by the buyer. Now in one case: the buyer
purchased the vehicles. These were imported,
probably used vehicles. At the time, we were still
allowed to import vehicles and import them in the
Philippines, I don’t know nowadays but there was
an assurance by the seller that the import taxes
and duties were already [sound distorted ….
Disconnected…] … purchased the two delivery
trucks but shortly after delivery and while the
trucks were plying the roads of metro manila, these
were impounded by the government for non
payment of the full amount of taxes and duties,
and so the buyer sought for the reimbursement of
the taxes that she was obliged to pay otherwise,
the vehicles would be indefinitely impounded by
the government. This is Harrison motors v.
Navarro. The court said: when harrison motors
expressly intimated to miss navarro that it had
already paid the taxes and customs duties, the
representation is considered as a seller’s express
warranty under 1546 of the civil code, which
covers any affirmation of fact or any promise by
the seller which induces the buyer to purchase the
thing and actually purchase as if relying on such
affirmation or promise. So the court here ruled in
favor of the buyer.
Now what about a statement that the property is
free from liens and encumbrances, this refers to
real property ah, but there were actually tennants
on the property. Does the statement that the
property is free from liens and encumbrances
imply or include the warrant that there are no
tennants on the property? Answer is no. Because
in Investment and Development Incorporated v.
Gatpayat, the court said: that the property was free
from all liens and encumbrances. Where there are
tenants on the land. Tenancy cannot be considered
a lien or encumbrance unless so expressly stated.
So if there is an express statement in the contract
that the property is free from claims of any tennant
or agricultural workers but there are in fact tenants
and agricultural workers then that is a breach of an
express warranty.
What is the prescriptive period to enforce the
warrant? For to sue for breach of the express
warranty? Whatever is the period stipulated in the
contract. But if there is no period stipulated then
the general rules on prescription will apply,
according to Ang v. CA, which is 4 years under Art.
1389.
Now we go to implied warranties.
What is an implied warranty?
An implied warranty is that which the law derives
by application or inference from the nature of the
transaction or the relative situation or
circumstances of the parties irrespective of any
intention of the seller to create it. It is one that is
not expressly made in the contract of sale but is
inherent in the contract and deemed incorporated
therein. Now in ObliCon, you learned that there are
three elements of a contract. You have the
essential elements, the natural elements, and the
accidental elements. So the implied warranties
belong to the natural elements of a contract,
deemed incorporated even if not expressly
stipulated.
So we have first implied warranty: warranty against
eviction.
Now according to 1548, eviction shall take place
whenever, by a final judgment based on a right
prior to the sale, or an act imputable to the vendor,
the vendee is deprived of the whole or a part of the
thing purchased. So eviction is the deprivation of a
part or the whole of the thing purchased. Two ways
of eviction: either by [1] final judgment based on a
right prior to the sale or [2] by an act imputable to
the vendor. What is an example of an act
imputable to the vendor? Failure to pay realty
taxes over several reals causing the sale of the
property upon the instance of the government to
pay for the unpaid real estate taxes.
Now if eviction is by final judgment, what are the
requisites before the buyer can sue the seller for
breach of this implied warranty? [1] First is that the
buyer must be deprived of the whole or a material
part of the thing sold, [2] the eviction must be by
final judgment, take note you don’t have to go up
to the supreme court and obtain a certificate of
finality or an entry of judgment from the supreme
court before you can sue. If the buyer does not
appeal from the decision of the trial court and
allows the decision to be final then that is a final
decision or final judgment. [3] Third requisite is that
the basis is by virtue of a right prior to the sale
made by the vendor. Example is adverse
possession which was completed prior to the sale.
[4] and lastly, the vendor has been summoned and
made a co-defendant in the suit for eviction of the
instance of the vendee. In one case the court said
that, the act of summoning the vendor can be
accomplished either under article 1559 of the civil
code by asking that the vendor be made a
co-defendant or through filing of a third party
complaint against the vendor. And you know what
a third party complaint is because you had already
taken up civil procedure which I hope you
understood and you comprehended.
Now, furnishing the vendor with a copy of the
vendee’s answer in the eviction suit does not
comply with the requirement that the vendor must
be impleaded as a defendant. For example, an
eviction case or a case for recovery of property is
filed against the vendee by a third person claiming
a better right over the property and then the
vendee filed the answer and sent the vendor a
copy of the answer: “hey mr. vendor, I am being
sued for eviction because of this claim of adverse
right by another person who claims that this person
has a better right than you. By the way, this is the
answer I filed.” Does that comply with the
requirement that the vendor must be impleaded as
a co-defendant? No, it does not.
Now what are the effects of the warranty?
If the vendor acted in bad faith, [1] the vendor must
return the value of the thing at the time of eviction.
So if the object is movable then we would presume
that the value has already decreased at the time of
eviction because movables depreciate in value
over time but if it is an immovable then most
probably, the value has increased, especially if it is
a parcel of land, not a building because of the land
appreciate over time. So return the value, not the
price, the value at the time of eviction. [2] What
else? The income or the fruits that the buyer had to
surrender to this third person. [3] Third, the costs
of the suit and [4] expenses of the contract if it was
the buyer who shouldered the expenses of the
contract. Now if the vendor acted in bad faith,
meaning the vendor was aware of the risk of
eviction but did not notify the vendee of this fact,
then in addition to the four mentioned amounts or
items that must be paid to the vendee by the
vendor, the vendor is also liable to pay damages.
Now, can the warrant against eviction be waived?
Most definitely, yes! In fact, there are two kinds of
waiver, we have:
1. Consiente, and
2. Intentionada
Consiente is just a general waiver of the right, just
a pro forma waiver. So if we have a pro forma
waiver, the vendor is still liable in case of eviction
but only for the value of the property at the time of
eviction, only for the value.
Now if it is intentionada, meaning with full
knowledge of the risk of eviction then the vendor is
not liable at all.
Now whether it's consiente or intentionada, if the
vendor acted in bad faith, the waiver is void.
Now implied warranty against against
encumbrance on an immovable.
Hidden so it cannot be seen already. What are the
requisites? [1] The encumbrance must be
important, meaning that the buyer would not have
purchased the property had he/she known of this
hidden encumbrance. [2] Second, the
encumbrance is not registered or recorded unless
the property was expressly warranted as free from
burdens. [3] And lastly, the warranty must be
claimed within due time, within the time prescribed
by law. And take note, that notice must first be
given to the seller of the breach of this warranty, [4]
notice to the seller is a prerequisite before you can
file an action to enforce the warranty.
Now what’s an example of a hidden
encumbrance? Easement of covered aqueduct. So
there are actually pipes laid several feet
underground which were not annotated on the title
of the property and which the buyer was not aware
of at the time of the sale, and the buyer was not
notified by the seller of the fact that there are pipes
laid underground such that because of these pipes
laid underground, the buyer could not fully utilize
the property. For example, if the buyer intended to
construct a swimming pool over the property, then
the buyer could not do so because of this hidden
encumbrance. So had the buyer known that these
were existing, he/she would not have purchased
the property.
Now when can the buyer file the action to enforce
the warranty? Or file the action for breach of
warranty? If the buyer discovers the hidden
encumbrance within one year from the date of sale
then the buyer may file an action within the one
year for either damages or rescission. But if the
discovery is made only after one year then the
buyer can only sue for damages. The buyer can no
longer sue for rescission of the contract because
rescission must be filed within one year from the
execution of the sale.
Now hidden defects of movables.
What are the requisites?
[1] The defects must not be visible or could not be
known to the buyer even if the buyer is an expert,
they must be serious as to render them unfit
because of the implied warranty of quality or
fitness, they must not be known to the buyer and
[2] they must exist prior to the sale, [3] they must
be notified to the seller within a reasonable time,
again prior requisite of notice to the seller. Now
reasonable time here is not a question of fact,
why? Because the action for breach must be
brought within six months from delivery, and before
you can file the action for breach of warranty, you
have to notify first the seller. So reasonable time
here is within the 6 month period to bring the
action to enforce the warranty.
What about second hand objects? General rule is
that there is no implied warranty for things sold as
second hand. In fact, you would notice, for
example, machinery equipment, trucks, big
vehicles used in construction for hauling and they
are being advertised for sale and you would see
there also a notice or the phrase “as is, where is.”
So whatever the condition, that is what you get. So
generally there is no implied warranty. So take it at
your own risk. Now there are vices, if all the
requisites are present, then the buyer may sue for
rescission of the contract, or for the reduction of
the price with damages if the seller acted in bad
faith.
Now if the thing is lost because of the hidden
defect, the liability of the seller is to return the price
with interest and expenses. Take note, for breach
of warranty against eviction, what the seller returns
is the value at the time of eviction. In case of
breach of warranty against hidden defects of a
movable, the liability of the seller is to return the
price plus interest and expenses. If the seller acted
in bad faith, then on top of that the seller is also
liable for damages.
Now, if the thing is lost because of a fortuitous
event, not because of a hidden defect, is the seller
liable? Yes, the seller is still liable even if the loss
is not due to the hidden defect but the liability of
the seller is not to return the price but the
difference between the price and the value at the
time of the loss. Again, if the seller acted in bad
faith, there is also liability for damages.
What about for animals, redhibitory vices in
animals.
There is no warranty against redhibitory defects in
animals if the animals are sold at fairs or public
actions. Do we have public auction sale of
livestock or animals here in cebu? Yes, in mount
talungon in barili, we have.
Sales of condemned livestock. What do we mean
by condemned livestock? For example, you have a
poultry farm for egg layers, not meat chickens but
egg chickens, and these chickens or hens cease to
lay eggs so you are disposing this _____, selling
them. In fact, several years back, I would see non
productive chickens being sold along the highway
of carcar. So these are condemned livestock, there
is no warranty against redhibitory defect here.
What else, if the animals where previously
examined by an expert unless the vice is
discoverable.
When the vice is not declared redhibitory by law or
by local customs. Now if the animals are unfit for
the use stated in the contract, there is no
redhibitory vice but the sale is void. For if the
animals suffer from a contagious disease … what’s Okay, Philippine Lemon Law.
the famous contagious disease nowadays? We I have to warn you though that the Philippine
have african swine fever … the sale is void. Lemon law is copied from other jurisdictions. When
The law further says that it is presumed that the we mention of the word lemon, of course what
vice or the hidden defect of animals, or the defect immediately comes to mind is the fruit. But lemon
in the animals is redhibitory, meaning covered by actually refers to a substandard product. And
the warranty, if the disease exists _____ (pls check lemon laws are laws that provide remedy to
1:14:40, i cant understand the word) the time of the purchasers of goods … but in so far as the
contract and the animal dies within three days from Philippine lemon law is concerned, purchasers of
the purchase. brand new motor vehicles in order to compensate
Now what are the effects of the breach of warranty, them for vehicles that repeatedly fail to meet the
this is at the buyers option: [1] reduction of the standards of quality and performance as promised
price or [2] recission of the contract with damages or as warranted by the manufacturer.
in case of bad faith. Now in case of recission, the
buyer must return the animal, and if the animal
suffers from injuries due to the fault of the buyer
then the buyer answers for the injuries. But if the
injuries are suffered by the animal because of the
redhibitory defects then of course there is no
liability on the part of the buyer.
Now what if the animal dies because of the
redhibitory defect? Can the buyer still opt for
recision when he or she can no longer return the
animal? Most definitely yes. But of course, there is
no obligation to return the dead animal anymore. What’s the coverage of the law?
You have to immediately dispose of the carcass of *reads the slide* take note: brand new motor
the dead animal suffering from a, for example, vehicles purchased in the PHilippines not imported
contagious disease. by the consumer from other countries. It must be
Now if two or more animals are sold together, the brand new purchased in the Philippines. But not all
redhibitory defect of one will cause the redhibition brand new motor vehicles are covered, only
of that particular animal, unless if the vendee sedans, coupes, station wagons, convertibles,
would not have purchased one without the other. pick-up trucks (not your delivery trucks but pick up
trucks, your Nissan Navara, your Toyota Hilux,
Now what’s the prescriptive period? 40 days only your Ford Ranger, Mitsubishi Strada, these are
from delivery. Not six months but 40 days. pick up trucks) vans (your toyota Hiace), SUV’s
and AUV’s.
So that ends conditions and warranties. Shall we
proceed to lemon law? Lemon law is actually
connected with warranties. We will just do it slowly
because I have no more voice.
—-----------------------------------------------------------------

What are not covered?
Motorcycles are not covered. Lawn mowers are
not covered. Buses are not covered.
What is non-conformity?
Non-conformity is any defect or condition that
substantially impairs the use, value, or safety of a
brand new motor vehicle which prevents it from
conforming to the manufacturers or the distributors
standards or specifications which cannot be
repaired. In short, this is a factory defect. Because
it is a factory defect, it does not include:
● defect cause by non-compliance by the
consumer of the obligations under the
warranty
● modifications made by the consumer which
are not authorized by the
manufacturer/distributor/or dealer
● abuse or neglect of the brand new vehicle
by the consumer, and
● Damage due to accident or force majeure
What’s the lemon right period?
Which ever comes first between [1] 12 months
from the date of original delivery or [2] up to
20,000km in your odometer, to which ever comes
first. Now if you are based in cebu and you are just
using the brand new motor vehicle for your
personal use, you normally not reach 20,000km
over the period of 12 months. Unless of course,
you use it for your business such as a grab ride.
Before you can avail of your lemon law rights,
there must be atleast 4 separate attempts over the
same complaint by the manufacturer or distributer
or dealer. So what does the consumer do? The
consumer will request the dealer to have the defect
fixed. This must be within the 12 month period. So
four attempts.
First attempt, not successful, within 30 days, you
must bring you vehicle back to your dealer.
Second attempt, still not successful, again you
must bring it back again to the dealer for another
repair within 30 days.
Then after another third attempt, still not
successful, then you can invoke your lemon law
rights.
Now the question is asked, what if in order to
evade liability, the dealer will take its sweet time to
repair, can the dealer do that? No, because under
the IRR promulgated by the DTI, the repair must
be finished within 15 days. If it does not finish the
repair within 15days, then the unfinished repair is
considered one repair attempt. If it finishes beyond
15days, the excess of the 15day period is added to
the lemon rights period. So the dealer cannot delay
the repair.
Now another question is, what if the problem
resurfaces after 30 days from the last repair? Can
you still bring it to the dealer for repair? The
answer is yes. But again, it must be within the
lemon rights period.
The repair includes replacement of parts,
components or assemblies.

*slide above were not presented during the class*
If the issue remains unresolved after four attempts,
then the consumer may now invoke the lemon law
rights by serving a notice of availment of the lemon
rights to the dealer. Now that notice of availment
must be stamped “received” by the dealer. Not only
that, the consumer must bring again the vehicle to
the dealer for one last attempt at repair. If the
problem continues then the consumer can now file
the complaint with the DTI. Take note, the
complaint is filed with the DTI not in the regular
courts.
What documents are attached to the complaint? [1]
The warranty booklet or the service booklet. That
is given to you when you purchase a brand new
vehicle. [2] The current motor registration. [3] all
the repair or job order invoices, you are given this
everytime you bring your vehicle to the dealer, and
the [4] notice of availment stamped “received” by
the dealer. Now don’t worry about the form of the
notice of availment, it is also in the warranty
booklet, all these forms are there. In fact, if you go
to a dealer nowadays … well, I have been to one
dealer, over the entire day that the dealership is
open, they would show a video presentation of
your lemon law rights. So if you just take the time
to watch the video then you would atleast have a
working knowledge of what the lemon law is.
So now the consumer files a complaint with the
DTI. Take note, earlier I said that the dealer
(usually it is the dealer in the Philippines) or the
manufacturer must finish the repair within 15 days,
otherwise the excess shall be added to the lemon
rights period, NOT ONLY THAT, during the time of
the repair and during the time of the pendency of
the action filed in the DTI, the consumer is entitled
to a reasonable transportation allowance which is
equivalent to an air conditioned taxi fare from the
consumer’s residence to the consumer’s usual
regular workplace or the usual destination, and
vice versa. But the law says, as supported by
official receipts which is hard to obtain. Taxis in the
Philippines do not issue official receipts. No
problem! Either that, or whatever amount agreed
between the consumer and the dealer, if they
cannot agree with the amount, then DTI will
determine. The other option is (and this is upon the
option of the seller, the seller or the dealer may
allow the consumer the use of a service vehicle.
But take note, this is the option of the dealer or the
manufacturer, the consumer cannot demand that
he/she be given a service vehicle.
So let’s go back to that complaint filed before the
DTI. There are three resolution mechanisms: [1]
mediation, [2] arbitration, [3] adjudication
[1] Mediation is mandatory, even in civil cases. You
know in your civil procedure that mediation is
mandatory. If mediation is not successful then both
parties may opt for arbitration, but both must agree
to submit to arbitration proceedings. If only the
dealer wants to go through arbitration and the
consumer does not, then there shall be no
arbitration, they proceed to adjudication. There will
be a DTI adjudicator who will hear the case. To aid
the DTI in adjudicating the case, it may seek the
assistance of experts in other government
agencies in order to determine whether there really
exists a non-conformity issue.
If the DTI determines that there is really
non-conformity in this particular vehicle. Then it will
direct the manufacturer, distributor, or dealer to
grant either of the following remedies to the
consumer:
[1] replace the motor vehicle with a similar or a
comparable motor vehicle, OR
[2] accept the return of the motor vehicle and pay
to the consumer the purchase price plus collateral
charges, so in case of return no replacement,
(return only because the consumer is not satisfied
with the service of the dealer) then return the price
plus collateral charges.
Now the law says that DTI will direct the seller or
the dealer/manufacturer/distributor to grant the
buyer the remedy of replacing the motor vehicle
with a comparable one. So if the lemon car is a
toyota vios then the replacement is with a similar
toyota vios. Question: can the consumer opt to
purchase, instead of a vios, a toyota camry (which
is more expensive than a vios)? The answer is
yes. But the consumer will pay the difference
between the price of the toyota camry and the
value of the vios. I am emphasizing the value.
Why? Because the law says, in case of
replacement and repurchase, a reasonable
allowance for use is deducted from the price.
If the remedy is return, the seller or dealer or
manufacturer or distributor returns the price plus
collateral charges. But if it is replacement or
repurchase, then reasonable allowance for use is
deducted from the price.
What is the amount of this reasonable allowance?
Whatever is lower between [1] 20% per annum
deducted from the purchase price or … now I want
you to take your cellphones now and go to your
calculators … [2] the product of the distance
traveled in kilometers and the purchase price
divided by 100,000 kilometers.
For example: the odometer is 10,000, the price is
1M, so 10,000 times 1M, you do that now, and
divide it by 100,000km. Okay, what is the figure
that is shown in your calculators? … Php100,000,
okay, what is 20% of 1M? It’s 200,000 right?
The law says that reasonable allowance for use is
whichever is lower of the[1] 20% per annum
deducted from the purchase price or [2] the
product of the distance traveled in kilometers and
the purchase price divided by 100,000 kilometers.
So the lower amount is Php100,000, that is the
amount that will be deducted from the price. So in
case of replacement, that is what the consumer will
pay to the dealer. So if there is replacement, there
is a corresponding obligation on the part of the
consumer because that amount is deducted from
the price. So sort of a depreciation cost.
Now if the consumer decides to buy the camry
instead of the the vios, then that (referring to the
calculation above) is deducted from the price of the
vios plus the difference plus the price of the vios
and the camry, that is what the consumer will pay
the dealer.

What about if the DTI determines that there is no
case of non-conformity. Of course the DTI will
decide in favor with the dealer and against the
consumer. The consumer will then be directed to
reimburse the costs incurred in validating his or her
complaint. Under the IRR, when the consumer files
a complaint with the DTI, the consumer deposits
the amount of 10,000 this is to cover the expenses
in validating the complaint in determining the issue
of whether there’s non conformity or not. But if this
amount is not sufficient to cover the expenses then
the consumer will have to pay more.
Can any of the parties appeal from the decision of
the adjudicator? Yes. File the appeal with the
secretary of trade and industry.
Now what will happen to the lemon car? Will it be
condemned forever? No, it can be resolved but if it
is resolved, the dealer must furnish the second
buyer with a written disclosure, not just a verbal
disclosure but a written disclosure. What is
indicated in the written disclosure? [1] First, that
the vehicle was returned, [2] second, the nature of
the non-conformity which caused the return, [3]
and third, the condition of the vehicle at the time of
the transfer by the consumer to the dealer. If the
dealer/manufacturer/distributor does not comply
with these requirement then there is a fine of
100,000 pesos in addition to whatever civil or
criminal liability under existing laws.
Do you have questions? Please, i want you to take
note of the lemon law. This would be more
advantageous to the consumers over the
provisions on implied warranty against hidden
defects of movables under the civil code. Because
under the civil code you only have 6 months within
which to enforce the implied warranty but here you
have either 12 months from the original delivery or
20,000km, whichever comes first.
​—-----------------------------------------------------------------
So obligations of the buyer.
When we define the contract of sale, we said that
one of the contracting parties undertakes to
transfer the ownership of, and to deliver a
determinate thing that pertains to the obligations of
the seller. And the other to pay therefore a price
certain in money or its equivalent. But that’s not
just the obligation of the buyer.
First is to accept delivery.
So the two major obligations of the buyer are to
accept delivery and to pay the price. While it is the
obligation of the buyer to accept delivery, the buyer
must be given reasonable opportunity to examine
the thing before accepting it. Unless of course, the
thing is sold COD (cash on delivery) meaning, pay
first before you examine. Now if the buyer has had
reasonable opportunity to examine, and has
accepted delivery, is the seller now excused from
any liability for breach of the contract of any
warranty? The answer is no. The acceptance of
the buyer does not discharge the seller from
liability in damages or other legal remedy for
breach of any promise or warranty, EXCEPT if, the
buyer fails to give notice of the breach within
reasonable time. Remember earlier? We said that
before the buyer can sue for breach of warranty
notice must first be given to the seller.
In De Guzman v. Triangle Ace Corporation, in this
case, the buyer accepted delivery of a differently
sized steel bars. Nevertheless, even if it was not
the sized that was ordered, the buyer accepted.
And then, when demand was made for him to pay,
the buyer said: well there was a breach of warranty
because what you delivered was not exactly what I
ordered. The court said, the buyer must notify the
seller the breach of warranty. This is to prevent the
buyer from interposing delinquent claims or
damages as an offset to a suit began by the seller
of the purchase price. So, in many cases, this is
the defense invoked by the buyer. There is a
breach of warranty (1:40:32) , but delictedly
invoked. Now if the buyer unjustifying refuses to
accept the delivery, the law says that nevertheless
the ownership transfers to this buyer. What is the
effect if ownership is transferred to the buyer, if the
buyer hasn’t paid the price? Buyer is liable to pay
the price. Even if the buyer refuse to accept and
the goods remain in the possession of the seller
incase of loss due to fortuitous event if the buyer
has not paid the price, the buyer is still liable to pay
the price. Because as owner, our role in the
Philippines, under the civil code, is res perit
domino.
But if the buyer justifiably refuses to accept
because of the sale of description of what was
delivered, is that with accordance with the
description, is it required for the buyer to make
arrangements for the return of the thing? No, it is
enough for the buyer to just notify the seller of the
rejection.
But the buyer, may constitute himself as
depositoring, and as such, subject to the
obligations of the depository.
(1:42:22) Which brings us to the obligation to pay
the price. When and where must the price be paid?
Whatever is the time and place stipulated in the
contract. If there is no time and place stipulated in
the contract, then the time and place of the
delivery is the time and place of the payment.
Because the presumption is, there must be a
simultaneous performance of the part of the buyer
and the seller.
When is the buyer justified in suspending the
payment? After delivery. First, if there is actual
disturbance of possession or ownership, such as
eviction. IF you’re deprived of the property, would
you still pay the price? Ofcourse not. That is
justification in suspending the payment of the
price. Second is, if there is reasonable ground to
fear a disturbance either by a vindicatory action or
foreclosure of mortgage. What is a reasonable
ground to fear a disturbance by a vindicatory
action which justifies suspensive payment of the
price? If the buyer is not yet deprived of the
property, but an action of case is filed against the
buyer for a recovery of property filed by another
person or another party, and not the seller. Is there
a risk that the buyer will be deprived of the
property? Yes, because there is a 50% chance that
this other person or claimant will win. Is the buyer
justified in suspending the payment of the price?
Yes. Now, what is the reasonable ground to fear a
disturbance by a foreclosure of mortgage? If prior
to the sale, the property was already the subject of
a real estate mortgage, duly recorded, but we
might ask to why did the seller sell the property
that was previously mortgage? Well the law on
mortgage does not require that the ownership
transferred to the mortgagee. In a mortgage, the
real property is only subjected as security for the
fulfillment of the principal obligation. In fact,
possession of the property remains with the
mortgagor/owner. So during the existence of the
real estate mortgage, the mortgagor remains the
absolute owner of the real property. Being the
absolute owner, the mortgagor can sell the
property. But ofcourse, there is a caveat already to
the buyer, the buyer is charged with notice of the
mortgage because the mortgage is registered and Now payment of interest. Is the buyer, at all times,
therefore annotated of the title. Will that prevent liable to pay interest? Answer is NO. Before
the buyer from purchasing? NO, the only risk is if default, the buyer is liable to pay interest only if it is
the seller/mortgagor defaults in the fulfillment of stipulated. Also, the thing produces fruits which
the principal obligation. Now there is a risk of pertain to the buyer, take note that the buyer is
foreclosure of mortgage. Under that circumstance, entitled to the fruits from the moment of the
then the buyer is justified in suspending payment, perfection of the contract. So if the thing produces
especially, if the creditor/mortgagee, has already fruits which pertain to the buyer, the buyer is
initiated foreclosure proceedings. obliged to pay the interest. Now after default,
certainly, the buyer is liable to pay the interest.
Now in the case of Arra Realty Corp. vs. Guaranty That is called moratory interest. From when is the
Dev’t. Penalosa here purchased ½ of the floor of buyer liable to pay interest? From judicial or
the commercial building. So, this is a several story extrajudicial demand. How much is the interest or
commercial building. Take note this is not covered the rate of interest after default? Again it depends.
by the Maceda Law because the subject is a If there’s stipulation for moratory interest, then that
commercial building. So Peñalosa purchased, on is the rate of interest that will be paid. If not then
installments, ½ of the second floor of a commercial or when there is no stipulation, then it will be legal
building. And then she occupied a portion of that interest which is 6% per annum.
½. And then she demanded that the title be
delivered to her but the buyer refused and ignored.
The seller rather ignored the demand and then she
discovered that the entire building, including the lot
on which the building constructed, was mortgaged
to China Bank. She demanded to China Bank, still
the demand was ignored. She offered to pay yet it
was rejected. So what she did is to suspend the
payment of installments. This was payable
quarterly, not monthly. Was she justified in
suspending the payment? YES, the Court said that
Peñalosa cannot be blamed for suspending the
remittance of payment to the petitioner because What are the legal guarantees available to the
she pushed for the issuance of the title to the seller for payment of the price? 1.) Suspension of
property after taking possession thereof, the delivery - In cash sales, if payment is not tendered.
petitioner failed to comply. Under article 1519 (90), In credit sales, if the buyer has lost the benefit of
under the last sentence - a vendee may suspend the period, again under 1198 (MEMORIZE).
the payment of the price. Here, there was a Second, by exercising possessory lien over the
reasonable ground to fear a disturbance by goods or 3.) stoppage in transitu which did not
foreclosure of the mortgage. discussed because not practiced nowadays. 4.) By
resale of goods and by 5.) Recision of the contract.
Now what does the law say about rescission. With
respect to movable property, the law says, under
1593, that rescission of the sale shall of right place
in the interest of the vendor if the vendee, upon
expiration of the period fixed for the delivery of the
thing, should have appeared to received it or
having appeared he should have not tendered the
price at the same time, unless a longer period has
been stipulated for its payment. So for sale of
movable property, rescission shall of right take
place. So just by operation of law.
But incase of immovable property, regardless if
whether there is, even if there is a stipulation for
the automatic rescission of the contract of sale of
real property, failure of the buyer to pay within the
period stipulated will not result in the automatic
rescission of the contract. In other words, the
buyer can still pay even beyond the period
stipulated, for as long as there is no judicial
demand, rescission, or extrajudicial demand by
notarial act.
So article 1592 says, in the sale of immovable
property, even though it may have been stipulated,
that upon the failure to pay the price of the time
agreed upon the rescission of the contract shall of
right take place, the vendee may pay even after
expiration of the period as long as no demand for
rescission of the contract has been made upon
him, either judicially or by notarial act. After
demand, the court may not grant a new term.
These are remedies available to the buyer and
seller incase of breach committed by the other
party.
Now first, on the part of the seller under Art. 1595,
if the ownership has passed to the buyer, but the
price has not paid and no period for payment is
agreed, so the presumption is simultaneous
performance by the parties but the buyer fails to
pay where it stipulated to be payable in a certain
date or a respective delivery of a title if it is
stipulated, payment should be made in a certain
date, then the seller may bring an action against
the buyer for the price. Also, if the buyer refuses to
accept the goods, and the goods cannot be readily
be resold, seller may sue for the price.
Now in de Guzman v. Triangle Ace Corp., the
Court said, Art. 1595 provides, that if the
ownership of the goods has passed to the buyer,
and he wrongfully refuses to pay for such, the
seller may maintain an action for the price of the
goods. A buyer is deemed to have accepted the
goods when he does an act inconsistent with the
ownership of the seller or when after the lapse of a
reasonable time, he retains the goods without
intimating the seller that he has rejected them. In
the case at bar, there is no dispute that the steel
bars purchased petitioner, referring to De Guzman,
were received by him. That some of the steel bars
were in fact used by him to manufacture reinforced
concrete pipes. Although, they were allegedly
rejected on the ground that the steel bars were
undersized. The retention and use of the steel bars
by the petitioner clearly show that he accepted the
goods. For this reason, he should pay the price or
the same. Because the defense of De Guzman
here were he refuse to pay the price, was that
there a breach of contract because what was
delivered to him were undersized steel bars but the
fact that he accepted delivery and did not notify the
seller that he was rejecting the goods. In fact, he
accepted and he used them in his business. So he
cannot, now, blatantly claim breach committed by
the seller in order to refuse payment of the price.
Aside from action for the price, under 1596, the
seller can maintain also an action for damages
against the buyer, on what grounds? 1.) If the
buyer wrongfully refuses to accept and pay or 2.) If
the buyer repudiates or countermand the sale
before the goods are placed in a deliverable state.
Meaning the goods are not yet finished and the
buyer notifies the seller that he is canceling the
order. So certainly if the goods are not yet finished,
and the seller cannot sue for the price. So the
option available for the seller is to sue for
damages. If the buyer unjustifiably refuses to
accept and pay, seller may maintain an action for
the price and for damages.
Now what is the measure for damages? The law
says, the estimated loss naturally resulting from
the breach. Now if there is an available market for
the goods, we’re referring to number 1 here -
wrongful failure to accept and to pay, the measure
of damages is the difference between contract
price and market price when the acceptance
should have been made. If no time for acceptance
has fixed, the market price at the time of the
refusal. So the presumption here is that the market
price is lower than the contract price, because
when the market price is higher than the contract
price, then there is no loss sustained by the seller.
In fact, he would (GIVE or NEED) more if the
market price is higher.
Now if the repudiation is made before the goods
are finished, what is the measure of damages? We
will take into consideration the expenses incurred
for the materials, the labor, plus the unearned profit
or the expected profit.
Third remedy available to the seller or action
available to the seller is rescission. Now this is
extrajudicial rescission of the contract. Although in
ObliCon, we learned that obligation should be by
judicial order, but under 1957, the seller merely
gives notice of his election to rescind the contract.
What are the requisites? 1.) The goods are not
delivered. The goods are finished already but not
delivered. 2.) But the buyer either (i) repudiates the
contract, or (ii) manifests an inability to perform, he
cannot pay, or (iii) commits a breach of contract
like a period of payment is fixed bu the parties but
the period has arrived but the buyer fails to pay so
that is commission of a breach of contract. What
the seller may do is just give notice to the buyer of
his election to rescind the sale, after that the sale
is considered rescinded or canceled. Take note,
this refers to sale of goods. Because if we talk
about immovables, even if it is expressly stipulated
in the contract, that in case of nonpayment of the
price within the periods stipulated the contract shall
be considered automatically rescinded, that will not
happen.
So again, incase of sale, not contract to sell but
sell of immovables, even if it is expressly stipulated
by the parties that in case of nonpayment of the
period stipulated, the seller may consider the
contract to be automatically rescinded, there shall
be no automatic rescission of the contract. When is
the contract, what is the consequence rather even
after the period has lapse, if the buyer has not
received notarial notice of rescission or a judicial
demand or where there is no judicial demand for
rescission, the buy can still pay the prices.
Please take note on this, if you are the lawyer of
the buyer client, then even if your payment period
has lapsed, client can still pay the price if there is
no notarial notice of rescission or judicial demand
for rescission. Now if you are representing the
seller, advice your client that he/she may still be
compelled to accept the payment, even after the
lapse of the agreed period, if he/she has not sent a
judicial demand or has not filed a judicial action for
rescission or a notarial notice or demand for
rescission of the contract.
Now on the part of the buyer, action for specific
performance. So if the contract is for the seller to
deliver specific goods and the seller fails to
perform, the buyer may file in court an action for
specific performance. Now the seller has no option
to pay for damages in lieu of performance. That is
not an option available to the seller. But ofcourse,
the buyer agrees, no problem.
Action for breach of warranty, this is again for sale
of goods. What are the choices or options
available to the buyer, enumerated in 1599, (1)
Accept or keep the goods and set up against the
seller, the breach of warranty by way of
recoupment in diminution or extinction of the price;
(2) Accept or keep the goods and maintain an
action against the seller for damages for the
breach of warranty; (3) Refuse to accept the
goods, and maintain an action against the seller for
damages for the breach of warranty; (4) Rescind
the contract of sale and refuse to receive the
goods or if the goods have already been received,
return them or
offer to return them to the seller and recover the
price or any part thereof which has been paid.
Take note that the options of the buyer are
alternative. But if the buyer opts for specific
performance, if it is impossible then, the buyer may
ask for rescission of the contract. Now let’s look at
some cases decided by the Court. Two cases.
In Harrisson Motors, miss Navarro purchased two
trucks from Harrisson Motors because of the
express warranty by Harrisson that the Custom’s
duty of import taxes have already been paid when
they were not fully paid yet. So, what was the
action filed by miss navaro in court for damages?
Actually just reimbursement for the duties and
taxes that she paid. So she accepted and retained
possession of the trucks but sued for the breach of
the express warranty. But in Supercards Mgmt vs
Flores, (THIS WHAT?) is rescission of the contract,
because if you read the case, if you cared to read
the case, then you would know that there would be
no other option available to the buyer but for
rescission of the contract because the vehicle
really was defective. Now, if this happened when
the lemon law was already effective, then Flores
might have opted, if nonconformity was determined
by the DTI, then Flores would have opted for the
replacement of the vehicle but for here, Flores,
sued for rescission. In fact, on top of rescission,
the Court awarded damages.
When can’t buyer rescind the contract? First, if he
knew of the breach but still accepted the goods.
That is a waiver. Or if the buyer failed to notify the
seller, in due time, of the election to rescind. Take
note, that when we discussed implied warranties of
the seller, before the buyer can sue for breach of
warranty, he/she must first give notice to the seller
of the breach. That is a prerequisite. So if the
buyer failed to notify the seller of the breach, and
of the election to rescind, then the buyer can no
longer rescind the sale. Lastly, if the buyer cannot
return the goods, in substantially the same
condition as they were at the time of delivery,
unless of course the deterioration is because of the
breach.
Now what are the effects if the buyer elects to
rescind? If he has not yet paid the price, then he
ceases to pay the price upon tender or return of
the goods. If the buyer has paid the price, then
he/she may recover the price simultaneously or
concurrently with the return or immediately after
the tender. If the seller refuses to accept the return,
the buyer may exercise possessory lien over the
goods and then refused to deliver the goods to the
seller until the seller returns the price to him. This
is similar to the right of possessory lien of an
unpaid seller.
Let’s go to the extinguishment of sale. Now since
sale is contract, then the general causes of
extinguishment of the contract are also the general
causes of extinguishment of sale.
But there two special causes of the extinguishment
of sale which are not present of the other
contracts.
1.) Conventional Redemption and 2.) Legal
Redemption. What is Conventional Redemption? It
is defined in Art. 1601.
Conventional redemption shall take place when the
vendor reserves the right to repurchase the thing
sold, with the obligation to comply with the
provisions of article 1616 and other stipulations
which may have been agreed upon.
Now, you might have heard of a sale of a right to
repurchase or sale of right of repurchase or pacto
de retro sale. So, this is where we have a provision
for redemption. (1) It is an accidental element
which it not enforceable unless it is expressly
stipulated by both parties. (2) express condition.
(3) Potestative resolutory condition - depends upon
the will of one of the parties. Why is it a resolutory
condition? Because the exercise of redemption by
the seller extinguishes upon sale. (4) it is a real
right because it attaches to the property.
Therefore, even if the buyer has (CANGS?) for the
property to another buyer, the seller exercise
redemption against the 2nd buyer. So, this is the
pacto de retro sale. The problem is, there are
instances when the intention of the parties is just to
subject real property as security for the fulfillment
of the obligation usually a loan, not at all times, but
usually a loan.

But the instrument or the document executed is
pacto de retro sale. Now if anyone of the
circumstances attends the contract, this gives the
disputable presumption that the contract is an
equitable mortgage and not a pacto de retro sale.
What is an equitable mortgage? One which,
although, lacking in some formality, or form or
words, or other requisites demanded by a statute,
nevertheless reveals the intention of the parties to
charge real property as security for a debt, and
contains nothing impossible or contrary to law.
What are these instances where the law presumes
that contract is an equitable mortgage and not a
pacto de retro sale? 1) When the price of a sale
with right to repurchase is unusually inadequate;
when is the price considered real? If there is a
legal intention of the buyer to pay and a legal
expectation of the seller to receive the price. Now,
what kind of price does the seller expect to
received? The full purchase price. The equivalent
value of the property sold. What if the selling price
is unusually inadequate, then the presumption is
taht the seller really has no intention to transfer title
to the buyer. That this is just a security payment of
an obligation.
(2) When the vendor remains in possession as
lessee or otherwise; Go back to the definition of
sale. By the contract of sale, one of the contracting
parties, whom we call as the seller, undertakes to
transfer the ownership of and to deliver a
determinate thing. In this case a parcel of land,
because it refers to real property. So in fact, one of
the obligations of the seller is to deliver. No, in this
particular pacto de retro sale, why would the seller
remain in possession when that it is his obligation
to deliver the property to the buyer and it also the
expectation of the buyer to receive and have
possession and control over the real property. Why
would the buyer agree that the seller remains in
possession? That means there is really no
intention to transfer ownership. The agreement
really is just an equitable mortgage to charge the
property as security for a payment of the debt and
not to transfer ownership to the buyer.
(3) When upon or after the expiration of the right to
repurchase another instrument extending the
period of redemption or granting a new period is
executed; Now if you’re the buyer, even if it is a
pacto de retro sale, your prayer is that you will
eventually have absolute ownership over the
property if the seller cannot redeem the property
within the stipulated period. That is your prayer.
Why would you agree to extend the period for
redemption. That means the property is just really
a security for the payment of a debt.
(4) When the purchaser retains for himself a part of
the purchase price; Again, there is a legal
expectation of the seller to received the price. Now,
why would the seller agree that the buyer retains
part of the purchase price. That runs contrary to
the essence of sale. When the seller expects to
received the full purchase price.
(5) When the vendor binds himself to pay the taxes
on the thing sold; Now who is liable to pay the
realty taxes on the property? Is it not the owner of
the property? Now if we talk about pacto de retro
sale, even if there is a right to repurchase, the fact
that his ownership is transferred to the buyer
subject to the redemption to the seller, but here,
why would the seller continue to pay the taxes?
That means that the seller still considers
himself/herself as the owner of the property. So the
intention really is not to transfer the ownership but
to subject the property as a security for a debt.
(6) In any other case where it may be fairly inferred
that the real intention of the parties is that the
transaction shall secure the payment of a debt or
the performance of any other obligation; What’s an
example? So we have a pacto de retro sale, buyer
delivers or pays the price to the seller, but the
seller pays interest to the buyer. Now if the amount
received by the seller constitutes the price, why
would he/she pays the interest for the price
received? That means the transaction really is not
a sale but an equitable mortgage.

Let’s look at some old cases here. In Caballero vs.
Ong Tiao Bok, the Court here cited Aguilar vs
Rogiato, where the court said, the inadequacy of
the price paid must be so gross and
unconscionable that the mind revolts at it and is
such a reasonable man would neither directly nor
indirectly be likely to consent to. Because in this
case, the purchase price for the land was P60k
which was a substantial amount at that time, and
at the time of the sale, the assessed value of the
property was P65,610. The court said, that the
difference is P5,610 is not substantial. So the
inadequacy of the price is not gross between
P65,610 to P60,000. So there is no gross in the
inadequacy of the price here according to the
court.
Ramos emphasized that jurisprudence has
consistently declared that the presence of even
just one of the circumstances set forth in the
foregoing civil code provision referring to 1602,
suffices to convert a contract to an equitable
mortgage. Art. 1602 specifically states that the
equitable presumption applies to any of the cases
therein enumerated, because what happened in
Ramos vs. Sarao, was that Ramos the petitioner,
remained in possession of the property after it was
purportedly sold on pacto de retro.
Now, Diño vs. Jardines, the Court found two
instances giving rise to the presumption that the
contract was pacto de retro. The Court said, in the
instant case, the presence of the circumstances
provided for under par. 2 - possession and par. 5 -
taxes of Art. 1602 of the Civil Code. Plus the fact
that the petitioner himself demands payment of
interest on the purported purchase price of the
subject property, clearly show that the intention of
the party is to smearly for the property to stand as
a security for a loan.
(27:00 - 45:00 = RENNART) Now take note the
presumption that the contract is an equitable
mortgage applies to absolute sales not just to
pacto de retro sales if any of the circumstances
enumerated in under 1602 is present. That is
emphasized in Article 1604. In Quinga v. CA, the
court said: Even disregarding the inadequacy of
the price of, take note 200 pesos, this was an old old
case, for the more than 2 hectares of riceland alleged
to have been sold by Salas to Datoon, there remains
the important circumstance that in spite of the alleged
sale, the seller remained in possession of the
property and the vendee started receiving his share
in the fruits of the land only after 9 years from the
sale. If the real transaction was one of sale, the buyer
would have asserted his right to receive from the
alleged tenant his share in the fruits of the property
right after the sale, especially considering the fact
that he had registered the deed of sale and secured
the issuance of a TCT in his name. So for the next 9
years after the purported absolute sale was entered
into, the seller continued to receive the share from
the harvest of the riceland of the (?) from the tenant,
now if this is really a sale, then immediately after the
sale, the vendee should exercise the right of
dominion by receiving the share from the farm from
the purported tenant of the property, but he did not.
In Misena v. Rongavilla, the court found three
circumstances present, so the court said, the
provisions of 1602 also apply to a contract purporting
to be an absolute sale, and the presence of any of
the above-mentioned circumstances give rise to the
presumption in favor of equitable mortgage. In the
instant case, three circumstances were present and
proven, first, the inadequacy of the consideration,
second, that Rongavilla remained in possession of
the land, and third, the subject property was charged
as security for the loan.
Now in Romulo v. Layug, after the buyers and the
seller entered into the purported absolute sale, the
buyers (the Layugs) continued to lend money to the
petitioner, now if you have entered into a contract of
absolute sale and you are the buyer, why would you
continue to lend money? If the sale was purportedly
entered into in order to fully pay the obligations of
your debtor, because this was a dacion en pago that
was entered into. Why would you continue to lend
money? If the intention was to extinguish the
obligation of your debtor through that absolute sale,
so the court concluded that this was really just an
equitable mortgage and not an absolute sale.
In Bacungan v. CA, again a purported absolute sale,
the court found 3 circumstances, it said: in the instant
case, 3 circumstances indicating that an equitable
mortgage exists are present, first, the price of each of
the properties was grossly inadequate, second,
petitioners retained part of the purchase price, third,
petitioners insisted that part of the consideration of
the sale consisted of amounts previously borrowed
by the respondents from them.
Now, if you have a document denominated as a deed
of sale with right to repurchase or right of repurchase
or a deed of absolute sale but the contract is of
doubtful interpretation, then it shall be construed as
an equitable mortgage.
If the contract is determined to be an equitable
mortgage, what is the remedy available to the
“vendor a retro”? Reformation of the instrument, take
note, you reform the instrument, you have learned
this in oblicon just very recently, you don’t reform the
contract, you reform the instrument to conform to the
real agreement of the parties. Don't be confused with
the declaration in Bacungan, Bacungan said, under
Article 1605 of the new civil code, the supposed
vendor may ask for reformation of the instrument
should the case be among those mentioned in Article
1602 and 1604, because respondent (Bacungan) has
more than sufficiently established that the assailed
contract is in fact an equitable mortgage rather than
an absolute sale, he is allowed to avail himself the
remedy of reformation of contracts. I'm sure this is
just an innocuous error because of course, earlier in
the sentence, prior to this sentence, the court already
mentioned reformation of instruments, so its not
reformation of contracts, its reformation of
instruments.
Now if the contract really is a pacto de retro sale, not
an equitable mortgage, when is redemption
exercised? So forget about equitable mortgage now
we are back to conventional redemption really a
pacto de retro sale, now if there is no period agreed,
redemption shall be exercised within 4 years from the
date of the contract. If a period is agreed, it cannot
exceed 10 years from the date of the contract. Can
the parties stipulate on non-redemption within a
certain period? Yes, so the other parties agree that
the seller shall be entitled to redeem the property but
not earlier than 4 years from the contract, that's it. So
they have agreed on the period of non-redemption
but did not agreed on the period of redemption so
when is redemption exercised? Within 4 years after
the 4-year non-redemption period *coughs* excuse
me. If the parties stipulate that there shall be no
redemption within the first 8 years of the contract,
thats it. When is redemption exercised? Only within 2
years after the 8-year non-redemption period why?
Because redemption cannot exceed 10 years from
the contract. So it cannot be 4 years after 8 years
because redemption cannot be exercised beyond 10
years, the only exception is if a case is filed, because
the seller truly, honestly believes that the contract is consign with the trial court the amount of 896,000
an equitable mortgage but the court ruled that it is pesos on or before the expiration of the right to
really a pacto de retro sale then the seller has 30 repurchase on August 21, 1983—that was the date
days from the finality of the judgment within which to fixed by the CA within which to buy back the property,
exercise redemption. So 30 days from the time of which they did not. Clearly therefore, the declaration
judgment, not 4 years not 10 years. of the transaction as a pacto de retro sale will not
under the circumstances entitle the respondents to
Now in Abilla v. Gobonseng, *clears throat* the right of repurchase set forth under the third
Remember I told you before that the default provision paragraph of Article 1606.
of the law with respect to expenses of the contract is
that these expenses are born by the seller, that is the
default provision of the law. So the seller shoulders
the expenses of the contract. The parties may agree
otherwise but it must be expressly stipulated and I
also remember, I told you that if you are asked to
draft a contract, you will be doing your clients a favor
if you include as one of the stipulations, who will pay
what expense, who will pay the capital gains tax?
The documentary stamp tax? The transfer taxes? Of
course, real property tax is for the account of the
seller, prior to the sale because here, in Abilla v.
Gobonseng, the Abillas claim that they entered into—
The court cited the ruling in vda de macoy v. CA,
actually there were two documents, deed of sale and
what did vda de macoy say? The application of the
option to repurchase or option to buy, it was the
third paragraph of 1606 is predicated upon the bona
Abillias (the buyers) who’ll shoulder the expenses for
vides of the vendor a retro. It must appear that there
the sale so they sued for the recovery/reimbursement
was a belief on his part, founded on facts attendant
of the expenses, Gobonseng said: it's not a pacto de
upon the execution of the sale with pacto de retro,
retro sale, its an equitable mortgage. Trial court said,
honestly and sincerely entertained, that the
it's a pacto de retro sale, so Gobunseng went up to
agreement was in reality a mortgage, one not
the CA, CA said it's a pacto de retro sale so you’re
intended to affect the title to the property ostensibly
given until August 21, 1983 within which to redeem
sold, but merely to give it as security for a loan or
the property. Gobonseng did not redeem the property
other obligation. In that event, if the matter of the real
on or before August 21, 1983. Gobunseng went up to
nature of the contract is submitted for judicial
the SC, the petition was dismissed by the SC,
resolution, the application of the rule is meet and
Gobunseng filed a motion for
proper; that the vendor a retro be allowed to
reconsideration—Denied, filed a second motion for
repurchase the property sold within 30 days from
reconsideration, still denied. In effect, the declaration
rendition of final judgment declaring the contract to
that the contract was a pacto de retro sale stood. So
be a true sale with right to repurchase. So this was
he went back to the trial court, and file a motion for
the ruling in Abilia v. Gobunseng.
redemption claiming that well they have 30 days from
the finality of the decision within which to exercise
redemption, court denied the motion. So they went
up again to the SC, only on the sole issue of whether
Gobunseng can exercise redemption within 30 days,
the court said, in the case at bar, both the trial court
and the CA were of the view that the subject
transaction was truly a pacto de retro sale and that
none of the circumstances under 1602 of the civil
code exists to warrant a conclusion that the
transaction subject of the deed of sale and option to
buy was an equitable mortgage, the CA correctly
noted that if respondents really believe that the
transaction was indeed an equitable mortgage, as a (45:00 - 1:03:00 = JIE)
sign of good faith, they should have at the very least
Now who may exercise redemption? Of course,
the vendor. In whose favor? The right is reserved.
Now if the buyer purchases part of an immovable,
so this is referring to a co-owned property, the
buyer purchases from one of the co-owners the
pro indiviso share of this co-owner on pacto de
retro. But later on the buyer acquires the entire
property under Art. 498 because the remaining
co-owners could not agree on how to divide the
property so they sold it to the same vendee and
divided the proceeds among themselves. So the
first sale by one of the co-owners was pacto de
retro, the sale by the other co-owners was an
absolute sale. What is the rule? In case the
co-owner who sold the property on pacto de retro
desires to redeem the property, the vendee may
compel him or her to redeem the entire property.
Take note, in this instance, only one co-owner sold
his pro indiviso share on pacto de retro. Thereafter,
the other co-owners sold the property absolutely to
the same vendee. In case that vendor a retro
exercises redemption, the vendee can compel him
to redeem the entire property. Why? Because the
law frowns upon co-ownership. If this vendor a
retro exercise redemption and redeems only the
pro indiviso share that he sold, then he becomes
co-owner with the buyer because the buyer is the
owner of the remaining portion of the property. But
if the buyer allows redemption only of the pro
indiviso share, no problem at all. But the vendee
can also demand that the entire property be
redeemed. So that’s the first scenario.
Second scenario, all the co-owners sold the
undivided immovable property to one single buyer
under pacto de retro. What is the rule? Any of the
vendors a retro may redeem only his share. He
cannot redeem the entire property. But the vendee
may refuse partial redemption and may compel all
vendors a retro to come to an agreement for the
redemption of the entire property. Meaning the
vendee can refuse redemption unless the entire
property is redeemed. But if one co-owner
redeems the entire property and the vendee allows
it, what is the rule? Does he become the owner of
the entire property? No. He is still only a co-owner
of the entire property but he has a lien on the rest
of the property for their price.
Third scenario, one co-owner sold his pro indiviso
share on pacto de retro. After that, another
co-owner sold his pro indiviso share on pacto de
retro. Let’s presume there are only two co-owners
of the property. Can the vendee compel
redemption of the entire property? The answer is
no. Why? Because you have two separate sales.
So each vendor a retro may independently redeem
his pro indiviso share from the vendee and the
vendee cannot refuse redemption by one vendor a
retro because the sales were separately
transacted or entered into.
Now if the vendor has died, can the heirs exercise
redemption? Yes. Each of the heirs can redeem
only his share in the property but the vendee may
refuse redemption by just one heir. He may compel
all the heirs to redeem the entire property. This is
similar to the rule on co-owners selling the property
under pacto de retro.
Can the creditors of the vendor exercise
redemption? Yes, but the requirement is that they
must have exhausted the property of the vendor.
Meaning, redemption to be exercised by the
creditor is a remedy of last resort.
Against whom is conventional redemption
exercised? Against the vendee if the vendee is still
alive and has not conveyed the property to a
subsequent buyer. If the vendee has died, then
redemption shall be exercised against the heirs of
the vendee. Let’s not kill the vendor, we have killed
the vendee.. So the vendee is survived by two
heirs. Can the vendor redeem the entire property
from one of the heirs? No, only the share
pertaining to that heir, except if the property is
adjudicated to a particular heir, then the vendor
can redeem the entire property from him or her.
But if not, then the vendor must redeem from all
the heirs if the vendor wants to redeem the entire
property.
If the vendee has transferred or conveyed the
property to another person, then the vendor may
exercise redemption against this possessor whose
right is derived from the vendee. Now if redemption
is exercised to what is paid by the redemptioner,
the redemptioner shall return the purchase price,
the expenses of the contract if it was shouldered
by the buyer, the necessary and usual expenses
made on the thing sold after their amount is
determined. Now if no redemption is exercised,
then ownership is consolidated in the vendee. If it
is movable, ownership is consolidated absolutely
without any further action. But if it is real property,
then the vendee has to go to court and file a
petition for consolidation of title. If you still recall
Aguilar v. Robiato which I know you did not read
because of course you don't have time to read, you
have time to watch Netflix but no, you have no time
to read the assigned cases, I accept that. So in
Aguilar vs. Robiato, Aguilar was the vendee a
retro. After one year when there was no
redemption exercised by Robiato, who did not
personally transact with her, she filed an action for
consolidation of her title. That was when Robiato
discovered that the property was sold on pacto de
retro. Why did I mention Aguilar v. Robiato? That’s
an example that in case of pacto de retro sale, it
really is a pacto de retro sale and the subject is a
real property, you have to go to court for the
consolidation of your title. It is not automatic, unlike
if the subject of the sale is movable.
(No discussion for this slide. Judge proceeded
right away to the next slide)
Which brings us to the second mode of
extinguishing a sale which is legal redemption.
If conventional redemption is expressly agreed by
the parties, in fact it's an express condition, it’s an
accidental element, legal redemption, by the term
itself, is provided for by law. Art. 1619 defines legal
redemption as the right to be subrogated upon the
same terms and conditions stipulated in the
contract, we are referring to a written contract. In
the place of one who acquires a thing by purchase,
or dation in payment, or by any transaction
whereby ownership is transmitted by onerous title.
So it is a privilege created by law.
We also have the term pre-emption. Now
redemption is exercised after the sale, pre-emption
is exercised before the sale. In redemption, the
right is born after the sale, that’s why you redeem.
Pre-emption, the right is born before the sale. You
“pre”-empt the sale. Second difference, redemption
rescinds the contract of sale. In pre-emption, there
is no contract of sale yet, so there is nothing to
rescind or cancel. In redemption, because there is
already a sale, the right or the action is directed
against the buyer. In pre-emption, the action is
directed against the prospective seller. Take note,
pre-emption is available only in case of urban land.
There is no right of pre-emption in sale of rural
lands.
For our purposes of discussing legal redemption,
we will be discussing redemption by co-owners,
redemption by adjoining owners of rural lands, and
redemption by adjoining owners of urban lands.
And this includes pre-emption. Take note, we are
talking here about absolute sale, we are no longer
talking about pacto de retro sale which is covered
by the rules on conventional redemption. If it’s an
absolute sale, sale might be one, some but not all
co-owners, we are governed by rules on legal
redemption.
What is the purpose of the law in allowing legal
redemption? To end indivision or at least reduce
the numbers of co-owners because again, the law
frowns upon co-ownership.
When is legal redemption exercised by a
co-owner? Under Aguilar, there must be
co-ownership. Because if the properties are
already divided, segregated, co-ownership is
effectively terminated even if there is no deed of
partition yet but co-owners have identified
physically their respective shares. There is no
more co-ownership to be considered.
Second, one or some of the co-owners sold his or
their rights to a stranger. The sale must not be to a
co-owner. So if two siblings jointly owned a parcel
of land, and one of the siblings sold his or her
undivided share to another sibling, that is sale to a
stranger. Why? Because that sibling is not a
co-owner.
Third requisite, the sale must be made before
partition of the co-owned property.
Fourth, the right of redemption must be exercised
within a period of 30 days from the time the
redemptioner was notified in writing by the vendee
or by the co-owner vendor.
Fifth, the vendee must be reimbursed for the price
of the sale.
In Avila vs. Barabat, the Court denied the prayer
for legal redemption. I think this is a Toledo case.
Because the Court said, by their own admission,
petitioners already segregated and took
possession of their respective shares in the lot.
The respective shares were therefore physically
determined, clearly identifiable, and no longer ideal
(?), thus the co-ownership has been legally
dissolved. With that, petitioner’s right to redeem
any part of the property from any of their
co-owners was already extinguished.
Now who may exercise redemption? Of course the
co-owner who did not sell. If two or more
co-owners desire to redeem, they may redeem in
proportion to the share they may respectively have
in the thing owned.
Now, what is the purpose of the law in allowing the
adjoining owner of a rural land to exercise
redemption? This is explained in Fabia vs. IAC.
The Court said, the reason for the law in question
is to foster the development of agricultural areas
by adjacent owners who may desire the increase
or improvement of their own land. The intention of
the law in giving this right of redemption is to
protect agriculture by the union of small agricultural
lands and those adjoining thereto under one single
owner for their better exploitation. The use of
property for agricultural purpose is essential in
order that the same be characterized as rural land
for purposes of legal redemption under Article
1621 of the Civil Code. The small parcel of land,
one hectare or less in area, must be dedicated to
agriculture before owners of adjoining lands may
claim a right of redemption under Article 1621.
So even if the property is located in the most
remote barangay of Cebu City, if it’s not dedicated
to agriculture, it is not considered as rural land for
purposes of legal redemption.
So what are the requisites? There must be an
alienation. Second, the area alienated must not
exceed one hectare. Third, the properties must be
adjacent, they must not be separated by brooks,
drains, ravines, roads, and other apparent
servitudes for the benefit of the other estates.
Lastly, the vendee must own another parcel of
agricultural or rural land.
Because if we have all the 3 requisites present but
the vendee doesn’t own any rural land, meaning
any parcel of land devoted to agriculture, then
adjacent owners cannot exercise legal redemption.
What is the order of preference there are two
owners, two owners over have preference over the
adjoining owners, if there are two or more
adjoining owners who wish to exercise redemption,
the adjoining owner with the smaller area is
preferred. If the two adjoining owners who wish to
exercise redemption own equal areas or the same
size of properties which is highly unlikely then the
first who requested redemption shall be referred.
So let’s go back to Fabia v IAC the court said, the
use of agricultural property is essential in order
that legal redemption may be exercised. Now,
Primary Sructures v Valencia. If youre based on
Cebu city, you mustchave heard of Primary
structures or Primary Homes. It’s business is
Construction its not in the business of agriculture.
They own parcel of lands for housing
developments. So the Valecnia spouse purchase a
parcel of land somewhere Nort of Cebu City. This
parcel of land purchased, less than one hectare is
adjacent to the parcel of land owned by primary
structures. Again, I have to emphasize, Primary
structures is not engaged in agriculture. They
learned about the sale through a demand letter
sent to the Valencia spouses that they are
exercising the right to redemption of rural lands.
But the Valencia spouse refused and Primary
structures went to court while the trial court
dismissed the case, it declared that the property
was rural. So primary structures went to the CA
and sustained the dismissal which in effect
sustained the decision of the trial court that the
land was rural. That was the first time that the
Valencia spouses invoke 1621. But in the Trial
Court and in the Apellate Court, they did not
question. So the SC said that the trial court found
that it is a rural land. Respondents Unlike in the
case of Fabia v IAC, Respondents in the instance
case, the Valencia spouses however did not
dispute before the court of appeals the rulling of
the trial court that the lots are rural lands, in failing
to assail this factual finding on appeal,
respondents, the Valencia spouses would be hard
put to now belatedly question such finding and to
ask the court about the issue. Art. 1621 of the civil
code, expresses that the right to redemption grants
to the adjoining owner of the property conveyed,
maybe defeated if it can be shown that the buyer
or grantee does not own any other relent. The
appellate court sustaining the trial court that said
that there has been no evidence proffered to show
that the respondents are not themselves owners of
rural lands for the exclusionary clause of the law to
apply. What is being emphasize in this provision,
This is an oversight of the lawyers, I don’t want you
to commit the same mistake. Take note that you
have to invoke it at the very first instance. You to
look at the requisites of the very first instance and
invoke 1621 at the very first instance. Here, it was
too late because the SC says that we are not trier
of facts, it is not our job to know wether it is rural or
not, it is the job the trial court, and the trial court
said that it was a rural land and you did not
question that? Remember that it is your job as
lawyers to timely invoke the defense that the
property is not rural land.
What about urban land. Not all urban lands are
subject to legal redemption or preemption. We are
only talking about here a tiny portion of urban
land, which was acquired by the owner for
speculation purposes only. Because if the area is
so small and it is so situated that the major portion
of the land cannot be used for any practical
purpose for a reasonable time. In other words, It
cannot be posed together with adjacent properties,
it has no use at all because of the area and its
location. So just acquired by the present owner for
speculation purposes. But this present owner
intents to sell this tiny piece of urban land. The law
says that adjacent owners may exercise the right
of preemption and pay a reasonable price. But
what if the property has been sold by the owner
and owners were not afforde the right to exercise
the right of preemption? No problem! Adjacent
owners can exercise the right of redemption also at
a reasonable price. So what the are the requisites?
Both lands are urban lands, 2nd land being
redeemed was bought nearly for speculation
purposes, previously bought by the seller for
speculation purposes 3rd the land is so small and
so situated that it cannot be used practically at a
reasonable time and of course there is annihilation
if you want to exercise redemption. Who may
exercise? If there are two owners, two owners are
preferred over adjacent owners. If two or more
adjacent owners who want to exercise redemption,
the preference is intended to anyone who uses it
best justified that is for the court to determine. So
again we emphasized that in urban lands, the are
must be so small and the property must be so
situated that property has no particular used within
a reasonable time. In the case of Del Rosario v
Sanchez, was 86sqm and a house was
constructed on that 86 sqm parcel of land. The
court said as an adjoining owner, this court has
ruled that an owner of an urban land has no right
of preemption or redemption over the adjoining
owners of this land where he has not alleged in his
complaint and has not proved that said portion is
so small and situated that a major portion thereof
cannot be used for a practical purpose within
reasonable time, having been bough nearly for
speculations. As pointed out, the 86sqm lot in
question cannot be considered so small for
practical purposes because in fact, it is the same
size of the land owned by the adjoining owner and
a house was constructed on this property. So
clearly legal redemption cannot be exercised, but
look at .. vs CA. The area involved here is 225
sqm. Much bigger almost 3 times the area involved
in the del rosario vs sanchez. The way the court
rendered the resolution of this case, shows that the
court is pissed off by the issues raised by
Contreras. The court said, we are somewhat
mystified, why petitioner through this petition has
confined herself to issues that are utterly formally
strict in nature yet ultimately are meritorious. The
decision of the RTC raises a whole controversy
such as whether art 1622 should apply in this case
or rather the ownership of the house ….. given the
unequivocal rulings of the RTC and the CA, it
would expected of petitioner to squarely argue
that there is no sufficient proof establishing that the
alcantaras are owners of the house or for the
requisites of applyin art. 1626 are present. That
petitioner has not couched her argument clearly to
the defect can only lead to the conclusion that she
agreed to the findings of the lower courts that the
requisites of article 1622 have been met.
Considering that suche questions are rooted in the
findings of facts which the court is not who have to
review cause for us to inquire for such issue (wa
na jud ko kasabot sa kapaspas)
In other words, what are the effects here? Even if
the area was 225 sqm the adjoining owners was
allowed to redeem which also happened in primary
structures v Valencia, because Valencia spouse
did not trace the issue before the CA. SC had no
other choice but to allow redemptionof that piece of
property. ….
This is your job as lawyers, to question the
exercise at the very first moment that this is raised.
Because your client would not know this provision
of law. What is Redemption exercise? The law
says that within 30 days, form and writing of the
vendor. That is what the law says, 1623. Now lets
look at the rulings of the court. Again, by law,
redemption is exercised within 30 days from notice
in writing by the vendor to the prospective
redemptioners. In verdad v CA, nothwithstanding
the knowledge of the co owner, the latter is entitled
to a writen notice by a selling co owner. Year 200,
Francisco v Voyser(?), receipt of summons by co
owners is tantamount to actual knowledge of sale
from which the period of redemption commends.
So there was no written, no based on sale sent by
the other co owner to the other co owner, but one
co owner,
That is considered, notice that the property has
already been sold. So the court effectively said no
need for a written notice from a selling co owner
because there was actual notice already by the
other co owner by the receipt of summons filed by
the selling co owners. In Cabales v court of
appeals, The 30 day redemption period commence
after the co owner sought the brgy. Conciliation
process to redeem his property. In effect, the court
said, no need for a written notice from the vendor
because you already have actual knowledge from
the vendor when he went to the brgy. Summon the
buyer for you to exercise redemotion. So no need
fo awritten notice. But in 2012, pascual vs
Ballesteros, the court said, despite actual
knowledge of the sale, a written notice is still
mandatory and indispensable. In 2019, bayan vs
bayan, cited the case of Francisco vs voyser, the
court said that legal r
If I am the lawyer, I would advise my client to
exercise redemption within 30 days from the
actual notice of the sale because we do not know
when the court will ruleon the issue. So I will be
safe, my client will be safe if myclient exercise
redemption within 30 days from actual notice of the
sale. So my client wil beasfe, the court cannot say,
Oh you waited for the written notice from the seller
but you have actual notice. The law does not
require what is not necessary because if you look
at how the SC interpreted 1623, it has been
inconsistent.
ASSIGNMENT OF CREDITS: (1:22:26 - 1:37:54 =
JOSHVIC)
What is an assignment of credit?
- It is an agreement by virtue of which the
owner of a credit (known as the assignor)
by a legal cause and without need of the
debtor’s consent, transfers that credit and
its accessory rights to another (known as
the assignee), who acquires the power to
enforce it, to the same extent as the
assignor could have enforced it against the
debtor.
Example: You purchase a car from Honda motors
cebu on installments, this is not financed by the
bank - this is in house financing to purchase a car
from Honda on installments. You signed a
promissory note, promising to pay for example 36
equal installments - so this is a three year
installment plan, you sign the promissory note,
what Honda does is to assign/sell the note to a
financing company or to a bank so Honda delivers
the promissory note to the bank or to the assignee
and then you will be notified of the assignment. So
in case of you paying Honda your installments, you
will now be paying your installments to the
assignee of the credit.
TN in this example: You cannot complain and
object that your consent was not obtained by
Honda that they were assigning the credit as basis
as to why you should not pay. Your consent to the
assignment is not required for the validity of the
assignment - what is required is that you were
notified so that you know whom to pay. That is the
only reason for the notice to you, so that you may
know whom to pay.
To bind parties: So to bind the parties, it just
needs to comply with 1475. Which states that “The
contract of sale is perfected from the moment
that there is a meeting of minds upon the
object of the contract and upon the price from
that moment the parties may reciprocally
demand performance subject to the provisions
of the law governing forms of contract.”
Now here is the meeting of the minds of the
parties. The parties here are the assignors and the
assignees. The assignor is the creditor, the holder
of the credit - the assignee is the person to whom
the credit is assigned.
Going back to the Honda example: In our
example, Honda sold its receivable to the assignee
- so that’s assignment of credit.
To bind third persons: But to bind third persons
here take note third persons here do not include
the debtor. So the debtor is not a third person, who
can insist “Oh yes i'm in, it’s not a public document,
i am not bound by it.” No, the debtor is not a third
person.
So to bind a third person, 1625 says “[a]n
assignment of a credit, right or action shall
produce no effect as against a third person,
unless it appears in a public instrument, or the
instrument is recorded in the Registry of
Property in case the assignment involves real
property."
Ledonio V Capitol Development Corporation:
“In an assignment of a credit the consent of the
debtor is not necessary in order that the
assignment may fully produce the legal effects.
What the law requires in the assignment of the
credit is not the consent of the debtor but merely
notice to him as the assignment takes effect only
from the time he has knowledge thereof, a creditor
may therefore validly assign his credit and its
accessories without the debtor’s consent.”
So what are the effects of a valid assignment?
1st effect: It transfers the title of assigned credit to
the assignee. And the assignment includes all
accessory rights such as guarantee pledge
mortgage or preference??[inaudible]
2nd effect: Assignee takes the credit subject to all
defenses acquired by debtor prior to notice or
knowledge
Example on 2nd effect:
- If there was partial payment made by the
debtor prior to notice to him or prior to his
knowledge that an assignment has been
affected by the creditor - then he can
invoke the partial payment against the
assignee.
- If there was legal compensation which took
place before the debtor learned of the
assignment, the debtor can invoke that
legal compensation unless the debtor
consented to the assignment.
Any compromise between the debtor and the
creditor before notice of the assignment can be
right against the assignee. So if prior to notice to
the debtor that an assignment has been made by
the creditor, they have previously agreed on for
example: reduction of the interest rate - the debtor
can raise that as a defense against the assignee
and invoke the agreement with respect of the
reduction of the interest rate.
What are the warranties of the assignor? Now the
assignor warrants two things:
1. The existence of the credit
2. The legality of the credit
The assignor does not warrant the solvency of the
debtor.
Existence and legality are implied warranties, this
is given, this is a natural element of a contract. But
to warrant the solvency of the debtor is binding on
the assignor only if it expressly agreed by the
parties or expressly stipulated.
What is an example of a breach of warranty
against the existence of a credit?
- The promissory note on its face states that
the obligation of the debtor is 1,000,000
pesos but the debtor prior to notice of the
assignment has made a partial payment of
200,000 pesos. But the credit that was
 assigned was the entire value of the
promissory note as stated on its face
1,000,000. And then when the obligation
matured, the assignee demands payment
form the debtor - the debtor claims partial
payment of 200,000 and pays only
800,000.

Was there a breach of warranty committed by

the assignor?
- Yes, partial breach of the warranty of the
existence of the credit. Actually, 200,000
pesos worth of the credit did not exist at the
time of the assignment. So that is an
example of breach of warranty of existence
of the credit.
If the assignor warrants the solvency of the debtor,
the warranty is not indefinite.

TN: If there is warranty of the solvency of the

debtor - that is an expressed warranty, that is not
an implied warranty but it is not forever also if it is
expressly warranted.

So if at the time of the assignment, the obligation

already matured or the credit has already matured,
the warranty shall last only 1 year from the time of
assignment. If at the time of the assignment, the
credit has not matured yet, then the warranty shall
last within one year from the maturity of the credit.

Example: If from the promissory note, the

obligation matures on december 31, 2023 and the
assignment is made today and the assignor or the
creditor assigns the credit to the assignee with an
expressed warranty of the solvency of the debtor -
the warranty shall last within 1 year from January 1
or from December 31 from the maturity of the
credit; the credit matures on December 31,
warranty shall last from december 31 within one
year from December 31, 2023. It is not forever.

If there is a breach of warranty, the obligation of

the assignor who acted in good faith is to return
the price or consideration, the expenses of the
contract, and other legitimate expenses.

If the assignor acted in bad faith - there is always

liability for damages.