ATENEO

DE MANILA LAW SCHOOL

LAW ON SALES 1
DEAN CESAR L. VILLANUEVA
FIRST SEMESTER, SY 2018-2019 ATTY. TERESA S. VILLANUEVA-TIANSAY

I. THE “CONTRACT OF SALE”

A. DEFINITION AND ESSENCE OF SALE (Art. 1458)
Sale is a contract where one party [seller] obligates himself: (i) to transfer the ownership 2 and (ii)
to deliver the possession, of a determinate thing; and the other party [buyer] obligates himself to pay
therefor a price certain in money or its equivalent. xDantis v. Maghinang, Jr., 695 SCRA 599 (2013).3

1. Elements of Sale: (a) Consent: meeting of minds on, (b) Subject Matter, and (c) Consideration:
price certain in money or its equivalent. xCoronel v. Court of Appeals, 263 SCRA 15 (1996).4
Absence of any of the essential elements negates the existence of a perfected contract of sale.
xDizon v. Court of Appeals, 302 SCRA 288 (1999), 5 even when earnest money or downpayment
has been paid. xManila Metal Container Corp. v. PNB, 511 SCRA 444 (2006).6
 Perfect Sale Creates Real Obligations “to give ” (Art. 1165)

2. Stages of the Contract of Sale: (a) Policitacion or Negotiation Stage, starts from the time the
prospective contracting parties indicate interest in the contract to the time the contract is perfected;
(b) Perfection, takes place upon the concurrence of the essential elements of the sale; and (c)
Consummation, commences when the parties perform their respective undertakings under the
contract of sale, culminating in the extinguishment of the contract of sale. xGSIS v. Lopez, 592
SCRA 456 (2009).7

3. Essential Characteristics of Sale:

a. Nominate and Principal – Sale is what the law defines it to be, taking into consideration its
essential elements, and not what the contracting parties call it. xSantos v. Court of Appeals,
337 SCRA 67 (2000).8
b. Consensual (Art. 1475) – Sale being a consensual contract, is perfected, valid and binding
upon meeting of the minds on the subject matter and the consideration;9 being consensual, and
not real, in character, sale’s essential elements must be proven, xVillanueva v. CA, 267 SCRA
89 (1997); but once all elements are proven, its validity is not affected by a previously executed
fictitious deed of sale, xPeñalosa v. Santos, 363 SCRA 545 (2001); and the burden is on the
other party to prove otherwise, xHeirs of Ernesto Biona v. CA, 362 SCRA 29 (2001).

1
The OUTLINE presents the manner by which Law on Sales will be taken-up in class. The x’s and footnotes represent cases or topics which
need no extended discussions, either because the essence of the rulings are already summarized in the Outline or they contain similar rulings
or doctrines as the cases to be discussed. Unless otherwise indicated, numbered articles pertain to the Civil Code.
2
Ownership is the independent and general power of a person over a thing for purposes recognized by law and within the limits established
thereby, which includes the right to enjoy and dispose of a thing, without other limitations than those established by law. Aside from the jus
utendi and the jus abutendi inherent in the right to enjoy the thing, the right to dispose, or the jus disponendi, is the power of the owner to
alienate, encumber, transform and even destroy the thing owned. Flancia v. Court of Appeals (“CA”), 457 SCRA 224 (2005).
3
Alfredo v. Borras, 404 SCRA 145 (2003); Cruz v. Fernando, 477 SCRA 173 (2005); Manila Metal Container Corp. v. PNB, 511 SCRA 444
(2006); Roberts v. Papio, 515 SCRA 346 (2007); Hyatt Elevators and Escalators Corp. v. Cathedral Heights Building Complex Assn., 636
SCRA 401 (2010).
4
Jovan Land v. CA, 268 SCRA 160 (1997); Quijada v. CA, 299 SCRA 695 (1998); Co v. CA, 312 SCRA 528 (1999); San Andres v. Rodriguez,
332 SCRA 769 (2000); Roble v. Arbasa, 362 SCRA 69 (2001); Polytechnic University v. CA, 368 SCRA 691 (2001); Katipunan v. Katipunan,
375 SCRA 199 (2002); Londres v. CA, 394 SCRA 133 (2002); Manongsong v. Estimo, 404 SCRA 683 (2003); Jimenez, Jr. v. Jordana, 444
SCRA 250 (2004); San Lorenzo Dev. Corp. v. CA, 449 SCRA 99 (2005); Yason v. Arciaga, 449 SCRA 458 (2005); Roberts v. Papio, 515 SCRA
346 (2007); Navarra v. Planters Dev. Bank, 527 SCRA 562 (2007); Republic v. Florendo, 549 SCRA 527 (2008); GSIS v. Lopez, 592 SCRA 456
(2009); Baladad v. Rublico, 595 SCRA 125 (2009); Del Prado v. Caballero, 614 SCRA 102 (2010); Montecalvo v. Heirs of Eugenia T. Primero,
624 SCRA 575 (2010); Hyatt Elevators and Escalators Corp. v. Cathedral Heights Building Complex Assn., 636 SCRA 401 (2010); David v.
Misamis Occidental II Electric Coop., 676 SCRA 367 (2012); Dantis v. Maghinang, Jr., 695 SCRA 599 (2013); First Optima Realty Corp. v.
Securitron Security Services, 748 SCRA 534 (2015).
5
Roberts v. Papio, 515 SCRA 346 (2007); XYST Corp. v. DMC Urban Properties Dev., 594 SCRA 598 (2009); Hyatt Elevators and Escalators
Corp. v. Cathedral Heights Building Complex Assn., 636 SCRA 401 (2010).
6
Del Prado v. Caballero, 614 SCRA 102 (2010); Montecalvo v. Heirs of Eugenia T. Primero, 624 SCRA 575 (2010); David v. Misamis
Occidental II Electric Coop., 676 SCRA 367 (2012); Dantis v. Maghinang, Jr., 695 SCRA 599 (2013).
7
Limketkai Sons Milling v. CA, 250 SCRA 523 (1995); Jovan Land v. CA, 268 SCRA 160 (1997); San Miguel Properties v. Huang, 336 SCRA
737 (2000); Bugatti v. CA, 343 SCRA 335 (2000); Moreno, Jr. v. PMO, 507 SCRA 63 (2006); Manila Metal Container Corp. v. PNB, 511 SCRA
444 (2006); Navarra v. Planters Dev. Bank, 527 SCRA 562 (2007); Province of Cebu v. Heirs of Rufina Morales, 546 SCRA 315 (2008); XYST
Corp. v. DMC Urban Properties Dev., 594 SCRA 598 (2009); First Optima Realty Corp. v. Securitron Security Services, 748 SCRA 534 (2015).
8
Bowe v. CA, 220 SCRA 158 (1993); Romero v. CA, 250 SCRA 223 (1995); Lao v. CA, 275 SCRA 237 (1997); Cavite Dev’t Bank v. Lim, 324
SCRA 346 (2000).
9
Romero v. CA, 250 SCRA 223 (1995); Balatbat v. CA, 261 SCRA 128 (1996); Coronel v. CA, 263 SCRA 15 (1996); City of Cebu v. Heirs of
Candido Rubi, 306 SCRA 408 (1999); Agasen v. CA, 325 SCRA 504 (2000); Laforteza v. Machuca, 333 SCRA 643 (2000); Londres v. CA, 394
SCRA 133 (2002); Alcantara-Daus v. de Leon, 404 SCRA 74 (2003); Buenaventura v. CA, 416 SCRA 263 (2003); San Lorenzo Dev. Corp. v.
CA, 449 SCRA 99 (2005); Yason v. Arciaga, 449 SCRA 458 (2005); Ainza v. Padua, 462 SCRA 614 (2005); Roberts v. Papio, 515 SCRA 346
(2007); MCC Industrial Sales Corp. v. Ssangyong Corp., 536 SCRA 408 (2007); Castillo v. Reyes. 539 SCRA 193 (2007); XYST Corp. v. DMC
Urban Properties Dev., 594 SCRA 598 (2009); Del Prado v. Caballero, 614 SCRA 102 (2010); Heirs of Fausto C. Ignacio v. Home Bankers
Savings, 689 SCRA 173 (2013); Dantis v. Maghinang, Jr., 695 SCRA 599 (2013); Lam v. Kodak Phil., 778 SCRA 96 (2016).
 2
A contract of sale is not a real contract, but a consensual contract, which thereby becomes a
binding and valid contract upon the meeting of the minds as to price. If there is a meeting of the
minds of the parties as to the price, the contract of sale is valid, despite the breach of the manner of
payment. If the real price is not stated in the contract, then the contract of sale is valid but subject to
reformation. If the price stipulated in the contract is simulated, the sale is void under Art. 1471 of Civil
Code. √Buenaventura v. Court of Appeals, 416 SCRA 263, 271 (2003), citing VILLANUEVA,
PHILIPPINE LAW ON SALES, 54 (1998).
CONSEQUENTLY: UPON SALE’S PERFECTION—
 Consensuality: Sale’s binding effect is based on the principle that the obligations arising
therefrom have the force of law between the parties. xVeterans Federation of the Phils. v. Court
of Appeals, 345 SCRA 348 (2000).
 Sale remains valid even though the parties have not affixed their signatures to its written form,
xGabelo v. CA, 316 SCRA 386 (1999);10 nor translated their agreement into written form, Duarte
v. Duran, 657 SCRA 607 (2011); or the manner of payment of the price is breached, xPilipinas
Shell Petroleum Corp v. Gobonseng, 496 SCRA 305 (2006); or that the seller-developer has not
obtained a license to sell, especially that the parties have admitted that there was already a
meeting of the minds as to the subject of the sale and price. xCantemprate v. CRS Realty Dev.
Corp., 587 SCRA 492 (2009)
 Mutuality & Obligatory Force: The parties may reciprocally demand performance, xHeirs of
Venancio Bejenting v. Bañez, 502 SCRA 531 (2006);11 subject only to the provisions of law
governing the form of contracts. xCruz v. Fernando, 477 SCRA 173 (2005).
Perfection Distinguished from Demandability: Not all contracts of sale become auto-
matically and immediately effective. In sale with assumption of mortgage, there is a condition
precedent to the seller’s consent and without the approval of the mortgagee, the sale is not
perfected (i.e., demandable). xBiñan Steel Corp. v. Court of Appeals, 391 SCRA 90 (2002).
“No Contract Situation” versus “Void Contract”: Absence of complete meeting of minds
negates existence of a perfected sale, xFirme v. Bukal Enterprises, 414 SCRA 190 (2003); the
contract is void and absolutely wanting in civil effects, and does not create or modify the juridical
relation to which it refers, xCabotaje v. Pudunan, 436 SCRA 423 (2004).
When the contract of sale is not perfected, as when there is no meeting of minds on the
price, it cannot, as an independent source of obligation, serve as a binding juridical relation
between the parties, xHeirs of Fausto C. Ignacio v. Home Bankers Savings, 689 SCRA 173
(2013);12 and should be accurately denominated as “inexistent”, as it did not pass the stage of
generation to the point of perfection. xNHA v. Grace Baptist Church, 424 SCRA 147 (2004).

c. Bilateral and Reciprocal (Arts. 1169 and 1191) – A contract of sale gives rise to “reciprocal
obligations”, which arise from the same cause with each party being a debtor and creditor of the
other, such that the obligation of one is dependent upon the obligation of the other; and they are
to be performed simultaneously, so that the performance of one is conditioned upon the
simultaneous fulfillment of the other. xCortes v. Court of Appeals, 494 SCRA 570 (2006).13
A perfected contract of sale is bilateral because it carries the correlative duty of the seller to
deliver the property and the obligation of the buyer to pay the price. xCongregation of the
Religious of the Virgin Mary v. Orola, 553 SCRA 578 (2008).
When rescission of a contract of sale is sought under Article 1191 of the Civil Code, it need
not be judicially invoked because the power to resolve is implied in reciprocal obligations. The
resolution immediately produces legal and court intervention becomes necessary when the
party who allegedly failed to comply with his or her obligation disputes the resolution of the
contract. √Lam v. Kodak Philippines, 778 SCRA 96 (2016). 14

d. Onerous and Commutative (Arts. 1355 and 1470) – The resolution of issues pertaining to
periods and conditions in a contract admitted by both parties to be a sale must be based on its
onerous and commutative nature. √Gaite v. Fonacier, 2 SCRA 830 (1961).
In a sale, there is no requirement that the price be equal to the exact value of the subject
matter of sale; all that is required is that the parties believed that they will receive good value in
exchange for what they will give. √Buenaventura v. CA, 416 SCRA 263 (2003).

e. Sale Is Title and Not Mode – A mode is the legal means by which dominion or ownership is
created, transferred or destroyed, but title is only the legal basis by which to affect dominion or
ownership. Sale by itself does not transfer or affect ownership; the most that sale does is to
create the obligation to transfer ownership. It is tradition (delivery as a consequence of sale)
that actually transfers ownership. xSan Lorenzo Dev. Corp. v. Court of Appeals, 449 SCRA 99
(2005),15 citing VILLANUEVA, PHILIPPINE LAW ON SALES, 1995 ed., at p. 5.

10
Baladad v. Rublico, 595 SCRA 125 (2009).
11
Province of Cebu v. Heirs of Rufina Morales, 546 SCRA 315 (2008).
12
Manila Metal Container Corp. v. PNB, 511 SCRA 444 (2006); Roberts v. Papio, 515 SCRA 346 (2007).
13
Ong v. CA, 310 SCRA 1 (1999); Mortel v. KASSCO, 348 SCRA 391 (2000); Agro Conglomerates v. CA, 348 SCRA 450 (2000); Velarde v.
CA, 361 SCRA 56 (2001); Carrascoso, Jr. v. CA, 477 SCRA 666 (2005); Heirs of Antonio F. Bernabe v. CA, 559 SCRA 53 (2008); Antonino v.
Register of Deeds of Makati, 674 SCRA 227 (2012).
14
Vda. De Quirino v. Palarca, 29 SCRA 1 (1969); Almocera v. Ong, 546 SCRA 164 (2008); Cabrera v. Ysaac, 740 SCRA 612 (2014).
15
Acap v. CA, 251 SCRA 30 (1995).
 3
Ownership by seller of the thing sold is not an element of perfection; what the law requires
is seller has the right to transfer ownership at the time of delivery. xQuijada v. CA, 299 SCRA
695 (1998).16 BUT SEE: xTitong v. CA, 287 SCRA 102 (1998), which defined a “sale” as “a
contract transferring dominion and other real rights in the thing sold.”

B. SALE DISTINGUISHED FROM SIMILAR CONTRACTS

A contract is what the law defines it to be, taking into consideration its essential elements, and the
title given to it by the parties is not as much significant as its substance: 17 the transfer of ownership in
exchange for a price paid or promised is the very essence of a contract of sale . xSantos v. Court of
Appeals, 337 SCRA 67 (2000).
In determining the real character of sale, courts look at the intent of the parties, their true purpose
in entering into the contract, as well as “by their conduct, words, actions and deeds prior to, during
and immediately after executing the agreement,” and not at the nomenclature used to describe it.
xLao v. Court of Appeals, 275 SCRA 237 (1997).

1. Donation (Arts. 725 and 1471) – Unlike donation, sale is a disposition for valuable consideration
with no diminution of seller’s estate but merely substitution of values—property sold replaced by
the equivalent monetary consideration—and therefore cannot have the legal effect of depriving
compulsory heirs of their legitimes. xManongsong v. Estimo, 404 SCRA 683 (2003).
Article 1544 rules on double sales are not relevant to donations. xHemedes v. Court of Appeals,
316 SCRA 347 (1999).

2. Barter (Arts. 1468, 1638 to 1641)

3. Contract for a Piece-of-Work (Arts. 1467, 1713 to 1715) – “Ineluctably, whether the contract
be one of sale or one for a piece of work, a transfer of ownership is involved and a party
necessarily walks away with an object.” xCommissioner of Internal Revenue v. CA, 271 SCRA 605
(1997), citing VILLANUEVA, LAW ON SALES, pp. 7-9 (1995). In both, the provisions on warranty of title
against hidden defects applies. xDiño v. Court of Appeals, 359 SCRA 91 (2001).
When one stipulates for the future sale of articles which he is habitually making, and which at
the time are not made or finished, it is essentially a contract of sale and not a contract for labor,
xInchausti & Co. v. Cromwell, 20 Phil. 345 (1911); even when he executes production thereof only
after an order is placed by customers. √Celestino & Co. v. Collector, 99 Phil. 841 (1956).
If the thing is specially done only upon the specific order of another, this is a contract for a
piece of work; if it is manufactured or procured for the general market in the ordinary course of
business, it is a contract of sale. √CIR v. Engineering Equipment, 64 SCRA 590 (1975).18
To Tolentino, the distinction depends on the parties’ intention: if they intended that at some
future date an object has to be delivered without considering the work or labor of the party bound
to deliver, the contract is one of sale; but if one party accepts the undertaking on the basis of some
plan, taking into account the particular work to be done by himself or through others, the contract is
for a piece of work. xEngineering & Machinery Corp. v. CA, 252 SCRA 156 (1996).

4. Agency to Sell (Art. 1466) – Assumption by “agent” of the risk pertaining to the cost or price of
the subject matter makes the relationship that of buyer-seller, for the agent does not assume risk
with respect to the price or the property subject of the relationship. xKer & Co. v. Lingad, 38 SCRA
524 (1971). CONSEQUENTLY:
 Contractual relation is not revocable. √Quiroga v. Parsons, 38 Phil. 501 (1918);
 Purported agent does not have to account for the profit margin earned from acquiring the
property for the principal. √Puyat v. Arco Amusement Co., 72 Phil. 402 (1941).
One factor that most clearly distinguishes agency from other legal concepts, including sale, is
control; one person – the agent – agrees to act under the control or direction of another – the
principal. xVictorias Milling Co. v. Court of Appeals, 333 SCRA 663 (2000).
Commercial broker, commission merchant or indentor is a middleman acting in his own name,
and acts as agent for both seller and buyer to effect a sale between them. Although he is neither
seller nor buyer to the contract effected he may voluntarily assume warranties of seller. xSchmid
and Oberly v. RJL Martinez, 166 SCRA 493 (1988).

5. Dacion En Pago (Arts. 1245 and 1934) – Governed by the Law on Sales, dation in payment is
a transaction that takes place when property is alienated to the creditor in full satisfaction of a debt
in money – it involves the delivery and transmission of ownership of a thing as an accepted
equivalent of the performance of the obligation. xYuson v. Vitan, 496 SCRA 540 (2007).
Elements of dacion en pago: (a) performance of the prestation in lieu of payment (animo
solvendi) which may consist in the delivery of a corporeal thing or a real right or a credit against the
third person; (b) some difference between the prestation due and that which is given in substitution
(aliud pro alio); and (c) agreement between the creditor and debtor that the obligation is

16
Equatorial Realty Dev. v. Mayfair Theater, 370 SCRA 56 (2001); Alcantara-Daus v. De Leon, 404 SCRA 74 (2003); Heirs of Jesus M.
Mascuñana v. CA, 461 SCRA 186 (2005).
17
Romero v. CA, 250 SCRA 223 (1995); Lao v. CA, 275 SCRA 237 (1997); Orden v. Aurea, 562 SCRA 660 (2008); Ver Reyes v. Salvador,
Sr., 564 SCRA 456 (2008)..
18
CIR v. Arnoldus Carpentry Shop, 159 SCRA 199 (1988); Del Monte Phil. v. Aragones, 461 SCRA 139 (2005).
 4
immediately extinguished by reason of the performance of a presentation different from that due.
√Lo v. KJS Eco-Formwork System Phil., 413 SCRA 182 (2003).19 CONSEQUENTLY:
 In its modern concept, what takes place in dacion en pago is an objective novation of the
obligation where the thing offered as an accepted equivalent of the performance of an obligation
is considered as the object of the contract of sale, while the debt is considered as the purchase
price. xAquintey v. Tibong 511 SCRA 414 (2006).20
 In a true dacion en pago, assignment of the property extinguishes the monetary debt.
xEstanislao v. East West Banking Corp., 544 SCRA 369 (2008).21 BUT: Dation extinguishes the
obligation to the extent of the value of the thing delivered, either as agreed upon by the parties
or as may be proved, unless the parties by agreementconsider the thing as equivalent to the
obligation, in which case the obligation is totally extinguished. xTan Shuy v. Maulawin, 665
SCRA 604 (2012).
 There must be actual delivery of the property to the creditor by way of extinguishment of the
pre-existing debt, xPhil. Lawin Bus Co. v. CA, 374 SCRA 332 (2002).22 BUT SEE OBITER: xSSS
v. AG& P Company of Manila, 553 SCRA 677 (2008).
 There is no dation where there is no transfer of ownership in creditor’s favor, as when
possession of the thing is merely given to the creditor by way of security. xFort Bonifacio Dev.
Corp. v. Yllas Lending Corp., 567 SCRA 454 (2008).23
 Assignment of the collaterals to the lender to release the borrower from the loan to the extent of
the value of the things assigned cannot be a dation in payment which requires a complete
extinguishment of the debt. Villaluz v. Land Bank of the Phils., 814 SCRA 466 (2017).
Dacion en pago is governed by the Law of Sales, and is therefore subject to the same rules on
express and implied warranties pertaining to contracts of sale. The implied warranty in case of
eviction is waivable and cannot be invoked if the buyer knew of the risks or danger of eviction and
assumed its consequences. Luzon Dev. Bank v. Enriquez, 639 SCRA 332 (2011).

6. Lease (Arts. 1484 and 1485) – When rentals in a “lease” are meant to be installment payments
to an underlying sale contract, despite the nomenclature given by the parties, it is a sale by
installments and governed by Recto Law. xFilinvest Credit Corp. v. CA, 178 SCRA 188 (1989).

II. PARTIES TO A CONTRACT OF SALE

1. GENERAL RULE: Every person having legal capacity to obligate himself, may validly
enter into a contract of sale, whether as seller or as buyer. (Art. 1489)
2. Minors, Insane and Demented Persons, Deaf-Mutes (Arts. 1327, 1397 and 1399)
A minor cannot be deemed to have given her consent to a sale; consent is among the
essential requisites of a contract of sale, absent of which there can be no valid contract [?].
xLabagala v. Santiago, 371 SCRA 360 (2001).
a. “Necessaries” (Arts. 1489 and 290)
b. Protection of the Senile and Elderly (Art. 24), Illiterates (Art. 1332)
While a person is not incompetent to contract merely because of advanced years or by
reason of physical infirmities, when such age or infirmities have impaired the mental faculties so
as to prevent the person from properly, intelligently or firmly protecting his property rights, then
he is undeniably incapacitated, and the sale he entered into is void [?]. √Paragas v. Heirs of
Dominador Balacano, 468 SCRA 717 (2005).24

3. Sales By and Between Spouses:

a. Sales with Third Parties (Arts. 73, 96, and 124, Family Code)
Under Art. 124 of Family Code, sale by husband of a conjugal property without the wife’s
consent is void, not merely voidable, for lacking the essential elements of “full consent”.
xGuiang v. CA, 291 SCRA 372 (1998). 25 EXCEPT: Husband may dispose of conjugal property
without wife’s consent when necessary to answer for conjugal liabilities mentioned in Articles
161 and 162. xAbalos v. Macatangay, Jr., 439 SCRA 64 (2004).
A wife affixing her signature to a Deed of Sale as a witness is deemed to have given her
consent. xPelayo v. Perez, 459 SCRA 475 (2005).
b. Sales Between Spouses (Arts. 133, 1490, 1492; Sec. 87, Family Code)
Sales between spouses who are not governed by a complete separation of property regime
are void, not just voidable. xMedina v. Collector, 1 SCRA 302 (1960).

19
Aquintey v. Tibong 511 SCRA 414 (2006); Rockville Excel International Exim Corp. v. Culla, 602 SCRA 124 (2009).
20
Vda. de Jayme v. CA, 390 SCRA 380 (2002); Dao Heng Bank v. Laigo, 571 SCRA 434 (2008); Technogas Phil. Mfg. Corp. v. PNB, 551
SCRA 183 (2008); Ocampo v. LBP, 591 SCRA 562 (2009); D.B.T. Mar-Bay Construction v. Panes, 594 SCRA 578 (2009).
21
Ong v. Roban Lending Corp., 557 SCRA 516 (2008).
22
Filinvest Credit Corp. v. Philippine Acetylene Co., 111 SCRA 421 (1982); Vda. de Jayme v. CA, 390 SCRA 380 (2002); Ong v. Roban
Lending Corp., 557 SCRA 516 (2008); Pen v. Julian, 778 SCRA 56 (2016).
23
PNB v. Pineda, 197 SCRA 1 (1991).
24
Domingo v. CA, 367 SCRA 368 (2001); Vda. De Ape v. CA, 456 SCRA 193 (2005).
25
Cirelos v. Hernandez, 490 SCRA 625 (2006); Bautista v. Silva, 502 SCRA 334 (2006).
 5
Since the spouses cannot validly sell property to one another under Art. 1490, then policy
consideration and the dictates of morality require that the prohibition should apply also to
common-law relationships. √Matabuena v. Cervantes, 38 SCRA 284 (1971).
Sale by husband of conjugal land to his concubine is void for being “subversive of the
stability of the family, a basic social institution which public policy cherishes and protects.”
xCalimlim-Canullas v. Fortun, 129 SCRA 675 (1984).26
In pari delicto doctrine would not apply to the spouses under Art. 1490, since only the heirs
and the creditors can question the sale’s nullity, xModina v. CA, 317 SCRA 696 (1999);
nevertheless, when the property is re-sold to a third-party buyer in good faith and for value,
reconveyance is no longer available. xCruz v. CA, 281 SCRA 491 (1997).

4. WHEN BUYERS RELATIVELY DISQUALIFIED (Arts. 1491 and 1492)

Contracts entered into in violation of Arts. 1491 and 1492 are not merely voidable, but are null
and void, some of which are subject to ratification. √Rubias v. Batiller, 51 SCRA 120 (1973).27
a. Guardians, Administrators and Agents
Hereditary rights are not included in the prohibition insofar as administrator or executor of
the estate of the deceased. xNaval v. Enriquez, 3 Phil. 669 (1904).
No more need to comply with the requirement in xRodriquez v. Mactal, 60 Phil. 13 (1934) to
show that a third party bought as conduit/nominee of the buyer disqualified under Art. 1491;
rather, the presumption now is that such disqualified party obtained the property in violation of
said article. √Philippine Trust Co. v. Roldan, 99 Phil. 392 (1956).
Prohibition against agents does not apply if the principal consents to the sale of the
property in the hands of the agent. xDistajo v. Court of Appeals, 339 SCRA 52 (2000).
b. Attorneys
(1) Prohibition Against Attorneys Applies:
 Even though litigation is not adversarial in nature, Rubias v. Batiller, 51 SCRA 120 (1973); or
a certiorari proceeding that has no merit, xValencia v. Cabanting, 196 SCRA 302 (1991).
 Sale pursued while litigation is pending. xDirector of Lands v. Ababa, 88 SCRA 513 (1979).
 Only to a lawyer of record, and does not cover assignment of the property given in judgment
made by a client to an attorney, who has not taken part in the case. xMunicipal Council of
Iloilo v. Evangelista, 55 Phil. 290 (1930).28
(2) Prohibition Does Not Apply To:
 A lawyer who acquired property prior to the time he intervened as counsel in the suit
involving such property. xDel Rosario v. Millado, 26 SCRA 700 (1969).
 Sale of the land acquired by a client to satisfy a judgment to his attorney as long as the
property was not the subject of the litigation. xDaroy v. Abecia, 298 SCRA 172 (1998).
 Contingency fee arrangement granting the lawyer proprietary rights to the property in
litigation since the payment of said fee is not made during the pendency of litigation but only
after judgment has been rendered. √Fabillo v. IAC, 195 SCRA 28 (1991).29
c. Judges
Even when the main cause is a collection of a sum of money, the properties levied are still
subject to the prohibition. xGan Tingco v. Pabinguit, 35 Phil. 81 (1916).30
A judge who buys property in litigation before his court after the judgment becomes final
does not violate Art. 1491, but he can be administratively disciplined for violation of the Code of
Judicial Ethics. xMacariola v. Asuncion, 114 SCRA 77 (1982).

III. SUBJECT MATTER OF SALE

The transfer of title or an agreement to transfer title for a price paid or promised to be paid is the
essence of sale. xCommissioner of Internal Revenue v. CA and AdeMU, 271 SCRA 605 (1997).
Civil Code provisions defining sales is a “catch-all provision” which effectively brings within the
Law on Sales a whole gamut of transfers whereby ownership of a thing is ceded for a consideration.
√Polytechnic University v. Court of Appeals, 368 SCRA 691 (2001).
An agreement whereby a party renounces and transfers whatever rights, interests, or claims she
has over a parcel of land in favor of another party in consideration of the latter’s payment of therein
loan, is essentially a sale, and the rule on delivery effected through a public instrument applies.
xCaoibes, Jr. v. Caoibes-Pantoja, 496 SCRA 273 (2006).

26
Ching v. Goynako, Jr., 506 SCRA 735 (2006).
27
Uy Sui Pin v. Cantollas, 70 Phil. 55 (1940); Medina v. Collector, 1 SCRA 302 (1961).
28
Gregorio Araneta, Inc. v. Tuason de Paterno, 49 O.G. 45 (1952).
29
Recto v. Harden, 100 Phil. 427 (1956); Vda. de Laig v. CA, 86 SCRA 641 (1978).
30
Britanico v. Espinosa, 486 SCRA 523 (2006).
 6
1. Subject Matter Must Be “Existing, Future or Contingent” (Arts. 1347, 1348, and 1462)
a. Emptio Rei Speratae (Arts. 1347 and 1461) – Pending crops which have potential existence
may be valid object of sale, xSibal v. Valdez, 50 Phil. 512 (1927) 1; and transaction cannot be
considered to be sale of the land or any part thereof, xPichel v. Alonzo, 111 SCRA 341 (1981).
Sale of copra for future delivery does not make non-delivering seller liable for estafa since sale
is valid and obligation was civil and not criminal. xEsguerra v. People, 108 Phil. 1078 (1960).
b. Emptio Spei (Art. 1461)
c. Subject to a Resolutory Condition (Art. 1465)

2. Must Be “Licit” (Arts. 1347, 1411-1412, 1459 and 1575)

Although under Art. 1347, a sale involving future inheritance is void and does not create an
obligation, xTañedo v. CA, 252 SCRA 80 (1996); such does not cover a waiver of hereditary rights
which is not equivalent to sale, since waiver is a mode of extinction of ownership in favor of the
other persons who are co-heirs. xAcap v. Court of Appeals, 251 SCRA 30 (1995).
Mortgagor can legally sell the mortgaged property—mortgage is merely an encumbrance that
does not affect his principal attribute as owner thereof. Law even considers void a stipulation
forbidding owner from alienating mortgaged immovable. xPineda v. CA, 409 SCRA 438 (2003).2

3. Must Be “Determinate” or At Least “Determinable” (Art. 1460)

When deed of sale erroneously describes the lot adjacent to the land seen and eventually
delivered to the buyer, such vetted land is the one upon which the minds have met, and not that
erroneously described in the deed. Prudent people buy land on the basis of what they see, not on
what is technically described in deed or TCT. √Atilano v. Atilano, 28 SCRA 231 (1969).3
a. Non-Specific Things (Generic) May Be the Object of Sale (Arts. 1246 and 1409[6])
Determinable subject matter of sale are not subject to risk of loss until they are physically
segregated or particularly designated. √Yu Tek & Co. v. Gonzales, 29 Phil. 384 (1915).4
BUT SEE: √Ong Jang Chuan v. Wise & Co. 33 Phil. 339 (1916).
Subject matter is “determinable” when from the formula or description adopted at perfection
there is a way by which the courts can delineate it independent of the will of the parties.
√Melliza v. City of Iloilo, 23 SCRA 477 (1968).
Where lot sold is described to adjoin “previously paid lot on three sides thereof”, it can be
determined without need of a new contract, even when the exact area of adjoining lot is subject
to the result of a survey. xSan Andres v. Rodriguez, 332 SCRA 769 (2000).
As the quoted portion of the Kasunduan gave reference to the area, the locality located, and
vicinity with reference of old trees, there is no doubt that the object of the sale is determinable.
xCarabeo v. Dingco, 647 SCRA 200 (2011).
b. “Quantity of Goods” Not Essential for Perfection? (Art. 1349)
Sale of grains is perfected even when the exact quantity or quality is not known, so long as
the source of the subject is certain. √NGA v. IAC, 171 SCRA 131 (1989).
Where seller quoted items offered for sale, by item number, part number, description and unit
price, and buyer had sent in reply a purchase order without indicating the quantity being order,
there was already a perfected contract of sale, even when required letter of credit had not been
opened by the buyer. √Johannes Schuback & Sons v. CA, 227 SCRA 719 (1993).

c. Undivided Interest (Art. 1463), Undivided Share in a Mass of Fungible Goods (Art. 1464) –
May Result In Co-ownership

5. Seller’s Obligation to Transfer Title to Buyer (Art. 1459, 1462, and 1505)
a. Seller Need Not Be the Owner at the Time of Perfection – A perfected sale cannot be
challenged on the ground of the seller’s non-ownership of the thing sold at the time of the
perfection; it is at delivery that the law requires the seller to have the ownership of the thing
sold. xAlcantara-Daus v. de Leon, 404 SCRA 74 (2003).5
BUT SEE: It is essential that seller is owner of the property he is selling. The principal obligation
of a seller is “to transfer the ownership of” the property sold (Art. 1458). This law stems from the
principle that nobody can dispose of that which does not belong to him. NEMO DAT QUOD NON
HABET. xNoel v. Court of Appeals, 240 SCRA 78 (1995).6
THEN SEE: Although it appears that seller is not owner of the goods at perfection is one of the
void contracts enumerated in Art. 1409, and Art. 1402 recognizes a sale where the goods are to
be “acquired by the seller after the perfection of the contract of sale,” clearly implying that a sale
is possible even if seller was not the owner at time of sale, nevertheless such contract may be

1
Dela Viña v. Buenaventura, 71 Phil. 421 (1941).
2
Typingco v. Lim, 604 SCRA 396 (2009).
3
Londres v. CA, 394 SCRA 133 (2002).
4
But see: Ong Jang Chuan v. Wise & Co., 33 Phil. 339 (1916).
5
Heirs of Arturo Reyes v. Socco-Beltran, 572 SCRA 211 (2008).
6
Azcona v. Reyes, 59 Phil. 446 (1934); Coronel v. Ona, 33 Phil. 456 (1916); Francisco v. Chemical Bulk Carriers, 657 SCRA 355 (2011).
 7
deemed to be inoperative and falls, by analogy, under Art. 1409(5): “Those which contemplate
an impossible service.” xNool v. Court of Appeals, 276 SCRA 149 (1997).
NOW SEE: Seller and buyer must agree as to the certain thing that will be subject of the sale, as
well as the price in which the thing will be sold. The thing to be sold is the object of the contract,
while the price is the cause or consideration. The object of a valid sale must be owned by the
seller, or seller must be authorized by the owner to sell the object; otherwise, sale is null and
void. xCabrera v. Ysaac, 740 SCRA 612 (2014).

b. Subsequent Acquisition of Title by Non-Owner Seller – Title Passes to Buyer by

Operation of Law (Art. 1434)
c. Acquisition by the Buyer May Even Depend on Contingency (Art. 1462)

X6. Illegality of Subject Matter (Arts. 1409, 1458, 1461, 1462, and 1575)
a. Special Laws: narcotics (R.A. 6425); wild bird or mammal (Act 2590); rare wild plants (Act
3983); poisonous plants/fruits (R.A. 1288); dynamited fish (R.A 428); gunpowder and explosives
(Act 2255); firearms and ammunitions (P.D. 9); sale of realty by non-Christians (Sec. 145,
Revised Adm. Code, R.A. 4252)
b. Following Sales of Land Void:
 By Non-Christian if not approved by Provincial Governor per Sec. 145 of Revised Administrative
Code. xTac-an v. Court of Appeals, 129 SCRA 319 (1984).
 Friar land without consent of Secretary of Agriculture required under Act No. 1120. xAlonso v.
Cebu Country Club, 375 SCRA 390 (2002); xLiao v. CA, 323 SCRA 430 (2000).
 Made in violation of land reform laws declaring tenant-tillers as the full owners of the lands they
tilled. xSiacor v. Gigantana, 380 SCRA 306 (2002).
 Reclaimed lands are of the public domain and cannot, without congressional fiat, be sold, public
or private. xFisheries Dev. Authority v. CA, 534 SCRA 490 (2007).
 Alien who purchases land in the name of his Filipina lover, has no standing to recover the
property or the purchase price paid, since the transaction is void ab initio for being in violation of
the constitutional prohibition. xFrenzel v. Catito, 406 SCRA 55 (2003).

IV. PRICE AND OTHER CONSIDERATION (Arts. 1469-1474)

“Price” 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 debit of the buyer and agreed to by him.
xInchausti & Co. v. Cromwell, 20 Phil. 345 (1911).
Under the doctrine of “obligatory force”, seller cannot unilaterally increase the price previously
agreed upon with the buyer, even when due to increased construction costs. xGSIS v. Court of
Appeals, 228 SCRA 183 (1993).
Buyer who opted to purchase the land on installment at 24% p.a. interest, cannot unilaterally
disavow the obligation: “The rationale behind having to pay a higher sum on the installment is to
compensate the vendor for waiting a number of years before receiving the total amount due. The
amount of the stated contract price paid in full today is worth much more than a series of small
payments totaling the same amount. … To assert that mere prompt payment of the monthly
installments should obviate imposition of the stipulated interest is to ignore an economic fact and
negate one of the most important principles on which commerce operates.” Bortikey v. AFP-RSBS,
477 SCRA 511 (2005).

1. Price Must Be “Real” (Art. 1471)

a. When Price Is “Simulated”
(1) √Mapalo v. Mapalo, 17 SCRA 114 (1966), versus: When two old ladies, not versed in
English, sign a Deed of Sale on representation by buyer that it was merely to evidence their
lending of money, the situation constitutes more than just fraud and vitiation of consent to
give rise to a voidable contract, since there was in fact no intention to enter into a sale,
there was no consent at all, and more importantly, there was no consideration or price
agreed upon, which makes the contract void ab initio. Rongavilla v. Court of Appeals,
294 SCRA 289 (1998).
(2) √Mate v. Court of Appeals, 290 SCRA 463 (1998), versus: When Deed of Sale was
executed to facilitate transfer of property to buyer to enable him to construct a commercial
building and to sell the property to the children, such arrangement being merely a
subterfuge on the part of buyer, the agreement cannot also be taken as a consideration and
sale is void. Yu Bun Guan v. Ong, 367 SCRA 559 (2001).
(3) Effects When Price Simulated – The principle of in pari delicto nonoritur action denies all
recovery to the guilty parties inter se, where the price is simulated; the doctrine applies only
where the nullity arises from the illegality of the consideration or the purpose of the
contract. xModina v. Court of Appeals, 317 SCRA 696 (1999).7

7
Yu Bun Guan v. Ong, , 367 SCRA 559 (2001); Gonzales v. Trinidad, 67 Phil. 682 (1939)
 8
b. When Price Is “False” (Arts. 1353 and 1354)
When the parties intended to be bound by the sale, but the deed did not reflect the actual
price agreed upon, there is only a relative simulation of the contract which remains valid and
enforceable, but subject to reformation. xMacapgal v. Remorin, 458 SCRA 652 (2005).
When the price undervaluation in the deed was to avoid payment of higher capital gains
taxes, the price stated is false, but the sale is still valid and binding on the real terms agreed
upon. xHeirs of Spouses Balite v. Lim, 446 SCRA 54 (2004).

c. Effect of Non-Payment of Price – Sale being consensual, failure of buyer to pay the price
does not make the contract void for lack of consideration or simulation, but results in buyer’s
default, for which seller may exercise his legal remedies. xBalatbat v. Court of Appeals, 261
SCRA 128 (1996).8
“In a contract of sale, the non-payment of the price is a resolutory condition which
extinguishes the transaction that, for a time, existed and discharges the obligations created
thereunder. [?] The remedy of an unpaid seller in a contract of sale is to seek either specific
performance or rescission.” xHeirs of Pedro Escanlar v. CA, 281 SCRA 176 (1997).9
Price Simulated, Not Just Unpaid: It is a badge of simulated price, which render the sale
void, when price is expressly stipulated to have been paid, but in fact never been paid by the
buyer to the seller. xVda. de Catindig. v. Heirs of Catalina Roque, 74 SCRA 83 (1976).10

2. Price Must Be in “Money or Its Equivalent” (Arts. 1458 and 1468)

Price must be “valuable consideration” under by Civil Law, instead of “any price” mandated in
Common Law. √Ong v. Ong, 139 SCRA 133 (1985); √Bagnas v. CA, 176 SCRA 159 (1989).
Consideration for a valid contract of sale need not be “money or its equivalent,” xRepublic v.
Phil. Resources Dev., 102 Phil. 960 (1958); and can take different forms, such as expected profits
from the subdivision project, xTorres v. CA, 320 SCRA 428 (1999); cancellation of liabilities on the
property in favor of the seller, xPolytechnic University v. Court of Appeals, 368 SCRA 691 (2001); or
assumption of mortgage on property sold. xDoles v. Angeles, 492 SCRA 607 (2006).11

3. Price Must Be “Certain” or “Ascertainable” at Perfection (Art. 1469)

a. Price Is “Ascertainable” When:
(1) Set by Third Person Appointed at Perfection (Art. 1469)
(2) Set by the Courts (Art. 1469)
(3) By Reference to a Definite Day, Particular Exchange or Market (Art. 1472)
(4) By Reference to Another Thing Certain, such as to invoices then in existence and clearly
identified by the agreement xMcCullough v. Aenlle, 3 Phil. 285 (1904); or based on known
factors or stipulated formula. xMitsui v. Manila, 39 Phil. 624 (1919).
Price is “ascertainable” if the terms of the contract furnishes the courts a basis or measure
for determining the amount agreed upon, without having to refer back to either or both parties.
Villanueva v. Court of Appeals, 267 SCRA 89 (1997).12
Where the sale involves an asset under a privatization scheme which attaches a peculiar
meaning or signification to the term “indicative price” as merely constituting a ball-park figure,
then the price is not certain. xMoreno, Jr. v. PMO, 507 SCRA 63 (2006).
Price or consideration is generally agreed upon as whole even if it consists of several parts,
and even if it is contained in one or more instruments; otherwise there would be no price
certain, and the contract of sale not perfected. xArimas v. Arimas, 55 O.G. 8682.

b. Price Can Never Set By One or Both Parties After Alleged Perfection, Unless Such Price
Is Separately Accepted by the Other Party. (Arts. 1473, 1182)

c. Effects When Price Is Neither Certain or Ascertainable: Sale Is “Inefficacious”

BUT: If Buyer Appropriates the Object, He Must Pay a Reasonable Price (Art. 1474)
No “Appropriation” When It Comes to Land? – Where a church organization has been
allowed possession and introduced improvements on the land as part of its application to
purchase with the NHA, and thereafter it refused the formal resolution of the NHA Board setting
the price and insisted on paying the lower price allegedly given by the NHA Field Office, there
can be no binding contract of sale upon which an action for specific performance can prosper,
not even on fixing the price equal to the fair market value of the property. NHA v. Grace Baptist
Church, 424 SCRA 147 (2004).

8
Peñalosa v. Santos, 363 SCRA 545 (2001); Soliva v. Intestate Estate of Marcelo M. Villalba, 417 SCRA 277 (2003); Province of Cebu v.
Heirs of Rufina Morales, 546 SCRA 315 (2008).
9
Villaflor v. CA, 280 SCRA 297 (1997).
10
Ocejo v. Flores, 40 Phil. 921 (1920); Ladanga v. CA, 131 SCRA 361 (1984); Rongavilla v. CA, 294 SCRA 289 (1998); Labagala v. Santiago,
371 SCRA 360 (2001); Cruz v. Bancom Finance Corp., 379 SCRA 490 (2002); Montecillo v. Reynes, 385 SCRA 244 (2002); Republic v.
Southside Homeowners Asso., 502 SCRA 587 (2006); Quimpo, Sr. v Abad Vda de Beltran, 545 SCRA 174 (2008); Solidstate Multi-Products
Corp. v. Catienza-Villaverde, 559 SCRA 197 (2008); Clemente v. CA, 772 SCRA 339 (2015).
11
The deed of sale with assumption of mortgage is a registrable instrument and must be registered with the Register of Deeds in order to
bind third parties. Rodriguez v. CA, 495 SCRA 490 (2006).
12
Boston Bank of the Phil. v. Manalo, 482 SCRA 108 (2006).
 9
Even when there was no meeting on the minds of the price, yet to deny petitioner’s claim
would unjustly enrich respondent who had benefited from the repairs of their four elevators.
xHyatt Elevators and Escalators v. Cathedral Heights Building, 636 SCRA 401 (2010).

4. “Manner of Payment” of Price IS ESSENTIAL (Art. 1179)

A definite agreement on the manner of payment of price is an essential element in the
formation of a binding and enforceable contract sale; without which the sale is void and an action
for specific performance must fail. xNavarra v. Planters Dev. Bank, 527 SCRA 562 (2007).13
When the manner of payment of the price is discussed after “acceptance,” then such
“acceptance” did not produce a binding and enforceable contract of sale. xNavarro v. Sugar
Producer’s Corp., 1 SCRA 1180 (1961).
Where there is no other basis for the payment of the subsequent amortizations in a Deed of
Conditional Sale, the reasonable conclusion is that the subsequent payments shall be made in the
same amount as the first payment. [?] xDBP v. Court of Appeals, 344 SCRA 492 (2000).

5. Inadequacy of Price (Arts. 1355 and 1470)

a. Simple Inadequacy of Price Does Not Affect Ordinary Sales – Mere inadequacy of the price
does not affect the validity of the sale when both parties are in a position to form an independent
judgment concerning the transaction, unless fraud, mistake, or undue influence indicative of a
defect in consent is present. The contract may be annulled for vitiated consent and not due to
the inadequacy of price. xBautista v. CA, 436 SCRA 141 (2004).14
b. “Gross Inadequacy of Price” May:
(1) Raise the Presumption of Equitable Mortgage in an Ordinary Sale (Art. 1602)
(2) Render Voidable a Judicial Sale: (i) Only when it is shocking to the conscience of man.
xPascua v. Simeon, 161 SCRA 1 (1988); and (ii) There is showing that, in the event of a
resale, a better price can be obtained. xCu Bie v. CA, 15 SCRA 307 (1965).15
UNLESS: There is right of redemption, in which case the proper remedy is to redeem. xDe
Leon v. Salvador, 36 SCRA 567 (1970).16
HOWEVER: By way of extraordinary circumstances perceived, when in a judicial sale the
right of redemption has been lost, where the inadequacy of the price is purely shocking to
the conscience, such that the mind revolts at it and such that a reasonable man would
neither directly or indirectly be likely to consent to it, the same will be se aside. xCometa
v. Court of Appeals, 351 SCRA 294 (2001).
(3) Render Rescissible a Sale by Fiduciary, where Beneficiary suffers lesion of more
than 1/4 of value of thing sold, unless approved by the courts (Arts. 1381and1386)
There can be no legal conclusion of inadequacy of price in the absence of any evidence of
the fair market value of a land at the time of sale. xAcabal v. Acabal, 454 SCRA 897 (2005).17
There is “gross inadequacy in price” if it is such that a reasonable man will not agree to
dispose of his property. xDorado Vda. De Delfin v. Dellota, 542 SCRA 397 (2008).
When judicial sale is voided without fault of purchaser, latter is entitled return of price with
simple interest, together with all sums paid out in improvements introduced on the property,
taxes, and other expenses. xSeven Brothers Shipping Corp. v. CA, 246 SCRA 33 (1995).

V. FORMATION OF THE CONTRACT OF SALE

A. POLICITACION STAGE (Art. 1479)

Policitation stage covers the doctrine of “Freedom to contract” which signifies the right to choose
with whom to contract. A property owner is free to offer his property for sale to any interested person,
and is not duty bound to sell the same to the occupant thereof, absent any prior agreement vesting
the occupants the right of first priority to buy. xGabelo v. CA, 316 SCRA 386 (1999).
Negotiation is formally initiated by an offer, which, however, must be certain. At any time prior to
the perfection of the contract, either negotiating party may stop the negotiation. At this stage, the offer
may be withdrawn; the withdrawal is effective immediately after its manifestation. To convert the offer
into a contract, the acceptance must be absolute and must not qualify the terms of the offer; it must be
plain, unequivocal, unconditional and without variance of any sort from the proposal. xManila Metal
Container Corp. v. PNB, 511 SCRA 444 (2006).18

13
Velasco v. CA, 51 SCRA 439 (1973); Co v. CA, 286 SCRA 76 (1998); San Miguel Properties v. Huang, 336 SCRA 737 (2000); Montecillo v.
Reynes, 385 SCRA 244 (2002); Edrada v. Ramos, 468 SCRA 597 (2005); Cruz v. Fernando, 477 SCRA 173 (2005); Marnelego v. Banco
Filipino Savings Bank, 480 SCRA 399 (2006); Boston Bank of the Phil. v. Manalo, 482 SCRA 108 (2006); Platinum Plans Phil. v. Cucueco, 488
SCRA 156 (2006); Manila Metal Container Corp. v. PNB, 511 SCRA 444 (2006); Dantis v. Maghinang, Jr., 695 SCRA 599 (2013).
14
Ereñeta v. Bezore, 54 SCRA 13 (1973); Bacungan v. CA, 574 SCRA 642 (2008).
15
Tayengco v. CA, 15 SCRA 306 (1965); Republic v. NLRC, 244 SCRA 564 (1995).
16
Vda. de Gordon v. CA, 109 SCRA 388 (1981).
17
Avila v. Barabat, 485 SCRA 8 (2006).
18
Navarra v. Planters Dev. Bank, 527 SCRA 562 (2007); San Miguel Properties Phil. v. Huang, 391 Phil. 636 (2000); First Optima Realty
Corp. v. Securitron Security Services, 748 SCRA 534 (2015)
 10
Where the offer is given with a stated time for its acceptance, the offer is terminated at the
expiration of that time. xVillegas v. CA, 499 SCRA 276 (2006).
Letter of Intent to Buy and Sell is just that—a manifestation of offeror’s intention to sell the
property and offeree’s intention to acquire the same—which is neither a contract to sell nor a
conditional contract of sale. xMuslim and Christian Urban Poor Assn. v. BRYC-V Dev’t Corp., 594
SCRA 724 (2009).
When the offeree negotiates for a much lower price, it constitutes a counter-offer and is therefor
not an acceptance of the offer of offeror. xTuazon v. Del Rosario-Suarez, 637 SCRA 728 (2010).

1. OPTION CONTRACT
An option is a preparatory contract in which one party grants to the other, for a fixed period and
under specified conditions, the power to decide, whether or not to enter into a principal contract. It
binds the party who has given the option, not to enter into the principal contract with any other
person during the period designated, and, within that period, to enter into such contract with the
one to whom the option was granted, if the latter should decide to use the option. It is a separate
agreement distinct from the contract of sale which the parties may enter into upon the
consummation of the option. Carceller v. Court of Appeals, 302 SCRA 718 (1999).19
An option imposes no binding obligation on the person holding the option aside from the
consideration for the offer. Until accepted (exercised), it is not treated as a sale. √Tayag v. Lacson,
426 SCRA 282 (2004).20

a. Option With “Separate Consideration” (Arts. 1479 and 1324) – A unilateral promise to sell, in
order to be binding upon the promissor, must be for a price certain and supported by a
consideration separate from such price. xSalame v. Court of Appeals, 239 SCRA 356 (1995).21
Although no consideration is expressly mentioned in an option, it may be proved, and once
proven, option is binding. xMontinola v. Cojuangco, 78 Phil. 481 (1947).
“Separate consideration” in an option may be anything of value, unlike in sale where it must
be the price certain in money or its equivalent. √Villamor v. CA, 202 SCRA 607 (1991),22 such
when the option is attached to real estate mortgage xSoriano v. Bautista, 6 SCRA 946 (1962).
The consideration for an option contract does not need to be monetary and may be anything
of value; however, when the consideration is not monetary, the consideration must be clearly
specified as such in the option contract or clause. When the written agreement itself does not
state the consideration for the option contract, the offeree bears the burden of provind the
existence of a separate consideration for the option. √PNOC v. Keppel Phils. Holdings, Inc.,
798 SCRA 65 (2016).
Where an offer is supported by a separate consideration, a valid option contract exists, i.e.,
there is a contracted offer which the offeror cannot withdraw from without incurring liability in
damages. √PNOC v. Keppel Phils. Holdings, Inc., 798 SCRA 65 (2016), citing VILLANUEVA, C.,
LAW ON SALES, p. 154 (2004 ed.).

b. Option WITHOUT Separate Consideration: Void as Option, Valid as a Certain Offer – “He
who draws and shoots the gun first wins.” √Sanchez v. Rigos, 45 SCRA 368 (1972).23
BUT SEE: Nothing Arises From an Option Without Separate Consideration. xYao Ka Sin
Trading v. Court of Appeals, 209 SCRA 763 (1991).24
Even if the option without separate consideration constitute a certain offer, still it must still
be exercised within the option period and the acceptance must still be absolute. xTuazon v. Del
Rosario-Suarez, 637 SCRA 728 (2010).
c. The “Double Acceptance Rule” – An option to rise to the level of a contract, there must be
formal acceptance of the option offer. Vazquez v. Court of Appeals, 199 SCRA 102 (1991).
d. Exercise of Option Contract – The optionee-offeree may validly and effectively exercise his
right by merely advising the optioner-offeror of his decision to buy and expressing his readiness
to pay the stipulated price as soon as the seller is able to execute the proper deed of sale;
optionee-offeree’s decision to exercise his option to buy need not be couple with actual payment
of the price. Nietes v. Court of Appeals, 46 SCRA 654 (1972).
An option attached to a lease when not exercised within the option period is extinguished
and cannot be deemed to have been included in the implied renewal of the lease (tacita
reconduccion). xDizon v. CA, 302 SCRA 288 (1999). BUT SEE: There may be “virtual” exercise
of option with the option period. Carceller v. Court of Appeals, 302 SCRA 718 (1999).

19
Laforteza v. Machuca, 333 SCRA 643 (2000); Buot v. CA, 357 SCRA 846 (2001); Abalos v. Macatangay, Jr., 439 SCRA 649 (2004);
Vasquez v. Ayala Corp., 443 SCRA 231 (2004); Eulogio v. Apeles, 576 SCRA 561 (2009); Polytechnic University of the Phil. v. Golden Horizon
Realty Corp., 615 SCRA 478 (2010).
20
Adelfa Properties v. CA, 240 SCRA 565 (1995); Kilosbayan v. Morato, 246 SCRA 540 (1995); San Miguel Properties Phil. v. Huang, 336
SCRA 737 (2000); Limson v. CA, 357 SCRA 209 (2001).
21
JMA House v. Sta. Monica Industrial and Dev. Corp., 500 SCRA 526 (2006).
22
De la Cavada v. Diaz, 37 Phil. 982 (1918); San Miguel Properties Phil. v. Huang, 336 SCRA 737 (2000)
23
Affirmed in Vasquez v. CA, 199 SCRA 102 (1991).
24
Montilla v. CA, 161 SCRA 855 (1988); Natino v. IAC, 197 SCRA 323 (1991); Diamante v. CA, 206 SCRA 52 (1992).
 11
Proper exercise of an option gives rise to the reciprocal obligations of sale xHeirs of Luis
Bacus v. CA, 371 SCRA 295 (2001),25 which must be enforced with ten (10) years as provided
under Art. 1144. xDizon v. CA, 302 SCRA 288 (1999).

2. RIGHT OF FIRST REFUSAL

A right of first refusal cannot be the subject of specific performance, but breach on the part of
the promissor would allow a recovery of damages. xGuerrero v. Yñigo, 96 Phil. 37 (1954).
Rights of first refusal only constitute “innovative juridical relations”, but do not rise to the level of
contractual commitment since with the absence of agreement on price certain, they are not subject
to contractual enforcement. √Ang Yu Asuncion v. CA, 238 SCRA 602 (1994).
Right of first refusal contained in a Contract of Lease, when breached by promissor allows
enforcement by the promisee by way of rescission of the sale entered into with the third party,
pursuant to Arts. 1381(3) and 1385 of Civil Code. xGuzman, Bocaling & Co. v. Bonnevie, 206
SCRA 668 (1992), √Equatorial Realty Dev. v. Mayfair Theater, 264 SCRA 483 (1996);26
√Parañaque Kings Enterprises v. Court of Appeals, 268 SCRA 727 (1997).
BUT: A right of first refusal constituted separately during the term of the contract of lease, may
be valid and binding, but not against a purchaser for value and in good faith. √Rosencor Dev.
Corp. v. Inquing, 354 SCRA 119 (2001).
A right of first refusal in a lease in favor of the lessee cannot be availed of by the sublessee.
xSadhwani v. Court of Appeals, 281 SCRA 75 (1997).
In a right of first refusal, while the object might be made determinate, the exercise of the right
would be dependent not only on the grantor’s eventual intention to enter into a binding juridical
relation with another but also on terms, including the price, that are yet to be firmed up … the
“offer” may be withdrawn anytime by communicating the withdrawal to the other party (?).
√Vasquez v. Ayala Corp., 443 SCRA 231 (2004).
A right of first refusal simply means that should lessor decide to sell the leased property during
the term of the lease, such sale should first be offered to the lessee; and the series of negotiations
that transpire between lessor and lessee on the basis of such preference is a compliance even
when no final purchase agreement is perfected between the parties. The lessor was then at liberty
to offer the sale to a third party who paid a higher price, and there is no violation of the right of the
lessee. Riviera Filipina, Inc. v. CA, 380 SCRA 245 (2002).27
Right of first refusal clause does not apply to this situation where the owner to eject the tenant
on the ground that the former needs the premises for residential purposes. xEstanislao v. Gudito,
693 SCRA 330 (2013).

3. MUTUAL PROMISES TO BUY AND SELL (Art. 1479): “TRUE CONTRACT TO SELL”
Mutual promises to buy and sell a certain thing for a certain price gives parties a right to
demand from the other the fulfillment of the obligation, xBorromeo v. Franco, 5 Phil. 49 (1905);
even in this case the certainty of the price must also exist, otherwise, there is no valid and
enforceable contract to sell. xTan Tiah v. Yu Jose, 67 Phil. 739 (1939).
Accepted bilateral promises to buy and sell is in a sense similar to, but not exactly the same, as
a perfected contract of sale because there is already a meeting of minds upon the thing which is
the object of the contract and upon the price. 28 But a contract of sale is consummated only upon
delivery and payment, whereas in a bilateral promise to buy and sell gives the contracting parties
rights in personam, such that each has the right to demand from the other the fulfillment of their
respective undertakings. √Macion v. Guiani, 225 SCRA 102 (1993).29
Cause of action under a mutual promise to buy and sell is 10 years. xVillamor v. Court of
Appeals, 202 SCRA 607 (1991).

B. PERFECTION STAGE OF SALE (Arts. 1475, 1319, 1325 and 1326)

Sale is perfected at the moment there is a meeting of minds upon the thing which is the object of
the contract and upon the price. From that moment, the parties may reciprocally demand performance
subject to the law governing the form of contracts. xMarnelego v. Banco Filipino Savings and
Mortgage Bank, 480 SCRA 399 (2006).30
Mutual consent being a state of mind, its existence may only be inferred from the confluence of
two acts of the parties: an offer certain as to the object of the contract and its consideration, and an
acceptance of the offer which is absolute in that it refers to the exact object and consideration
embodied in said offer. xVillanueva v. PNB, 510 SCRA 275 (2006).31

25
Limson v. CA, 357 SCRA 209 (2001).
26
Rosencor Dev. Corp. v. Inquing, 354 SCRA 119 (2001); Conculada v. CA, 367 SCRA 164 (2001); Polytechnic University v. CA, 368 SCRA
691 (2001); Riviera Filipina, Inv. v. CA, 380 SCRA 245 (2002); Lucrative Realty and Dev. Corp. v. Bernabe, Jr., 392 SCRA 679 (2002); Villegas
v. CA, 499 SCRA 276 (2006); Polytechnic University of the Phil. v. Golden Horizon Realty Corp., 615 SCRA 478 (2010).
27
Polytechnic University v. CA, 368 SCRA 691 (2001); Villegas v. CA, 499 SCRA 276 (2006); Polytechnic University of the Phil. v. Golden
Horizon Realty Corp., 615 SCRA 478 (2010).
28
El Banco Nacional Filipino v. Ah Sing, 69 Phil. 611 (1940); Manuel v. Rodriguez, 109 Phil. 1 (1960).
29
Borromeo v. Franco, 5 Phil. 49 (1905); Villamor v. CA, 202 SCRA 607 (1991); Coronel v. CA, 263 SCRA 15 (1996).
30
Valdez v. CA, 439 SCRA 55 (2004); Blas v. Angeles-Hutalla, 439 SCRA 273 (2004); Ainza v. Padua, 462 SCRA 614 (2005); Cruz v.
Fernando, 477 SCRA 173 (2005).
31
Moreno, Jr. v. Private Management Office, 507 SCRA 63 (2006).
 12
If a material element of a contemplated contract is left for future negotiations, the same is too
indefinite to be enforceable. For a contract to be enforceable, its terms must be certain and explicit,
not vague or indefinite. xBoston Bank of the Phil. v. Manalo, 482 SCRA 108 (2006).32

1. Absolute Acceptance of a Certain Offer (Art. 1475)

Under Article 1319, the acceptance of an offer must therefore be unqualified and absolute. In
other words, it must be identical in all respects with that of the offer so as to produce consent or
meeting of the minds. Here, petitioner’s acceptance of the offer was qualified, which amounts to a
rejection of the original offer. √Manila Metal Container Corp. v. PNB, 511 SCRA 444 (2006).33
Placing the word “Noted” and signing below such word at the bottom of the written offer is not
an absolute acceptance that would give rise to a valid sale. xDBP v. Ong, 460 SCRA 170 (2005).
Subject to Suspensive Condition: There is no perfected sale of a lot where award thereof was
made subject to approval by the higher authorities and there eventually was no acceptance
manifested by the supposed awardee. xPeople's Homesite. v. CA, 133 SCRA 777 (1984).

2. When “Deviation” Allowed

It is true that an acceptance may contain a request for certain changes in the terms of the offer
and yet be a binding acceptance, so long as it is clear that the meaning of the acceptance is
positively and unequivocally to accept the offer, whether such request is granted or not, a contract
is formed. Vendor’s change in a phrase of the offer to purchase which do not essentially change
the terms of the offer, does not amount to a rejection of the offer and the tender or a counter-offer.
√Villonco v. Bormaheco, 65 SCRA 352 (1975).34

3. Sale by Auction (Arts. 1476, 1403(2)(d), 1326)

Owner’s terms and conditions for the sale of property under auction are binding on all bidders,
whether or not they knew of them. xLeoquinco v. Postal Savings Bank, 47 Phil. 772 (1925).
An auction sale is perfected by the fall of the hammer or in other customary manner and it does
not matter that another was allowed to match the bid of the highest bidder. xProvince of Cebu v.
Heirs of Rufina Morales, 546 SCRA 315 (2008).

4. Earnest Money (Art. 1482)

Earnest money given by the buyer shall be considered as part of the price and as proof of the
perfection of the contract. It constitutes an advance payment to be deducted from the total price.
xEscueta v. Lim, 512 SCRA 411 (2007).
Article 1482 does not apply when earnest money given in a contract to sell, xSerrano v. Caguiat,
517 SCRA 57 (2007); especially where by stipulation the buyer has the right to walk away from the
transaction, with no obligation to pay the balance, although he will forfeit the earnest money.
xChua v. Court of Appeals, 401 SCRA 54 (2003).35
When there is no provision for forfeiture of earnest money in the sale fails to materialize, then
with the rescission it becomes incumbent upon seller to return the earnest money as legal
consequence of mutual restitution. xGoldenrod, Inc. v. Court of Appeals, 299 SCRA 141 (1998).
Where parties merely exchanged offers and counter-offers, there being no perfection of a
contract of sale yet, money given as deposit cannot be considered earnest money since such term
applies only to a perfected sale. xStarbright Sales Enterprises v. Philippine Realty Corp., 663
SCRA 326 (2012). 36

5. Differences Between Earnest Money and Option Money: √Oesmer v. Paraiso Dev. Corp.,
514 SCRA 228 (2007).

6. Sale Deemed Perfected at the Place Where Offer Was Made (Art. 1319)

C. FORMAL REQUIREMENTS FOR CONTRACTS OF SALE

(Arts. 1357, 1358(1), 1406 and 1483)
1. Form Not Important for Validity of Sale, Which Is Consensual in Character
Sale of land under private instrument is enforceable. xGallar v. Husain, 20 SCRA 186 (1967).37
Articles 1357 and 1358, in relation to Art. 1403(2), do not require that the conveyance of land
to be in a public instrument in order to validate the act or contract, but only to ensure its efficacy.
xEstate of Pedro C. Gonzales v. Heirs of Marcos Perez, 605 SCRA 47 (2009).38

32
Moreno, Jr. v. Private Management Office, 507 SCRA 63 (2006).
33
Beaumont v. Prieto, 41 Phil. 670 (1916); Zayco v. Serra, 44 Phil. 326 (1923); Limketkai Sons Milling, v. CA, 255 SCRA 626 (1996); XYST
Corp. v. DMC Urban Properties Dev., 594 SCRA 598 (2009); Tuazon v. Del Rosario-Suarez, 637 SCRA 728 (2010).
34
Limketkai Sons Milling v. CA, 250 SCRA 523 (1995), but reversed in 255 SCRA 626,
35
San Miguel Properties v. Huang, 336 SCRA 737 (2000).
36
Limjoco v. CA, 37 SCRA 663 (1971); Villonco v. Bormaheco, 65 SCRA 352 (1975); Spouses Doromal, Sr. v. CA, 66 SCRA 575 (1975);
PNB v. CA, 262 SCRA 464 (1996); San Miguel Properties v. Huang, 336 SCRA 737 (2000); Platinum Plans Phil. v. Cucueco, 488 SCRA 156
(2006); Manila Metal Container Corp. v. PNB, 511 SCRA 444 (2006); GSIS v. Lopez, 592 SCRA 456 (2009); XYST Corp. DMC Urban
Properties Dev., 594 SCRA 598 (2009); First Optima Realty Corp. v. Securitron Security Services, 748 SCRA 534 (2015).
37
F. Irureta Goyena v. Tambunting, 1 Phil. 490 (1902).
38
Martinez v. CA, 358 SCRA 38 (2001); Heirs of Biona v. CA, 362 SCRA 29 (2001); Estate of Pedro C. Gonzales v. Heirs of Marcos Perez,
605 SCRA 47 (2009).
 13
The legal consequence of the sale not being in a public instrument is that both its due
execution and its authenticity must be proven, pursuant to Sec. 20, Rule 132 of the Rules of Court.
xTigno v. Aquino, 444 SCRA 61 (2003).

a. Other Rulings on Deeds of Sale:

 Seller may validly agree to a deed of absolute sale before full payment of the purchase price.
xPan Pacific Industrial Sales Co. v. Court of Appeals, 482 SCRA 164 (2006).
 Failure of the buyers to pay the full price stated in the Deed of Sale would not render the sale
void. xBravo-Guerrero v. Bravo, 465 SCRA 244 (2005).
 That marital consent executed prior to the Deed of Absolute Sale does not indicate that it is a
phoney. xPan Pacific Industrial Sales Co. v. Court of Appeals, 482 SCRA 164 (2006).
 A notarized Deed of Sale enjoys the presumption of regularity and due execution; to overthrow
that presumption, sufficient, clear and convincing evidence is required, otherwise the document
should be upheld. xBravo-Guerrero v. Bravo, 465 SCRA 244 (2005).39
 Notarization by one who was not a notary public does not affect the validity thereof; deed merely
remained private documents. xR.F. Navarro & Co. v. Vailoces, 361 SCRA 139 (2001).
 Notarization does not guarantee a Deed of Sales’ validity nor the veracity of its contents, for it is
not the function of the notary public to validate an instrument that was never intended by the
parties to have any binding legal effect. xSalonga v. Concepcion, 470 SCRA 291 (2005).40
 Buyer’s immediate taking of possession of subject property corroborates the truthfulness and
authenticity of the deed of sale. xAlcos v. IAC, 162 SCRA 823 (1988); conversely, the seller’s
continued possession of the property makes dubious the contract of sale between them. xSantos
v. Santos, 366 SCRA 395 (2001).41
 Any substantial difference between the Contract to Sell and the concomitant Deed of Absolute
Sale (such as difference in subject matter, in price and/or the terms thereof), does not make the
transaction between the seller and the buyer void, for it is truism that the execution of the Deed of
Absolute Sale effectively rendered the previous Contract to Sell ineffective and cancelled [through
the process of novation]. xLumbres v. Talbrad, Jr., 516 SCRA 575 (2007).

2. HOW FORM IS IMPORTANT IN CONTRACTS OF SALE

a. To Bind Third Parties – Article 1358, which requires the embodiment of certain contracts in a
public instrument, is only for convenience, and registration of the instrument only adversely
affects third parties. Formal requirements are, therefore, for the benefit of third parties; and non-
compliance therewith does not adversely affect the validity of the contract and the rights and
obligations of the parties thereunder. √Dalion v. CA, 182 SCRA 872 (1990).42
While sale of land appearing in a private deed is binding between the parties, it cannot be
considered binding on third persons, if it is not embodied in a public instrument and recorded in
the Registry of Deeds. xSantos v. Manalili, 476 SCRA 679 (2005).43

b. For Enforceability Between the Parties: STATUTE OF FRAUDS (Arts. 1403 and 1405)
The term “Statute of Frauds” is descriptive of the statutes which require certain enumerated
contracts and transactions, such as agreements for the sale of real property, to be in writing and
signed by the party to be charged, the purpose being to prevent fraud and perjury in the
enforcement of obligations depending for their evidence on the unassisted memory of
witnesses. xShoemaker v. La Tondeña, 68 Phil. 24 (1939).
Presupposes Valid Contract of Sale: Application of the Statute of Frauds presupposes the
existence of a perfected contract; otherwise, there is no basis to apply the Statute. xFirme v.
Bukal Enterprises and Dev. Corp., 414 SCRA 190 (2003).44
(1) Coverage:
(i) Sale of Real Property – Cannot be proven by means of witnesses, but must necessarily be
evidenced by a written instrument, duly subscribed by party charged, or by secondary
evidence of the contents of such document. xGorospe v. Ilayat, 29 Phil. 21 (1914).45
(ii) Agency to Sell or to Buy – As contrasted from sale, agency to sell does not belong to any of
the categories of contracts covered by Arts. 1357 and 1358 and not one enumerated under
the Statutes of Frauds in Art. 1403. xLim v. CA, 254 SCRA 170 (1996).46
(iii) Rights of First Refusal – Are not covered since Art. 1403(2)(e) presupposes the existence of
a perfected, albeit unwritten, contract of sale; a right of first refusal, is not by any means a
perfected sale. xRosencor Dev. Corp. v. Inquing, 354 SCRA 119 (2001).

39
Yason v. Arciaga, 449 SCRA 458 (2005); Union Bank v. Ong, 491 SCRA 581 (2006); Tapuroc v. Loquellano Vda. De Mende, 512 SCRA 97
(2007); Alfaro v. CA, 519 SCRA 270 (2007); Santos v. Lumbao, 519 SCRA 408 (2007); Pedrano v. Heirs of Benedicto Pedrano, 539 SCRA 401
(2007); Olivares v. Sarmiento, 554 SCRA 384 (2008).
40
Nazareno v. CA, 343 SCRA 637 (2000); Santos v. Heirs of Jose P. Mariano, 344 SCRA 284 (2000)
41
Domingo v. CA, 367 SCRA 368 (2001).
42
Limketkai Sons Milling v. CA, 250 SCRA 523 (1995); Fule v. CA, 286 SCRA 698 (1998); Agasen v. CA, 325 SCRA 504 (2000); Universal
Robina Sugar Milling v. Heirs of Angel Teves, 389 SCRA 316 (2002); Estreller v. Ysmael, 581 SCRA 247 (2009).
43
Limketkai Sons Milling v. CA, 255 SCRA 6 (1996); 261 SCRA 464 (1996); Talusan v. Tayag, 356 SCRA 263 (2001).
44
Rosencor Dev’t Corp. v. Inquing, 354 SCRA 119 (2001).
45
Alba Vda. De Ray v. CA, 314 SCRA 36 (1999).
46
Torcuator v. Bernabe, 459 SCRA 439 (2005).
 14
(iv) Right to Repurchase – Deed and verbal agreement allowing the right of repurchase should
be considered as an integral whole; the deed of sale is itself the note or memorandum
evidencing the contract. xMactan Cebu Int’l Airport Authority v. CA, 263 SCRA 736 (1996).
(v) Equitable Mortgage – Statute does not stand in the way of treating an absolute deed as a
mortgage, when such was the parties’ intention, although the agreement for redemption or
defeasance is proved by parol evidence. xCuyugan v. Santos, 34 Phil. 100 (1916).47

(2) Requisite of “Memorandum” – For the memorandum to take the sale out of the coverage
of the Statute of Frauds, it must contain “all the essential terms of the contract” of sale.
√Yuviengco v. Dacuycuy, 104 SCRA 668 (1981);48 even when scattered into various
correspondences which can be brought together, xCity of Cebu v. Heirs of Candido Rubi,
306 SCRA 408 (1999).49
EXCEPTION: Electronic Documents under the E-COMMERCE ACT (R.A. 8792)
(3) Waiver (Art. 1405) – Cross-examination on the contract is deemed a waiver of the defense
of the Statute. xAbrenica v. Gonda, 34 Phil. 739 (1916).50
(4) Partial Execution (Art. 1405). √Ortega v. Leonardo, 103 Phil. 870 (1958); √Claudel v.
Court of Appeals, 199 SCRA 113 (1991).
Statute of Frauds does not apply to contracts either partially or totally performed. In
addition, a contract that violates the Statute of Frauds is ratified by the acceptance of benefits
under the contract, such as the acceptance of the purchase price and using the proceeds to pay
outstanding loans. xAlfredo v. Borras, 404 SCRA 145 (2003).51
Delivery of the deed to buyer’s agent, with no intention to part with the title until the
purchase price is paid, does not take the case out of the Statute of Frauds. xBaretto v. Manila
Railroad Co., 46 Phil. 964 (1924).
Probative Value of Commercial Documents: Business forms, e.g., order slip, delivery
invoice, issued in the ordinary course of business are not always fully accomplished to contain
all the necessary information describing in detail the whole business transaction; despite their
being incomplete, they are commonly recognized in ordinary commercial transactions as valid
between the parties and serve as an acknowledgment that a business transaction has in fact
transpired. xDonato C. Cruz Trading Corp. v. CA, 347 SCRA 13 (2000).52
A sales invoice is a commercial document (i.e., those used by merchants or businessmen
to promote or facilitate trade or credit transactions) which is not a mere scrap of paper bereft of
probative value, but vital piece of evidence of commercial transactions, written memorials of the
details of the consummation of contracts. xSeaoil Petroleum Corp. v. Autocorp Group, 569
SCRA 387 (2008); it constitutes evidence of the receipt of the goods; since the best evidence to
prove payment is the official receipt. xEl Oro Engravers Corp. v. CA, 546 SCRA 42 (2008).
In itself, the absence of receipts, or any proof of consideration, would not be conclusive of
the inexistence of a sale since consideration is always presumed. xTigno v. Aquino, 444 SCRA
61 (2003); but a receipt proves payment which takes the sale out of the Statute of Frauds.
√Toyota Shaw v. Court of Appeals, 244 SCRA 320 (1995).53
CONTRA: A receipt which is merely an acknowledgment of the sum received, without any
indication therein of the total purchase price of the land or of the monthly installments to be
paid, cannot be the basis of valid sale. xLeabres v. Court of Appeals, 146 SCRA 158 (1986).54

c. For Validity: Sale of Realty Through Agent, Authority Must Be in Writing (Art. 1874) –
When sale of a piece of land or any interest therein is through an agent, the authority of the
latter shall be in writing; otherwise, the sale shall be void,55 even when:
 Agent is the owner’s son. xDelos Reyes v. Court of Appeals, 313 SCRA 632 (1999).
 There is partial payment of price received by agent. xDizon v. CA, 396 SCRA 154 (2003).56
 Seller is a corporation. xCity-Lite Realty Corp. v. Court of Appeals, 325 SCRA 385 (2000).57
When the Contract to Sell was signed by the co-owners themselves as witnesses, the
written authority for their agent mandated under Article 1874 of the Civil Code is no longer
required. xOesmer v. Paraiso Dev. Corp., 514 SCRA 228, 237 (2007).
Art. 1874 should be interpreted to mean that the sale is unenforceable to the principal, who
may otherwise ratify it. Pahud v. Court of Appeals, 597 SCRA13 (2009).58
47
Rosales v. Suba, 408 SCRA 664 (2003); Ayson, Jr. v. Paragas, 557 SCRA 50 (2008).
48
Paredes v. Espino, 22 SCRA 1000 (1968); Torcuator v. Bernabe, 459 SCRA 439 (2005).
49
Berg v. Magdalena Estate, 92 Phil. 110 (1952); Limketkai Sons Milling v. CA, 250 SCRA 523 (1995); First Philippine Int’l Bank v. CA, 252
SCRA 259 (1996).
50
Talosig v. Vda. De Nieba, 43 SCRA 472 (1972); Limketkai Sons Milling v. CA, 250 SCRA 523 (1995); Lacanilao v. CA, 262 SCRA 486
(1996).
51
Vda. de Jomoc v. CA, 200 SCRA 74 (1991); Soliva v. Estate of Marcelo M. Villalba, 417 SCRA 277 (2003); Ainza v. Padua, 462 SCRA 614
(2005); De la Cena v. Briones, 508 SCRA 62 (2006); Yaneza v. CA, 572 SCRA 413 (2008); Duarte v. Duran, 657 SCRA 607 (2011).
52
Lagon v. Hooven Comalco Industries, 349 SCRA 363 (2001).
53
Xentrex Automotive v. CA, 291 SCRA 66 (1998).
54
Limson v. CA, 357 SCRA 209 (2001).
55
Alcantara v. Nido, 618 SCRA 333 (2010); Camper Realty Corp. v. Pajo-Reyes, 632 SCRA 400 (2010).
56
Firme v. Bukal Enterprises and Dev. Corp., 414 SCRA 190 (2003).
57
Pineda v. CA, 376 SCRA 222 (2002).
58
Escueta v. Lim, 512 SCRA 411 (2007).
 15
d. Sale of Large Cattle (Art. 1581; Sec. 529, Revised Adm. Code)

XD. SIMULATED SALES

Characteristic of simulation is that the apparent contract is not really desired or intended to
produce legal effect or in any way alter the parties’ juridical situation, or that the parties have no
intention to be bound by the contract. The requisites are: (a) an outward declaration of will different
from the will of the parties; (b) false appearance must have been intended by mutual agreement; and
(c) purpose is to deceive third persons. xManila Banking Corp. v. Silverio, 466 SCRA 438 (2005).59

1. Badges of Simulation:
 Non-payment of the stipulated consideration, absence of any attempt by the buyers to assert their
alleged rights over the subject property. xVillaflor v. CA, 280 SCRA 297 (1997).60
 Failure of alleged buyers to collect rentals from alleged seller. xSantiago v. CA, 278 SCRA 98 (1997);
but not when there appears a legitimate lessor-lessee relationship between the vendee and the
vendor. xUnion Bank v. Ong, 491 SCRA 581 (2006).
 Although agreement did not provide for absolute transfer ownership of the land to buyer, that did not
amount to simulation, since delivery of TCT and execution of deed of absolute sale were expressly
stipulated as suspensive conditions, which gave rise to the corresponding obligation on part of buyer
to pay the last installments. xVillaflor v. CA, 280 SCRA 297 (1997).
 When signature on a deed of sale is a forgery, Fidel v. CA, 559 SCRA 186 (2008); but bare
assertions that the signature appearing on the Deeds of Sale is not enough to allege simulation,
since forgery is not presumed; it must be proven by clear, positive and convincing evidence. xR.F.
Navarro & Co. v. Vailoces, 361 SCRA 139 (2001).
 Simulation of contract and gross inadequacy of price are distinct legal concepts, with different effects
– the concept of a simulated sale is incompatible with inadequacy of price. When the contracting
parties do not really intend to be bound by it, the contract is simulated and void. Gross inadequacy of
price by itself will not result in a void contract, and it does not even affect the validity of a contract of
sale, unless it signifies a defect in the consent or that the parties actually intended a donation or
some other contract. xBravo-Guerrero v. Bravo, 465 SCRA 244 (2005).

2. When Motive Nullifies the Sale – In sale, consideration is, as a rule, different from the motive of
parties, and when the primary motive is illegal, such as when the sale was executed over a land to
illegally frustrate a person's right to inheritance and to avoid payment of estate tax, the sale is void
because illegal motive predetermined purpose of the contract. xOlegario v. CA, 238 SCRA 96
(1994).61
Where the parties to a contract of sale agreed to a consideration, but the amount reflected in
the final Deed of Sale was lower, their motivation being to pay lower taxes on the transaction, the
contract of sale remains valid and enforceable upon the terms of the real consideration. Although
illegal, the motives neither determine nor take the place of the consideration. xHeirs of Spouses
Balite v. Lim, 446 SCRA 54 (2004).

3. Remedies Allowed When Sale Simulated – When a contract of sale is void, the right to set up
its nullity or non-existence is available to third persons whose interests are directly affected
thereby. Likewise, the remedy of accion pauliana is available when the subject matter is a
conveyance, otherwise valid, undertaken in fraud of creditors. xManila Banking Corp. v. Silverio,
466 SCRA 438 (2005).
An action for rescission to set aside contracts in fraud of creditors is accion pauliana, a
subsidiary remedy accorded under Art. 1383 which the party suffering damage can avail of only
when he has no other legal means to obtain reparation for the same. xUnion Bank v. Ong, 491
SCRA 581 (2006).

4. Effects When Sale Is Void:

 Action for the declaration of the contract’s nullity is imprescriptible—an action for reconveyance of
property on a void contract of sale does not prescribe. xFil-Estate Golf and Dev. v. Navarro, 526
SCRA 51 (2007); xCampos v. Pastrana, 608 SCRA 55 (2009).
 Possessor is entitled to keep the fruits during the period for which the buyer held the property in
good faith. xDBP v. Court of Appeals, 316 SCRA 650 (1999).
 Restoration of what has been given is in order. xDe los Reyes v. CA, 313 SCRA 632 (1999); xHeirs
of Ignacia Aguilar-Reyes v. Mijares, 410 SCRA 97 (2003).

VI. CONSUMMATION / PERFORMANCE OF CONTRACT OF SALE

A. OBLIGATIONS OF THE SELLER
1. Preserve the Subject Matter Before Actual Delivery (Art. 1163)
2. Deliver with Fruits and Accessories (Arts. 1164, 1166, 1495, 1537)

59
Rosario v. CA, 310 SCRA 464 (1999); Loyola v. CA, 326 SCRA 285 (2000); Yu Bun Guan v. Ong, 367 SCRA 559 (2001); Payongayong v.
CA, 430 SCRA 210 (2004).
60
Solidstate Multi-Products Corp. v. Catienza-Villaverde, 559 SCRA 197 (2008).
61
Uy v. CA, 314 SCRA 69, 81 (1999).
 16
3. DELIVER THE SUBJECT MATTER (Art. 1477)
a. Legal Premises for Tradition Doctrines to Come Into Play
(i) Nemo Potest Nisi Quod De Jure Potest – “No man can do anything except what he can do
lawfully.” – When the sale is void, even when there is delivery, no valid title over the subject
matter is conveyed to the buyer. xTraders Royal Bank v. Court of Appeals, 269 SCRA 15
(1997).62
(ii) Nemo Dat Quod Non Habet – “No man can give that which he does not have.” Even when
the sale is valid, if the seller had no ownership over the subject matter at the time of
delivery, no valid title can pass in favor of the buyer. xTsai v. CA, 366 SCRA 324 (2001).63
One can sell only what one owns or is authorized to sell, and the buyer can acquire no
more than what the seller can transfer legally. xDaclag v. Macahilig, 560 SCRA 137 (2008).
A tax declaration by itself is not considered conclusive evidence of ownership; it is merely
an indicium of a claim of ownership, Daclag v. Macahilig, 560 SCRA 137 (2008); nevertheless,
when at delivery there is no proof that seller had ownership and property’s tax declaration was
in the name of another person, then there was no transfer of ownership by delivery. xHeirs of
Severina San Miguel v. Court of Appeals, 364 SCRA 523 (2001).
Article 1459 on sales “specifically requires that the vendor must have ownership of the
property at the time it is delivered;” ownership need not be with the seller at the time of
perfection. xHeirs of Arturo Reyes v. Socco-Beltran, 572 SCRA 211 (2008).

b. GENERAL DOCTRINES ON TRADITION, WHETHER ACTUAL OR CONSTRUCTIVE

(1) Meaning of “Delivery” (Art. 1477) – Delivery contemplates “the absolute giving-up of the
control and custody of the property on the part of the vendor, and the assumption of the
same by the vendee. Non nudis pactis sed traditione dominia rerum transferantur. There is
delivery if and when the thing sold “is placed in the control and possession of the vendee.”
xEquatorial Realty Dev. v. Mayfair Theater, 370 SCRA 56 (2001).
“Delivery” in sales refers to the concurrent transfer of two things: (1) possession and (2)
ownership. If the vendee is placed in actual possession of the property, but by agreement
of the parties ownership of the same is retained by the vendor until the vendee has fully
paid the price, the mere transfer of the possession of the property subject of the sale is not
the “delivery” contemplated in the Law on Sales or as used in Art. 1543 of the Civil Code.
xCebu Winland Dev. Corp. v. Ong Siao Hua, 588 SCRA 120 (2009).
(2) Relationship to the Price – It may be stipulated that ownership in the thing shall not pass
to buyer until he has fully paid price (Art. 1478). CONSEQUENTLY:
 Absence of an express stipulation to the contrary, payment of price of the goods is not a
condition precedent to the transfer of title to the buyer, but title passes by the delivery of the
goods. xPhil. Suburban Dev. Corp. v. Auditor General, 63 SCRA 397 (1975).64
 Failure of buyer to make good the price does not cause the ownership to re-vest to the
seller unless the bilateral contract of sale is first rescinded or resolved pursuant to Art.
1191. xBalatbat v. Court of Appeals, 261 SCRA 128 (1996).
(3) Tradition Per Se Transfers Ownership to the Buyer (Arts. 1477, 1478, and 1496) –
Absence of a stipulation to the contrary, tradition produces its natural legal effects, most
important of which being conveyance of ownership, without prejudice to right of seller to
claim payment of price. xFroilan v. Pan Oriental Shipping, 12 SCRA 276 (1964).65
In a contract of sale, title to the property sold passes to buyer upon delivery of thing
sold; seller loses ownership by delivery and cannot recover it until and unless contract is
resolved or rescinded by court process. xDavid v. Misamis Occidental II Electric
Cooperative, 676 SCRA 367 (2012).

c. ACTUAL OR PHYSICAL DELIVERY (Art. 1497) – Article 1477 recognizes that the “ownership of
the thing sold shall be transferred to the vendee upon the actual or constructive delivery
thereof;” related to this is Article 1497 which provides that “[t]he thing sold shall be understood
as delivered when it is placed in the control and possession of the vendee.” xSantiago v.
Villamor, 686 SCRA 313 (2012).
It is not necessary that seller himself physically delivers title to the buyer because the thing
sold is understood as delivered when it is placed in control and possession of buyer. Thus,
when sellers themselves introduced the tenant to the buyer as the new owners of the land, and
from that time on the buyer acted as landlord thereof, there was delivery that transferred title to
the buyer. xAlfredo v. Borras, 404 SCRA 145 (2003).

62
Rufloe v. Burgos, 577 SCRA 264, 272-273 (2009).
63
Tangalin v. CA, 371 SCRA 49 (2001); Heirs of Arturo Reyes v. Socco-Beltran, 572 SCRA 211 (2008); Francisco v. Chemical Bulk Carriers,
657 SCRA 355 (20
64
Ocampo v. CA, 233 SCRA 551 (1994).
65
Kuenzle & Streiff v. Watson & Co., 13 Phil. 26 (1909); Ocejo, Perez & Co. v. Int'l Banking Corp., 37 Phil. 631 (1918).
 17
d. CONSTRUCTIVE DELIVERY: EXECUTION OF A PUBLIC INSTRUMENT (Art. 1498) – Where deed of
sale is made through a public instrument, its execution is equivalent to the delivery of the
property. xCaoibes, Jr. v. Caoibes-Pantoja, 496 SCRA 273 (2006).66
Under Art. 1498, the mere execution of the deed of conveyance in a public instrument is
equivalent to the delivery of the property, and that prior physical delivery or possession is not
legally required, since ownership and possession are two entirely different legal concepts.
Notwithstanding the presence of illegal occupants on the subject property, transfer of ownership
by symbolic delivery under Art. 1498 can still be effected through the execution of the deed of
conveyance. xSabio v. Int’l Corporate Bank, 364 SCRA 385 (2001).
BUT SEE: There is nothing in Article 1498 that provides that execution of a deed of sale is a
conclusive presumption of delivery of possession; presumptive delivery can be negated by the
failure of buyer to take actual possession of the land or the continued enjoyment of possession
by the vendor. √Santos v. Santos, 366 SCRA 395 (2001).67
As a general rule, when sale is made through a public instrument, the execution thereof
shall be equivalent to the delivery of the thing which is the object of sale, if from the deed the
contrary does not appear or cannot clearly be inferred. In order the execution of a public
instrument to effect tradition, the purchaser must be placed in control of the thing sold. A person
who does not have actual possession of the thing sold cannot transfer constructive possession
by the execution and delivery of a public instrument. xAsset Privatization Trust v. T.J.
Enterprises, 587 SCRA 481 (2009).
A contract to sell, or a conditional contract of sale where the suspensive condition has not
happened, even when found in a public document, cannot be treated as constituting
constructive delivery, especially when from the face of the instrument it is shown that the seller
“was not yet the owner of the property and was only expecting to inherit it.” xHeirs of Arturo
Reyes v. Socco-Beltran, 572 SCRA 211 (2008).68
Neither the issuance of: an acknowledgment receipt of partial payment, xSan Lorenzo Dev.
Corp. v. CA, 449 SCRA 99 (2005), an invoice, which is not a document of title xP.T. Cerna Corp.
v. CA, 221 SCRA 19 (1993), 69 nor of the registration certificate of vehicle xUnion Motor Corp. v.
CA, 361 SCRA 506 (2001),70 would constitute constructive delivery of the subject matter of sale
—none of them are public instruments of conveyance.
(i) As to Movables (Arts. 1498-1499, 1513-1514) – Effects of delivery on ownership can be
segregated from the delivery of possession. √Dy, Jr. v. CA, 198 SCRA 826 (1991).
Where it is stipulated that deliveries must be made to the buyer or his duly authorized
representative named in the contracts, seller is under obligation to deliver in accordance
with such instructions. xLagon v. Hooven Comalco Industries, 349 SCRA 363 (2001).
(ii) As to Immovables (Art. 1498) – When sale is made through a public instrument,
execution thereof shall be equivalent to delivery of the thing object of the sale, if from the
deed the contrary does not appear or cannot clearly be inferred. xMunicipality of Victorias
v. Court of Appeals, 149 SCRA 31 (1987); 71 prior physical delivery or possession is not
legally required since execution of the deed is deemed equivalent to delivery. xManuel R.
Dulay Enterprises v. Court of Appeals, 225 SCRA 678 (1993); PROVIDED:
(a) Thing Sold Subject to Control of Seller, for a person who does not have actual
possession or control of the thing sold cannot transfer constructive possession by
the execution and delivery of a public instrument. √Addison v. Felix, 38 Phil. 404
(1918).72
– and –
(b) Such Control Should Remain for a Reasonable Period after Execution of the
Instrument, √Danguilan v. IAC, 168 SCRA 22 (1988).
EXCEPT: When Buyer Assumes Risks of Ownership and Possession. Power
Commercial and Industrial Corp. v. CA, 274 SCRA 597 (1997).73
Registration of Title Is Separate Mode from Execution of Public Instrument – Recording of
the sale with the proper Registry of Deeds and transfer of the TCT in the name of the buyer
are necessary only to bind third parties. As between the seller and the buyer, transfer of
ownership takes effect upon the execution of a public instrument conveying the real estate.
“Customarily, in the absence of a contrary agreement, the submission by an individual seller to
the buyer of the following papers would complete a sale of real estate: (1) owner’s duplicate
copy of the Torrens title; (2) signed deed of absolute sale; (3) tax declaration; and (4) latest

66
Tating v. Marcella, 519 SCRA 79 (2007); De Leon v. Ong, 611 SCRA 381 (2010); Villamar v. Mangaoil, 669 SCRA 2012 (2012); Santiago v.
Villamor, 686 SCRA 313 (2012).
67
Equatorial Realty Dev. v. Mayfair Theater, 370 SCRA 56 (2001); Engreso v. De La Cruz, 401 SCRA 217 (2003); Ten Forty Realty and Dev.
Corp. v. Cruz, 410 SCRA 484 (2003); Copuyoc v. De Solas, 504 SCRA 176 (2006); Cebu Winland Dev. Corp. v. Ong Siao Hua, 588 SCRA 120
(2009); Beatingo v. Gasis, 642 SCRA 539 (2011).
68
Fortune Tobacco Corp. v. NLRC, 200 SCRA 766 (1991).
69
Norkis Distributors v. CA, 193 SCRA 694 (1991).
70
Abuan v. Garcia, 14 SCRA 759 (1965); Santos v. Santos, 366 SCRA 395 (2001).
71
Florendo v. Foz, 20 Phil. 388 (1911); Sanchez v. Ramos, 40 Phil. 614 (1919); Quimson v. Rosete, 87 Phil. 159 (1950); Phil. Suburban Dev.
v. Auditor, 63 SCRA 397 (1975); Kings Properties Corp. v. Galido, 606 SCRA 137 (2009); Monasterio-Pe v. Tong, 646 SCRA 161 (2011).
72
Asset Privatization Trust v. TY.J. Enterprises, 587 SCRA 481 (2009); Villamar v. Mangaoil, 669 SCRA 426 (2012).
73
Villamar v. Mangaoil, 669 SCRA 426 (2012).
 18
realty tax receipt. They buyer can retain the amount for the capital gains tax and pay it upon
authority of the seller, or the seller can pay the tax, depending on the agreement of the
parties.” √Chua v. Court of Appeals, 401 SCRA 54 (2003).
BUT SEE: Under Art. 1495, seller is obliged to transfer title over the property and deliver the
same to the vendee. √Vive Eagle Land, v. CA, 444 SCRA 445 (2004).
Delivery of notarized deed of sale and the owner’s duplicate copy of the OCT to the buyer
is tantamount to constructive delivery of the object of the sale. xKings Properties Corp. v.
Galido, 606 SCRA 137 (2009).
(iii) As to Incorporeal Property (Arts. 1498 and 1501) – In the sale of shares of stock,
delivery of a stock certificate is one of the essential requisites for the transfer of ownership
of the stocks purchased. Seller’s failure to delivery the stock certificates representing the
shares of stock amounted to a substantial breach which gave rise to a right to rescind the
sale. xRaquel-Santos v. Court of Appeals, 592 SCRA 169 (2009).
e. Constitutum Possessorium (Art. 1500) – A provision in the deed of sale granting to seller a
right to lease the subject matter of the sale is valid: possession is deemed to be constituted in
the vendee by virtue of this mode of tradition.” xAmigo v. Teves, 96 Phil. 252 (1954).
f. Traditio Brevi Manu – Prior to the sale, petitioners were in possession of the property as
lessees; upon sale to them, they remained in possession, not in the concept of lessees
anymore but as owners now through symbolic delivery known as traditio brevi manu. xHeirs of
Pedro Escanlar v. Court of Appeals, 281 SCRA 176 (1997).
4. Obligation to Take-Out Insurance Coverage (Art. 1523)
5. Time and Place of Delivery (Art. 1521)
6. Expenses of Execution and Registration (Art. 1487); and
of Putting Goods in Deliverable State (Art. 1521)
Unless otherwise stipulated: (a) under Art. 1487 the expenses for the registration of the sale
should be shouldered by the seller. Vive Eagle Land, v. Court of Appeals, 444 SCRA 445
(2004); and (b) duty to withhold taxes due on the sale is imposed on seller. Equitable Realty
Dev’t v. Mayfair Theater, 332 SCRA 139 (2000).
Although buyer has more interest in having the capital gains tax paid immediately as a pre-
requisite to the issuance of a new Torrens title in his name, nonetheless, as far as the government
is concerned the capital gains tax remains seller’s liability since it is a tax on the seller’s gain on
sale of the real estate. Payment of the capital gains tax, however, is not a pre-requisite to the
transfer of ownership to the buyer since the delivery takes effect upon the signing and notarization
of the deed of absolute sale. Chua v. CA, 401 SCRA 54 (2003).
A judgment that decrees seller’s obligations to execute and deliver the deed of absolute sale
and the certificate of title does not necessarily include within its terms the obligation to pay for the
expenses in notarizing a deed of sale and in obtaining new certificate of title. xJose Clavano, Inc. v.
HLRB, 378 SCRA 172 (2002).

B. SPECIAL RULES ON COMPLETENESS OF DELIVERY

1. In Case of Movables (Art. 1522 and 1537, 1480)
When the contract does not provide for the measuring or weighing of a sold specific mass, and
the price agreed upon was not based on such measurement, then “[t]he subject matter of the sale
is, therefore, a determinate object, the mass, and not the actual number of units or tons contained
therein, so that all that is required of seller was to deliver in good faith to his buyer all of those
found in the mass, notwithstanding that the quantity delivered is less than the amount estimated in
the contract.” xGaite v. Fonacier, 2 SCRA 831 (1961).
a. Rules on Delivery to Carrier (Art. 1523)
(i) FAS Sales – “The seller pays all charges and is subject to risk until the goods are placed
alongside the vessel”. xA. Soriano Y Cia. v. Collector, 97 Phil. 505 (1955).
(ii) FOB Sales – In mercantile contracts of American origin, “F.O.B.” stand for the words “Free
on Board,” i.e., that the seller shall bear all expenses until the goods are delivered according
as to whether the goods are to be delivered “F.O.B.” at the point of shipment or at the point of
destination determines the time when property passes. √Behn Meyer & Co. v. Yangco, 38
Phil. 602, 606 (1918).74

(iii) CIF Sales. √General Foods v. NACOCO, 100 Phil. 337 (1956).
“C.I.F.” found in British contracts stand for costs, insurance, and freight; they signify that the
price fixed covers not only the costs of the goods, but the expense of freight and insurance to
be paid by the seller. √Behn Meyer & Co. v. Yangco, 38 Phil. 602, 606 (1918).
Under an arrangement “c.i.f. U.S. Pacific Coast”, “the vendor is to pay not only the cost of
the goods, but also the freight and insurance expenses, and, as it was judicially interpreted, this

74
Chua Ngo v. Universal Trading Co., 87 Phil. 331 (1950).
 19
is taken to indicate that the delivery is to be made at the port of destination.” √Pacific
Vegetable Oil Corp. v. Singzon, Supreme Court Advance Decisions, 29 April 1955.
b. “Sale on Approval, Trial or Satisfaction” (Art. 1502)
In a “sale or return,” the ownership passes to the buyer on delivery pursuant to a perfected
contract of sale; and the subsequent return of the goods reverts ownership back to the seller. In
such case, tradition as a mode of acquiring ownership must be in consequence of a contract.
xVallarta v. Court of Appeals, 150 SCRA 336 (1987).
In a “sale on approval” (also “sale on acceptance, “sale on trial” or “sale on satisfaction”),
the delivery of the object does not transfer ownership to the buyer since the delivery was not for
purposes of transferring ownership, since the prestation to effect a meeting of the minds to give
rise to a valid contract is incumbent on the buyer. xVallarta v. CA, 150 SCRA 336 (1987).
For a sale to be a “sale or return” or a “sale on approval,” there must be a clear agreement
to either of such effect, otherwise, the provisions of Art. 1502 of Civil Code governing such sales
cannot be invoked by either party to the contract. xIndustrial Textile Manufacturing Co. v. LPJ
Enterprises, 217 SCRA 322 (1993).
c. “Sale by Description and/or Sample” (Art. 1481)
There is a sale by sample when a small quantity is exhibited by the seller as a fair
specimen of the bulk, which is not present and there is no opportunity to inspect or examine the
same; and the parties treated the sample as the standard of quality and that they contracted
with reference to the sample with the understanding that the product to be delivered would
correspondent with the sample. xMendoza v. David, 441 SCRA 172 (004)
Even in sales by description and/or sample, buyer will not be released from his obligation to
accept and pay for the goods by deviations on the part of the seller from the exact terms of the
contract, if buyer had acquiesced to such deviations after due notice thereof. xEngel v. Mariano
Velasco & Co., 47 Phil. 115 (1924).
When the machine delivered is in accordance with the description stated in the sales
contract, the buyer cannot refuse to pay the balance of the purchase price and the cost of
installation if it proves that the machine cannot be used satisfactorily for the purposes for which
he bought it when such purpose was not made known to the seller. xPacific Commercial Co. v.
Ermita Market & Cold Stores, 56 Phil. 617 (1932).

2. In Case of Immovables
a. “Sale Per Unit of Measure” (Arts. 1539 and 1540) – In a unit price sale, the statement of the
area of immovable is not conclusive and the price may be reduced or increased depending on
the area actually delivered. If the seller delivers less than the area agreed upon, the buyer may
oblige the seller to deliver all that is stated in the contract or demand for the proportionate
reduction of the purchase price if delivery is not possible. If the seller delivers more than the
area stated in the contract, the buyer has the option to accept only the amount agreed upon or
to accept the whole area, provided he pays for the additional area at the contract rate. √Rudolf
Lietz, Inc. v. Court of Appeals, 478 SCRA 451 (2005).75
Where parties agreed at a rate of a certain price per unit of measure (not for a lump sum), it
is Art. 1539, not Art. 1542, which is the applicable law—buyer is entitled either to a proportional
reduction of the price or the rescission of the contract. xCebu Winland Dev. Corp. v. Ong Siao
Hua, 588 SCRA 120 (2009).
b. “Sale for a Lump Sum” (“A cuerpo cierto or por precio alzado”) (Art. 1542) – In a sale of
land in a mass, the specified boundaries must control over any statement with respect to the
area contained within its boundaries. xSalinas v. Faustino, 566 SCRA 18 (2008).
In a lump-sum sale, when land delivered to buyer is exactly as that described in the deed
and covered within the boundaries designated, the difference in actual area (34 versus 10
hectares) will not authorize the buyer to rescind the contract because the seller has complied
with delivering the subject matter agreed upon. xTeran v. Villanueva, 56 Phil. 677 (1932); this is
the rule when evidence shows that the parties never gave importance to the area of the land in
fixing the price (97 versus 60 hectares). xAzarraga v. Gay, 52 Phil. 599 (1928).
EXCEPT: A buyer of land, when sold in gross or with the description “more or less” or similar
words in designating quantity covers only a reasonable excess of deficiency. In the case at bar
an area of “644 square meters more” is not reasonable excess or deficiency, to be deemed
included in the deed of sale. √Roble v. Arbasa, 362 SCRA 69 (2001).76
EXCEPTION TO EXCEPTION: When buyer, who has been occupying the land for two years as
lessee, actually is deemed to take risk on the actual size of the property bought at lump sum.
xGarcia v. Velasco, 72 Phil. 248 (1941).

C. DOUBLE SALES (Arts. 1544 and 1165)

75
Goyena v. Tambunting, 1 Phil. 490 (1902); Santa Ana v. Hernandez, 18 SCRA 973 (1966).
76
Asiain v. Jalandoni, 45 Phil 296 (1923); Balantakbo v. CA, 249 SCRA 323 (1995); Rudolf Lietz, Inc. v. CA, 478 SCRA 451 (2005); Esguerra
v. Trinidad, 518 SCRA 186 (2007); Del Prado v. Caballero, 614 SCRA 102 (2010); Arcaina v. Ingram, 817 SCRA 606 (2017).
 20
1. Primacy of Torrens System of Registration – The rules on double sales under Art. 1544 do not
overcome the rules provided under the Property Registration Decree (P.D. 1459), such as:
a. When two different titles are issued over the same registered land, the buyer who claims under
a title that was first issued shall be preferred. xLiao v. CA, 323 SCRA 430 (2000).
b. Invoking the rules on double sales and “priority in time” under Art. 1544 would be misplaced by
a first buyer who bought the land not within the Torrens system but under Act No. 3344, as
against the second buyer who bought the same property when it was already registered under
the Torrens system, because:
(i) of the “well-known rule in this jurisdiction that persons dealing with registered land have the
legal right to rely on the fact of the Torrens Certificate of Title and to dispense with the need
to inquire further, except when the party concerned has actual knowledge of facts and
circumstances that would impel a reasonably cautious man to make such inquiry;” and
(ii) the Torrens system rule that formal registration proceedings undertaken on the property and
the subsequent issuance of a title over the land had under the Torrens system had the legal
effect of cleansing title on the property of all liens and claims not annotated therein.
√Naawan Community Rural Bank v. CA, 395 SCRA 43 (2003).77
BUT SEE: Subsequent registration of the land under the Torrens System cannot be used to
prevent reconveyance when it is shown that the registration was done in bad faith. √Naval v.
Court of Appeals, 483 SCRA 102 (2006).

2. Tests Applicable under Article 1544:

a. MAIN RULE UNDER ART. 1544: “Primus Tempore, Portior Jure” (First in Time, Stronger in
Right) √ Carbonell v. Court of Appeals, 69 SCRA 99 (1976).78
“Caveat emptor” requires the buyer to be aware of the supposed title of the seller and he
who buys without checking the seller’s title takes all the risks and losses consequent to such
failure. xCaram, Jr. v. Laureta, 103 SCRA 7 (1981).
Double sales provisions presumes title or ownership to pass to first buyer, exception being:
(a) when second buyer, in good faith, registers the sale ahead of first buyer, and (b) should
there be no inscription by either of the buyers, when second buyer, in good faith, acquires
possession ahead of the first buyer. Unless, second buyer satisfies these requirements, title or
ownership will not transfer to him as against first buyer. xCoronel v. Court of Appeals, 263
SCRA 15 (1996).79
In spite of the three levels of tests provided under Art. 1544, the Court seems to recognize
only registration in good faith by the second buyer and does not characterize the meaning of the
last two tests of possession and oldest title. √Carilo v. Court of Appeals, 503 SCRA 66 (2006).
In double sales, first buyer always has priority rights over subsequent buyers of the same
property. First buyer’s good faith remains all throughout despite his subsequent acquisition of
knowledge of the subsequent sale. xKings Properties Corp. v. Galido, 606 SCRA 137 (2009).
The requirements on double sales then is two-fold: acquisition in good faith and registration
in good faith. Good faith must concur with registration. If it would be shown that a buyer was in
bad faith, the alleged registration they have made amounted to no registration at all. The
principle of primus tempore, potior jure (first in time, stronger in right) gains greater significance
in case of a double sale of immovable property. When the thing sold twice is an immovable, the
one who acquires it and first records in the Registry of Property, both made in good faith, shall
be deemed the owner. Verily, the act of registration must be coupled with good faith – that is, the
registrant must have no knowledge of the defect or lack of title of his vendor or must not have
been aware of facts which would have put him upon such inquiry and investigation as might be
necessary to acquaint him with the defects in the title of his vendor. xRosaroso v. Soria, 699
SCRA 232 (2013).80

3. Requisites for Double Sale Rule to Apply: √ Cheng v. Genato, 300 SCRA 722 (1998).81
a. There Must Be Two Different Valid Sales: Article 1544 does not apply where:
 There is only one valid sale, while the other sale over the same property is void. xFudot v.
Cattleya Land, 533 SCRA 350 (2007);82 or
 Where one or both contracts is a contract to sell. √San Lorenzo Dev. Corp. v. Court of
Appeals, 449 SCRA 99 (2005).83
When the seller sold the same properties first to the respondent and then to Viloria on two
separate occasions, the second sale was not void for the sole reason that seller has previously
sold the property. This case involves a double sale as the disputed properties were sold validly

77
Abrigo v. De Vera, 432 SCRA 544 (2005); Ver Reyes v. Salvador, Sr., 564 SCRA 456 (2008).
78
Tanglao v. Parungao, 535 SCRA 123 (2007); Calma v. Santos, 590 SCRA 359 (2009).
79
Pudadera v. Magallanes, 633 SCRA 332 (2010).
80
Pudadera v. Magllanes, 633 SCRA 332 (2010); Calma v. Santos, 590 SCRA 359 (2009).
81
Mactan-Cebu International Airport Authority v. Tirol, 588 SCRA 635 (2009); Cano Vda. De Viray v. Usi, 686 SCRA 211 (2012); Roque v.
Aguado, 720 SCRA 780 (2014); Skunac Corp. v. Sylianteng, 723 SCRA 625 (2014).
82
Espiritu v. Valerio, 9 SCRA 761 (1963); Remalante v. Tibe, 158 SCRA 138 (1988); Delfin v. Valdez, 502 SCRA 24 (2006).
83
Torrecampo v. Alindogan, Sr., 517 SCRA 84 (2007); Rodriguez v. Sioson, 798 SCRA 526 (2016).
 21
on two separate occasions by the same seller to the two different buyers in good faith. xDe
Leon v. Ong, 611 SCRA 381, 388 (2010).
Rules on double sales apply even if one of the sales is an auction sale proceeding from a
foreclosure of the real estate mortgage constituted by the owner on the property. xExpress,
xGopiao v. Metrobank, 731 SCRA 131 (2014).84
(1) Doctrine on Conditional Sales/Contracts to Sell and Adverse Claims
Under Art. 1544, between the buyer under a first unconsummuated conditional sale which
required the seller to eject the existing lessees on the property sold, and the subsequent buyers
of the same property (who were the lessees who refused to vacate the premises), the first buyer
must prevail since the second buyers took possession of the property in bad faith knowing of
the first sale. √Adalin v. Court of Appeals, 280 SCRA 536 (1997).85
Rules on double sales under Art. 1544 are not applicable to contracts to sell, because of the
circumstances that must concur in order for the provisions to Art. 1544 on double sales to apply,
namely that there must be a valid sales transactions, and buyers must be at odds over the
rightful ownership of the subject matter who must have bought from the very same seller, are
lacking in a contract to sell for neither a transfer of ownership nor a sales transaction has been
consummated, and such contract is binding only upon the fulfillment or non-fulfillment of an
event. Nevertheless, the governing principle of Art. 1544 should apply, mainly the governing
principle of primus tempore, portior jure (first in time, stronger in right). Cheng v. Genato,
300 SCRA 722 (1998); also Coronel v. Court of Appeals, 263 SCRA 15 (1996).

b. Exact Same Subject Matter – Art. 1544 applies where the same thing is sold to different buyers
by the same seller. xOng v. Oalsiman, 485 SCRA 464 (2006); and does not apply where there
was a sale to one party of the land itself while the other contract was a mere promise to sell the
land or at most an actual assignment of the rights to repurchase the same land. xDischoso v.
Roxas, 5 SCRA 781 (1962).

c. Exact Same Seller for Both Sales – Art. 1544 applies where the same thing is sold to different
vendees by the same vendor. It does not apply where the same thing is sold to different
vendees by different vendors, or even to the same buyer but by different sellers. xSalera v.
Rodaje, 530 SCRA 432, 438 (2007); 86 or by several successive vendors. xMactan-Cebu Int’l
Airport Authority v. Tirol, 588 SCRA 635 (2009).87
For Article 1544 to apply, it is necessary that the conveyance must have been made by a
party who has an existing right in the thing and the power to dispose of it. It cannot be invoked
where the two different contracts of sale are made by two different persons, one of them not
being the owner of the property sold. And even if the sale was made by the same person, if the
second sale was made when such person was no longer the owner of the property, because it
had been acquired by the first purchaser in full dominion, the second purchaser cannot acquire
any right. √Consolidated Rural Bank v. Court of Appeals, 448 SCRA 347 (2005),88 citing
VILLANUEVA, PHILIPPINE LAW ON SALES 100 (1995).

BUT SEE: This ruling is compelled by the involvement in this case of not just one instance of
double sales but a series of such sales made by two different vendors. First, it is admitted that
Pastrano sold the property to Ledesma in 1968; then, Pastrano sold it again to Bragat in 1984
and 1987. But Ledesma, too, sold part of the property to the Spouses Badilla in 1970 and then
the entire lot to the Spouses Bragat in 1978. In such a situation of multiple sales, Art. 1544 .
relates that ownership shall belong to the person acquiring the property who, in good faith, first
recorded such acquisition; but when neither buyer registered, in good faith, the sale of the
properties with the register of deeds, the one who took prior possession of the properties shall
be the lawful owner thereof. Such prior possessors, at least with respect to the 152-sq.-m.
portion, are indisputably the Spouses Badilla. √Badilla v. Bragat, 757 SCRA 131 (2015).

4. “Registration in Good Faith” as First Priority

a. Meaning of “Registration”
The annotation of adverse claim qualifies as the registration mandated under the rules on
double sale. Registration means any entry made in the books of the registry, including both
registration in its ordinary and strict sense, and cancellation, annotation, and even marginal
notes. It is the entry made in the registry which records solemnly and permanently the right of
ownership and other real rights.  Carbonnel v. Court of Appeals, 69 SCRA 99 (1976).89
Registration must be done in the proper registry in order to bind the land. Since the property in
dispute in the present case was already registered under the Torrens system, petitioners’ registration
of the sale under Act 3344 was not effective for purposes of Article 1544 of the Civil Code. xSoriano
v. Heirs of Magali, 8 SCRA 489 (1963).90

84
Expresscredit Financing Corp. v. Spouses Velasco, 473 SCRA 570 (2005).
85
Mendoza v. Kalaw, 42 Phil. 236 (1921); Ruiz v. CA, 362 SCRA 40 (2001) and Valdevieso v. Damalerio, 451 SCRA 664 (2005); Rural Bank
of Sta. Barbara [Pangasinan] v. Manila Mission of the Church of Jesus Christ of Latter Day Saints, 596 SCRA 415 (2009).
86
Ong v. Olasiman, 485 SCRA 464 (2006).
87
Roque v. Aguado, 720 SCRA 780 (2014); Skunac Corp. v. Sylianteng, 723 SCRA 625 (2014); Badilla v. Bragat, 757 SCRA 131 (2015).
88
Gallardo v. Gallardo, 46 O.G. No. 11 p. 5568; Sigaya v. Mayuga, 467 SCRA 341, 357 (2005).
89
Ulep v. CA, 472 SCRA 241 (2005).
90
Amodia Vda. De Melencion v. CA, 534 SCRA 62, 82 (2007), thereby overturning obiter in Santiago v. CA, 247 SCRA 336 (1995).
 22
Registration of the Extrajudicial Partition which merely mentions the sale is not the
registration covered under Art. 1544 and cannot prevail over the registration of the pacto de
retro sale. xVda. de Alcantara v. Court of Appeals, 252 SCRA 457 (1996).
Declaration of purchase for taxation purposes does not comply with the required registration.
xBayoca v. Nogales, 340 SCRA 154 (2000).
b. Registration Must Always Be in Good Faith – In cases of double sales of immovables, what
finds relevance and materiality is not whether or not the second buyer was a buyer in good faith
or that he was first to register, but whether or not said second buyer registers such second sale
in good faith, that is, without knowledge of any defect in the title of the property sold. xMartinez
v. CA, 358 SCRA 38 (2001);91 this is so because the defense of indefeasibility of a Torrens title
does not extend to a transferee who takes the certificate of title in bad faith. xOcceña v.
Esponilla, 431 SCRA 116 (2004).

c. Knowledge of First Buyer of the Second Sale Does Not Amount to Registration in Favor
of the Second Buyer –
Knowledge gained by the first buyer of the second sale cannot defeat the first buyer’s rights
except where the second buyer registers in good faith the second sale ahead of the first. Such
knowledge of the first buyer does not bar her from availing of her rights under the law, among
them, to register first her purchase as against the second buyer. In converso, knowledge gained
by the second buyer of the first sale defeats his rights even if he is first to register the second
sale, since such knowledge taints his prior registration with bad faith. This is the priced exacted
by Art.1544 for the second buyer being able to displace the first buyer; that before the second
buyer can obtain priority over the first, he must show that he acted in good faith throughout (i.e.,
in ignorance of the first sale and of the first buyer's right) –from the time of acquisition until the
title is transferred to him by registration or failing registration, by delivery of possession. xUraca
v. Court of Appeals, 278 SCRA 702 (1997).92
In a situation where a party has actual knowledge of the claimant’s actual, open and
notorious possession of a disputed property at the time of registration, the actual notice and
knowledge are equivalent to registration, because to hold otherwise would be to tolerate fraud
and the Torrens system cannot be used to shield fraud – while certificates of title are
indefeasible, unassailable and binding against the whole world, they merely confirm or record
title already existing and vested.  Consolidated Rural Bank v. CA, 448 SCRA 347 (2005).
d. Who is Purchaser in Good Faith?
(1) Must Have Paid Price in Full – A purchaser in good faith is one who buys property
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 claim or interest of some other person in the property. xLocsin v. Hizon, 735
SCRA 547 (2014).93
A purchaser in good faith is one who buys with the well-founded belief that the person
from he receives the property had title to it and had the capacity to convey it. In this
case, the buyers bought. xHeirs of Soliva v. Soliva, 757 SCRA 26 (2015); xBliss Dev.
Corp./HGC v. Diaz, 765 SCRA 453 (2015).
When buyer has not yet fully paid purchase price, and as long as seller remains unpaid,
buyer cannot feign good faith. xPortic v. Cristobal, 546 SCRA 577 (2005).94
Not being purchasers in good faith, buyers having registered the sale, will not, as
against the petitioners, carry the day for any of them under Article 1544 prescribing rules on
preference in case of double sales of immovable properties. xOrduña v. Fuentebella, 622
SCRA 146 (2010).
BUT SEE: In the determination of whether or not the buyer is in good faith, the point in time
to be considered is the moment when the parties actually entered into the contract of sale.
xEstate of Lino Olaquer v. Ongjoco, 563 SCRA 373 (2008).

(2) Burden of Proof – The burden of proving the status of a purchaser in good faith lies upon
him who asserts that status. It is not sufficient to invoke the ordinary presumption that
everyone is presumed to have acted in good faith, since the good faith that is here

91
Blanco v. Rivera, 488 SCRA 148 (2006); Gabriel v. Mabanta, 399 SCRA 573 (2003); De la Cena v. Briones, 508 SCRA 62 (2006); Tanglao
v. Parungao, 535 SCRA 123 (2007); Bernardez v. CA, 533 SCRA 451 (2007); Orduña v. Fuentebella, 622 SCRA 146 (2010); Estate of
Margarita D. Cabacungan v. Laigo, 655 SCRA 366 (2011).
92
Cruz v. Cabana, 129 SCRA 656 (1984); Gatmaitan v. CA, 200 SCRA 37 (1991); Vda. de Jomoc v. CA, 200 SCRA 74 (1991); Bucad v. CA,
216 SCRA 423 (1992); Berico v. CA, 225 SCRA 469 (1993); Bautista v. CA, 322 SCRA 294 (2000); Bautista v. CA, 322 SCRA 294 (2000); Ulep
v. CA, 472 SCRA 241 (2005); Escueta v. Lim, 512 SCRA 411 (2007); Lumbres v. Tablada, Jr., 516 SCRA 575 (2007); Fudot v. Cattleya Land,
533 SCRA 350 (2007); Tanglao v. Parungao, 535 SCRA 123 (2007); Spring Homes Subd. Co. V. Tablada, Jr., 815 SCRA 114 (2017).
93
Agricultural and Home Extension Dev. v. CA., 213 SCRA 536 (1992); Veloso v. CA, 260 SCRA 593 (1996); Balatbat v. CA, 261 SCRA 128
(1996); Mathay v. CA, 295 SCRA 556 (1998); Diaz-Duarte v. Ong, 298 SCRA 388 (1998); Liao v. CA, 323 SCRA 430 (2000); Tanongon v.
Samson, 382 SCRA 130 (2002); Universal Robina Sugar Milling Corp. v. Heirs of Angel Teves, 389 SCRA 316 (2002); Aguirre v. CA, 421
SCRA 310 (2004); Galvez v. CA, 485 SCRA 346 (2006); Chua v. Soriano, 521 SCRA 68 (2007); Raymundo v. Bandong, 526 SCRA 514 (2007);
Tanglao v. Parungao, 535 SCRA 123 (2007); Kings Properties Corp. v. Galido, 606 SCRA 137 (2009); De Leon v. Ong, 611 SCRA 381 (2010);
The Heirs of Romana Saves v. The Heirs of Escolastico Saves, 632 SCRA 236 (2010); De Leon v. Ong, 611 SCRA 381 (2010); Yared v.
Tiongco, 660 SCRA545 (2011); PCSO v. New Dagupan Metro Gas Corp., 676 SCRA 156 (2012); Santiago v. Villamor, 686 SCRA 313 (2012);
Angeles v. Domingo, 692 SCRA 277 (2013); Nobleza v. Nuega, 752 SCRA 602 (2015).
94
Uy v. Fule, 727 SCRA 456 (2014); Peralta v. Heirs of Bernardina Abalon, 727 SCRA 477 (2014); Locsin v. Hizon, 735 SCRA 547 (2014).
 23
essential is integral with the very status that must be established. xTanglao v. Parungao,
535 SCRA 123 (2007).95
BUT SEE: It is anxiomatic that good faith is always presumed in the absence of any direct
evidence of bad faith. xSantiago v. Court of Appeals, 247 SCRA 336 (1995).96

(3) Instances When No Good Faith – One who buys from one who is not the registered
owner is expected to examine not only the certificate of title but all factual circumstances
necessary for one to determine if there are any flaws in the title of the transferor, or in the
capacity to transfer the land. It is a well-settled rule that a purchaser cannot close his eyes
to facts which should put a reasonable man upon his guard, and then claim that he acted in
good faith under the belief that there was no defect in the title of the vendor. xHeirs of
Nicolas S. Cabigas v. Limbaco, 654 SCRA 643 (2011).
(a) Being in Realty Business – A mortgagee who eventually ended buying the property at
the public auction, cannot claim to be a buyer in good faith when his business in the
constructing and selling townhouses and extending credit to the public, including real
estate loans; for he is charged with greater diligence that ordinary buyers or
encumbrances for value, because it would be standard in his business, as a matter of
due diligence required of banks and financing companies, to ascertain whether the
property being offered as security for the debt has already been sold to another to
prevent injury to prior innocent buyers. xExpresscredit Financing Corp. v. Velasco, 473
SCRA 570 (2005).97
A bank is expected to exercise due diligence before entering into a mortgage
contract, and the ascertainment of the condition of a proper offered to it as security for a
loan must be a standard and indispensable part of operations; and it cannot simply rely
upon reviewing the title to the property offered for mortgage. xTio v. Abayata, 556 SCRA
175 (2008).98
(b) Close Relationship – The sale to one’s daughter and sons will give rise to the conclusion
that the buyers, not being really third parties, knew of the previous sales and cannot be
considered in good faith. The buyers “are deemed to have constructive knowledge by
virtue of their relationship” to their sellers. xPilapil v. CA, 250 SCRA 566 (1995).
(c) Gross Inadequacy of Price – Mere inadequacy of price is not ipso facto a badge of lack
of good faith—to be so, the price must be shocking to the conscience such that the mind
revolts against it and such that a reasonable man would neither directly or indirectly be
likely to consent to it. xTio v. Abayata, 556 SCRA 175 (2008).
(d) Obligation to Investigate or to Follow Leads – A purchaser who is aware of facts which
should put a reasonable man upon his guard cannot turn a blind eye and later claim that
he acted in good faith,99 such as —
 Buyer of a registered land would be in bad faith when he purchases without asking to see
the owner’s copy of the title and/or without visiting the land where he would then have
seen first buyer occupying the same. xSantiago v. CA, 247 SCRA 336 (1995).100
 When there are occupants to the land being bought, since it is the common practice in the
real estate industry, an ocular inspection of the premises involved is a safeguard a
cautious and prudent purchaser usually takes. xMartinez v. CA, 358 SCRA 38 (2001).101
 Any person engaged in business would be wary of buying from a company that is closing
shop, because it may be dissipating its assets to defraud creditors. Such buyer is bound
to inquire whether the owners had unsettled obligations encumbrance that could burden
the property. xSamson v. CA, 238 SCRA 397 (1994).102
 Property was transferred with undue haste, “plus the fact that the subject property is a
vast tract of land in a prime location, should have, at the very least, triggered petitioner’s
curiosity.” xEagle Realty Corp v. Republic, 557 SCRA 77, 94 (2008).
(e) Land in Adverse Possession – Where land sold is in the possession of a person other
than vendor, purchaser must go beyond the TCT and make inquiries concerning the
actual possessor. Without such inquiry, the buyer cannot be said to be in good faith and
cannot have any right over the property. xTio v. Abayata, 556 SCRA 175 (2008).103

95
Tsai v. CA, 366 SCRA 324 (2001); Aguirre v. CA, 421 SCRA 310 (2004); Raymundo v. Bandong, 526 SCRA 514 (2007); Eagle Realty
Corp. v. Republic, 557 SCRA 77 (2008); Rufloe v. Burgos, 577 SCRA 264 (2009)Pudadera v. Magallanes, 633 SCRA 332 (2010), Nobleza v.
Nuega, 752 SCRA 602 (2015); Bitte v. Jonas, 777 SCRA 489 (2015).
96
Ten Forty Realty and Dev. Corp. v. Cruz, 410 SCRA 484 (2003).
97
Adriano v. Pangilinan, 373 SCRA 544 (2002); Lloyd’s Enterprises and Credit Corp. v. Dolleton, 555 SCRA 142 (2008); Eagle Realty Corp v.
Republic, 557 SCRA 77 (2008); Eagle Realty Corp v. Republic, 557 SCRA 77 (2008).
98
Agag v. Alpha Financing Corp., 407 SCRA 602 (2003); Bank of Commerce v. San Pablo, Jr., 522 SCRA 713 (2007); Lloyd’s Enterprises
and Credit Corp. v. Dolleton, 555 SCRA 142 (2008);Ty v. Queen’s Row Subdivision, 607 SCRA 324 (2009).
99
Filinvest Dev. Corp. v. Golden Haven Memorial Part, 634 SCRA 372 (2010); Yared v. Tiongco, 660 SCRA545 (2011).
100
R.R. Paredes v. Calilung, 517 SCRA 369 (2007); Chua v. Soriano, 521 SCRA 68 (2007).
101
Mathay v. CA, 295 SCRA 556 (1998); Republic v. De Guzman, 326 SCRA 267 (2000); Heirs of Ramon Durano, Sr. v. Uy, 344 SCRA 238
(2000); Heirs of Celestial v. Heirs of Celestial, 408 SCRA 291 (2003); Erasusta, Jr. v. CA, 495 SCRA 319 (2006); De la Cena v. Briones, 508
SCRA 62 (2006); Tanglao v. Parungao, 535 SCRA 123, 132 (2007).
102
Eagle Realty Corp v. Republic, 557 SCRA 77 (2008).
103
Games and Garments Developers v. Allied Banking Corp., 762 SCRA 447 (2015).
 24
Buyer who could not have failed to know or discover that the land sold to him was in
the adverse possession of another is a buyer in bad faith. xHeirs of Ramon Durano, Sr.
v. Uy, 344 SCRA 238 (2000).104
(f) Existence of Lis Pendens or Adverse Claim – Registration of an adverse claim places
any subsequent buyer of the registered land in bad faith. xKings Properties Corp. v.
Galido, 606 SCRA 137 (2009).105
One who deals with property with a notice of lis pendens, even when at the time of
sale the annotation was cancelled but there was a pending appeal, cannot invoke the
right of a purchaser in good faith. A purchaser cannot close his eyes to facts which
should put a reasonable man on guard and claim that he acted in the belief that there
was no defect in the title of the seller, xPo Lam v. CA, 316 SCRA 721 (1999).
CONTRA: When knowledge of lis pendens was acquired at the time there was order to
have it cancelled, xPo Lam v. CA, 347 SCRA 86 (2000).106 A buyer cannot be in bad faith
when it was shown that at the time of purchase the notice of lis pendens was already
being ordered cancelled and the cancellation of the notice terminated the effects of such
notice. xPudadera v. Magallanes, 633 SCRA 332 (2010).
(g) Annotation of Lien in Settlement of Estate – An annotation on CTC issued pursuant to
the distribution and partition of a decedent’s real properties is a warning to third persons
on the possible interest of excluded heirs or unpaid creditors in these properties—where
a buyer purchases the real property despite the annotation, he must be ready for the
possibility that the title be subject to the rights of excluded parties. xTan v. Benolirao,
604 SCRA 36 (2009).
(h) Banks Are Vested with Public Interest and Obligation to Exercise Extraordinary
Diligence – One of the protections afforded by P.D. 957 to buyers is the right to have her
contract to sell registered with the Register of Deeds to bind on third parties.
Nonetheless, despite such non-registration, the mortgagee bank cannot be considered,
under the circumstances, an innocent purchaser for value of the lot when it accepted the
latter (together with other assigned properties) as payment for the mortgagor
developer’s obligation—the bank was well aware that the assigned properties were
subdivision lots and therefore within the purview of P.D. 957. xLuzon Dev. Bank v.
Enriquez, 639 SCRA 332 (2011).
When financial institutions exercise extraordinary diligence in determining the validity
of the certificates of title to property being sold or mortgaged to them and still fail to find
any defect or encumbrance upon the subject properties after said inquiry, such financial
institutions should be protected like any other innocent purchaser for value if they paid a
full and fair price at the time of the purchase or before having notice of some other
person’s claim on or interest in the property. xTy v. Queen’s Row Subdivision, 607 SCRA
324 (2009)
e. Registration in Good Faith Always Pre-empts Possession in Good Faith – Between two
purchasers, the one who registered the sale in his favor has a preferred right over the other who
has not registered his title, even if the latter is in actual possession of the immovable property.
xTañedo v. Court of Appeals, 252 SCRA 80 (1996).107
The registration of a sale after the annotation of lis pendens does not obliterate the effects
of delivery and possession in good faith. The rules on constructive notice upon registration
provided for under Sec. 52 of the Property Registration Decree (P.D. No. 1529) operate only
from the time of the registration of the notice of lis pendens which in this case was effected only
after the time the sale in favor of the second buyer had long been consummated by delivery of
the subject matter. √San Lorenzo Dev. Corp. v. CA, 449 SCRA 99 (2005).

5. “First to Possess in Good Faith” as Second Priority

Absence registration, preference is given to buyer who in good faith is first in possession,
under the following jurisprudential parameters: (a) possession mentioned in Art. 1544 includes not
only material but also symbolic possession;108 (b) possessors in good faith are those who are not
aware of any flaw in their title or mode of acquisition; (c) buyers of real property that is in the
possession of persons other than the seller must be wary – they must investigate the rights of the
possessors; and (d) good faith is always presumed, upon those who allege bad faith on the part of
possessors rests the burden of proof. xTen Forty Realty v. Cruz, 410 SCRA 484 (2003).109
After the sale of a realty by means of a public instrument, the seller who resells it to another,
does not transmit anything to the second vendee, and if the latter, by virtue of this second sale
takes material possession of the thing, he does it as mere detainer, and it would be unjust to
104
Modina v. CA, 317 SCRA 696, 706 (1999); Republic v. De Guzman, 326 SCRA 267 (2000); Martinez v. CA, 358 SCRA 38 (2001); Heirs of
Trinidad de Leon Vda. De Roxas v. CA, 422 SCRA 101 (2004); Occeñna v. Esponilla, 431 SCRA 116 (2004); PNB v. Heirs of Estanislao Militar,
494 SCRA 308 (2006); Raymundo v. Bandong, 526 SCRA 514 (2007); Tanglao v. Parungao, 535 SCRA 123 (2007); Tio v. Abayata, 556 SCRA
175 (2008); Orduña v. Fuentebella, 622 SCRA 146 (2010); Deanon v. Mag-abo, 622 SCRA 180 (2010); The Heirs of Romana Saves v. The
Heirs of Escolastico Saves, 632 SCRA 236 (2010); Rosaroso v. Soria, 699 SCRA 232 (2013).
105
Tan v. Benolirao, 604 SCRA 36 (2009).
106
Pudadera v. Magallanes, 633 SCRA 332 (2010).
107
Liao v. CA, 323 SCRA 430 (2000); Talusan v. Tayag, 356 SCRA 263 (2001); Dauz v. Exchavez, 533 SCRA 637 (2007).
108
Roman Catholic Church v. Pante, 669 SCRA 234 (2012).
109
Sanchez v. Ramos, 40 Phil. 614 (1919); Quimson v. Rosete, 87 Phil. 159 (1950); Navera v. CA, 184 SCRA 584 (1990); The Roman
Catholic Church v. Pante, 669 SCRA 234 (2012).
 25
protect this detention against the rights of the thing lawfully acquired by the first vendee. √The
Roman Catholic Church v. Pante, 669 SCRA 234 (2012).

7. What of “Buyer Who Presents Oldest Title in Good Faith” as Third Priority?

8. When Subject of Sale Is Unregistered Land:

When first sale is over unregistered land and the second sale is when it is registered, the rules
on double sale do not apply. √Dagupan Trading Co. v. Macam, 14 SCRA 179 (1965).
Article 1544 is inapplicable to unregistered land because “the purchaser of unregistered land at
a sheriff’s execution sale only steps into the shoes of the judgment debtor, and merely acquires the
latter’s interest in the property sold as of the time the property was levied upon,” as expressly
provided for in then Sec. 35, Rule 39 of the Revised Rules of Court on execution sale [now Sec.
33, Rule 39, 1997 Rules of Civil Procedure)]. √Carumba v. CA, 31 SCRA 558 (1970).
Under Act 3344, registration of instruments affecting unregistered lands is “without prejudice to
a third party with a better right,” which means that mere registration does not give buyer any right
over the land if seller was not anymore owner thereof, having previously sold it to somebody else
even if the earlier sale was unrecorded. The rules on double sale have no application to land no
registered under the Torrens system.√Acabal v. Acabal, 454 SCRA 555 (2005).110
BUT SEE: The first sale was when the land was unregistered land; the second sale of the same
property was when it was registered under the Torrens system: Article 1544 rules in double sale,
whereby the buyer who is able to first register the purchase in good faith, is in full accord with Sec.
51 of P.D. 1529 which provides that no deed, mortgage, lease, or other voluntary instrument shall
take effect as a conveyance or bind the land until its registration. Thus, if the sale is not registered,
it is binding only between seller and buyer, but it does not affect innocent third persons. √Abrigo v.
De Vera, 432 SCRA 544 (2004).111

C. OBLIGATIONS OF BUYER

1. Buyer Must Pay the Price (Art. 1582)

When seller cannot show title to the subject matter, then he cannot compel the buyer to pay
the price. xHeirs of Severina San Miguel v. Court of Appeals, 364 SCRA 523 (2001).
Mere sending of a letter by the buyer expressing the intention to pay without the
accompanying payment is not considered a valid tender of payment and consignation of the
amount due are essential in order to extinguish the obligation to pay and oblige the seller to convey
title. xTorcuator v. Bernabe, 459 SCRA 439 (2005).
Unless the parties have agreed otherwise, then its payment to be effective must be made to
the seller in accordance with Article 1240 which provides that “Payment shall be made to the
person in whose favor the obligation has been constituted, or his successor in interest, or any
person authorized to receive it.” xMontecillo v. Reynes, 385 SCRA 244 (2002).

2. Buyer is Obliged to Accept Delivery of the Subject Matter (Arts. 1582-1585)

a. Buyer’s Right to Inspect Before Acceptance (Arts. 1481 and 1584[1]);
EXCEPT: When Carrier Delivers under COD Terms
b. When Buyer Refuses to Accept (Art. 1588) – Since delivery of subject matter is an obligation
on the part of the seller, the acceptance thereof by the buyer is not a condition for the
completeness of delivery. xLa Fuerza v. CA, 23 SCRA 1217 (1968).

VII. DOCUMENTS OF TITLE (Arts. 1507-1520)

1. Definition (Art. 1636)

2. Purpose of Documents of Title

Through a document of title, seller is allowed by fiction of law to deal with the goods described
therein as though he had physically delivered them to the buyer; and buyer may take the document
as though he had actually taken possession and control over the goods described therein.
xPhilippine Trust Co. v. National Bank, 42 Phil. 413 (1921).
Warehouse receipt represents the goods, but the intrusting thereof is more than the mere
delivery of the goods; it is a representation that the one to whom the possession of the receipt has
been so entrusted has the title to the goods. xSiy Cong Bieng v. HSBC, 56 Phil. 598 (1932).

3. Negotiable Documents of Title

a. How Negotiated (Arts. 1508-1509)
b. Who Can Negotiate (Art. 1512)

110
Hanopol v. Pilapil, 7 SCRA 452 (1963); Radiowealth Finance Co. v. Palileo, 197 SCRA 245 (1991); Spouses Honorio Santiago v. CA, 247
SCRA 336 (1995); Bayoca v. Nogales, 340 SCRA 154 (2000); Fidel v. CA, 559 SCRA 186 (2008); Daclag v. Macahilig, 560 SCRA 137 (2008);
Amodia Vda. De Melencion v. CA, 534 SCRA 62, 82 (2007); Fidel v. CA, 559 SCRA 186 (2008).
111
Sabitsana, Jr. v. Muertegui, 703 SCRA 145 (2013)
 26
c. Effects of Negotiation (Art. 1513) – Endorsement and delivery of a negotiable quedan
operates as the transfer of possession and ownership of the property referred to therein, and
had the effect of divorcing the property covered therein from the estate of the insolvent prior to
the filing of the petition for insolvency. xPhilippine Trust Co. v. PNB, 42 Phil. 413 (1921).
d. Unauthorized Negotiation (Art. 1518) – As between the owner of a negotiable document of
title who endorsed it in blank and entrusted it to a friend, and the holder of such negotiable
document of title to whom it was negotiated and who received it in good faith and for value, the
latter is preferred, under the principle that as between two innocent persons, he who made the
loss possible should bear the loss. xSiy Long Bieng v. HSBC, 56 Phil. 598 (1932).

4. Non-Negotiable Documents of Title

a. How Transferred or Assigned (Art. 1514)
b. Effects of Transfer (Art. 1514).

5. Warranties of Seller Through a Documents of Title (Art. 1516)

6. Rules of Levy/Garnishment of Goods (Arts. 1514, 1519, 1520)

VIII. SALE BY NON-OWNER OR ONE HAVING VOIDABLE TITLE: “THE

LIFE OF A CONTRACT OF SALE”
1. RULES ON THE SALE EFFECT BY NON-OWNER:
a. Where Seller Is Not Owner at Perfection: Contract Is Valid, For Ownership by Seller
at Perfection Is Not One of the Requisites for Subject Matter
b. Where Seller Is Not Owner at Delivery: Buyer Acquires No Better Title to the Goods
Than the Seller Had. (Art. 1505)
c. Remedy of Buyer in Either of the Two Situations: Rescission of the Contract of Sale
with Damages, But Not An Action for Declaration of Nullity Thereof.
If one buys the land of another, to which the seller is supposed to have a good title, and in
consequence of facts unknown alike to both parties, the seller has in fact no title at all, equity
will cancel the sale and cause the purchase money to be restored to the buyer, putting both
parties in status quo. xDBP v. Court of Appeals, 249 SCRA 331 (1995).

2. EXCEPTIONS: When Non-Owner’s Act of “Selling” Transfers Title to Buyer

a. Sales by Co-Owners (Art. 493) – Sale of a co-owner of entire property as his own is effective
only as a sale of his spiritual share, and will not affect the shares of the other co-owners who
never gave their consent. xPaulmitan v. Court of Appeals, 215 SCRA 866 (1992).112
ALSO: An agreement that purports a specific portion of an un-partitioned co-owned property is
not void; it shall effectively transfer the seller’s ideal share in the co-ownership, Heirs of the Late
Spouses Aurelio and Esperanza Balite v. Lim, 446 SCRA 54 (2004).113
EXCEPT: When the intention of the purchase was clearly the property itself and not just the
spiritual share. √Mindanao v. Yap, 13 SCRA 190 (1965).
A co-owner who sells one of the two lands owned in common with another co-owner, and
does not turn-over one-half of sale proceeds to the other co-owner, latter may by law and equity
lay exclusive claim to the remaining parcel of land, xImperial v. CA, 259 SCRA 65 (1996); in
which case, proper action is not for nullification of sale, or for the recovery of possession of the
property owned in common, but for division or partition of the entire property. xTomas Claudio
Memorial College v. CA, 316 SCRA 502 (1999).114
CURIOUS: Sale of a portion of the property is considered an alteration of the thing owned in
common. Under the Civil Code, such disposition requires the unanimous consent of the other
co-owners. Prior to partition, a sale of a definite portion of common property requires the
consent of all co-owners because it operates to partition the land with respect to the co-owner
selling his or her share. At best, the agreement between the parties is a contract to sell, not a
contract of sale. xCabrera v. Ysaac, 740 SCRA 612 (2014).
b. Estoppel on the True Owner (Art. 1434) √Bucton v. Gabar, 55 SCRA 499 (1974).
Owner who has been unlawfully deprived of his goods may recover it even from a
purchaser in good faith. Thus, purchaser of property stolen from the owner has been held to

112
Estoque v. Pajimula, 24 SCRA 59 (1968); Aguirre v. CA, 421 SCRA 310 (2004); Acabal v. Acabal, 454 SCRA 555 (2005); Barcenas v.
Tomas, 454 SCRA 593 (2005); Panganiban v. Oamil, 542 SCRA 166 (2008); Vda. de Figuracion v. Figuracion-Gerilla, 690 SCRA 495 (2013);
Heirs of Dela Rosa v. Batongbacal, 731 SCRA 263 (2014); Heirs of Gregotion Lopez v. DBP, 741 SCRA 153 (2014); Torres, Jr. v. Lapinid, 742
SCRA 646 (2014).
113
Almendra v. IAC, 204 SCRA 142 (1991); Fernandez v. Fernandez, 363 SCRA 811 (2001); Aguirre v. CA, 421 SCRA 310 (2004); Santos v.
Lumbao, 519 SCRA 408 (2007); Republic v. Heirs of Francisca Dignos-Sorono, 549 SCRA 58 (2008); Torres, Jr. v. Lapinid, 742 SCRA 646
(2014).
114
Heirs of Romana Ingjug-Tiro v. Casals, 363 SCRA 435 (2001); Aguirre v. CA, 421 SCRA 310 (2004).
 27
acquire no title to it even though he purchased for value and in good faith. Exception is when
the true owner is estopped. xFrancisco v. Chemical Bulk Carriers, 657 SCRA 355 (2011).
c. Recording Laws; Torrens System (P.D. 1529).
Where innocent third persons, relying on the correctness of the TCT, acquire rights over the
property, the courts cannot disregard such rights and order the cancellation of the TCT, since
the effect will be to impair public confidence in the certificate of title. Every person dealing with
the registered land may safely rely on the correctness of the certificate of title issued therefor.
xHeirs of Spouses Benito Gavino. v. CA, 291 SCRA 495 (1998).
An innocent purchaser for value is one who purchases a titled land by virtue of a deed
executed by the registered owner himself not by a forged deed. xInsurance Services and
Commercial Traders v. Court of Appeals, 341 SCRA 572 (2000).
The defense of indefeasibility of Torrens title where the disputed buildings and equipment
are located is unavailing, since such defense is available to sale of lands and not to sale of
properties situated therein. xTsai v. Court of Appeals, 366 SCRA 324 (2001).
A person who deals with registered land through someone who is not the registered owner
is expected to look beyond the certificate of title and examine all the factual circumstances
thereof in order to determine if the vendor has the capacity to transfer any interest in the land.
xSy v. Capistrano, Jr., 560 SCRA 103 (2008).
c. Exercise by the Courts of Statutory Power to Make Sale Effective
When a defeated party refuses to execute the absolute deed of sale in accordance with the
judgment, the court may direct the act to be done at the cost of the disobedient party by some
other person appointed by the court and the act when so done shall have the like effect as is
done by the party. xManila Remnant Co. v. Court of Appeals, 231 SCRA 281 (1994)

d. Sales in Merchants Stores, Fairs or Markets (Arts. 85 and 86, Code of Commerce)
A merchant store requires a fixed establishment where the merchant not only stores his
merchandise, but where he conducts the ordinary court of business. √City of Manila v.
Bugsuk, 101 Phil. 859 (1957).115
The owner of the goods who has been unlawfully deprived of it may recover it even from a
purchaser in good faith. Thus, the purchaser of property which has been stolen from the owner
has been held to acquire no title to it even though he purchased for value and in good faith.
xFrancisco v. Chemical Bulk Carriers, 657 SCRA 355 (2011).

3. SALE BY SELLER HAVING VOIDABLE TITLE (Art. 1506, as an exception to Art. 559)
Whenever there is an underlying sale which grants to the culprit-buyer a voidable title, even
when this is accompanied by the criminal act of estafa or swindling, Art. 1506 would grant to the
buyer in good faith a better title as against the original owner even though the latter may be
classified to have been “unlawfully deprived” of the subject matter under Art. 559. √Tagatac v.
Jimenez, 53 O.G. 3792 (1957); √EDCA Publishing v. Santos, 184 SCRA 614 (1990).
When owner did not voluntarily deliver possession of the car, and in effect it was stolen from
him, then one who buys the car even in good faith from the thief will lose the car to the owner who
is deemed to have been unlawfully deprived. √Aznar v. Yapdiangco, 13 SCRA 486 (1965).
In all other cases of unlawful deprivation done through estafa, the original owner recovers
even from the buyer in good faith. √Cruz v. Pahati, 98 Phil. 788 (1956). [Decision showed that
second buyer, or current possessor could not claim good faith because of erasures in the
covering documents presented by his seller]
Owner of diamond ring may recover it from pawnshop where owner’s agent had pledged it
without authority to do so; Art. 559 applies and the defense that the pawnshop acquired possession
without notice of any defect of the pledgor-agent is unavailing. √Dizon v. Suntay, 47 SCRA 160
(1972).116 [Possessor is a merchant and only has a pledge in his favor]

IX. LOSS, DETERIORATION, FRUITS AND OTHER BENEFITS

1. No Application When Subject Matter Is “Determinable” (Generic) (Art. 1263)
2. Effect of Loss/Deterioration of Thing Sold:
a. Before Perfection. √Roman v. Grimalt, 6 Phil. 96 (1906).
b. At the Time of Perfection (Arts. 1493 and 1494) – The risk of loss or deterioration of the
goods sold does not pass to the buyer until there is actual or constructive delivery thereof. xAPT
v. T.J. Enterprises, 587 SCRA 481 (2009).

c. After Perfection But Before Delivery (Arts. 1164, 1189, and 1262).
(1) General Rule: Before delivery, risk of loss is borne by seller under the rule of res perit
domino. xChrysler Phil. v. CA, 133 SCRA 567 (1984).

115
Sun Bros. & Co. v. Velasco, 54 O.G. 5143 (1958).
116
Valera v. Matute, 9 Phil. 479 (1908); Arenas v. Raymundo, 19 Phi. 47 (1911).
 28
In sale of motor vehicle, where there was neither physical nor constructive delivery, the
thing sold remained at the seller’s risk. xUnion Motor Corp v. CA, 361 SCRA 506 (2001).
(2) Loss by Fault of a Party (Arts. 1480, 1504, 1538)
(3) Loss by Fortuitous Event (Arts. 1480, 1163, 1164, 1165, 1504, 1538, and 1189; READ
Comments of PARAS, TOLENTINO, PADILLA, and BAVIERA).
(4) Deterioration (Arts. 1480, 1163-65, and 1262; Arts. 1189 and 1538)
(5) Fruits or Improvements from time of perfection pertain to buyer (Arts. 1480, 1537-1538)
d. After Delivery (Art. 1504). √Lawyer's Coop v. Tabora, 13 SCRA 762 (1965).117

X. REMEDIES FOR BREACH OF CONTRACT OR SALE (Arts. 1594-1599)

A. REMEDIES OF THE SELLER

1. In Case of Movables (Arts. 1593, 1595 to 1597)
Under Art. 1597, where buyer of scrap iron fails to put up the LC in favor of the seller as the
condition of the sale, seller may terminate the contract—non-compliance with condition meant that
seller’s obligation to sell never arose. xVisayan Sawmill Co. v. CA, 219 SCRA 378 (1993).

2. Unpaid Seller of Goods (Arts. 1524-1535)

a. Who Is an “Unpaid Seller”? (Art. 1525)
b. Rights of the Unpaid Seller:
 Possessory Lien (Arts. 1526-1529, 1503(1), 1535)
 Right of Stoppage in Transitu (Arts. 1530-1532, 1535, 1636[2])
 Special Right of Resale (Art. 1533)
 Special Right to Rescind (Art. 1534)
Even before the formal statutory adoption of the remedies of an unpaid seller, the Supreme
Court had already recognized the right of a seller, when the contract of sale is still executory in
stage, to resell the movables subject matter of the sale, when the buyer fails to pay the
purchase price. xHanlon v. Hausserman, 40 Phil. 796 (1920).
The unpaid seller in possession of goods may sell them at buyer’s risk. xKatigbak v. Court of
Appeals, 4 SCRA 243 (1962).

3. RECTO LAW: SALES OF MOVABLES ON INSTALLMENTS (Arts. 1484, 1485, 1486)

Recto Law prevents mortgagee from seizing mortgaged property, buying it at foreclosure sale for
a low price and then bringing the suit against the mortgagor for a deficiency judgment. The almost
invariable result was that the mortgagor found himself minus the property and still owing practically
the full amount of his original indebtedness. xMagna Financial Services Group v. Colarina, 477 SCRA
245 (2005).
a. When Is There “Installment Sale”?: At least two (2) stipulated payments in the future, whether
or not there is a downpayment. xLevy v. Gervacio, 69 Phil. 52 (1939).
b. Contracts to Sell Movables Not Covered. xVisayan Sawmill v. CA, 219 SCRA 378 (1993).
c. Unpaid Seller’s Remedies Not Cumulative, But Alternative and Exclusive. √Delta Motor
Sales Corp. v. Niu Kim Duan, 213 SCRA 259 (1992).118
Seeking a writ of replevin consistent with any of the three remedies. xUniversal Motors Corp.
v. Dy Hian Tat, 28 SCRA 161 (1969).
d. Remedy of Specific Performance – That seller obtained a writ of execution against the
mortgaged property pursuant to an action for specific performance, does not amount to a
foreclosure of the chattel mortgage covered by the Recto Law. √Tajanglangit v. Southern
Motors, 101 Phil. 606 (1957).119
e. Remedy of Rescission – Surrender of mortgaged property is not necessarily equivalent to
rescission. xVda. de Quiambao v. Manila Motors Co., 3 SCRA 444 (1961).
Mutual restitution prevents recovering on the balance of the purchase price. √Nonato v. IAC,
140 SCRA 255 (1985); but stipulation on non-return of payments is valid provided not
unconscionable. xDelta Motor Sales Corp. v. Niu Kim Duan, 213 SCRA 259 (1992).

117
Song Fo & Co. v. Oria, 33 Phil. 3 (1915); Lawyer's Cooperative v. Narciso, 55 O.G. 3313.
118
De la Cruz v. Asian Consumer, 214 SCRA 103 (1992); Borbon II v. Servicewide Specialists, 258 SCRA 634 (1996).
119
Southern Motors v. Moscoso, 2 SCRA 168 (1961); Industrial Finance Corp. v. Ramirez, 77 SCRA 152 (1977); Rosario v. PCI Leasing and
Finance, 474 SCRA 500 (2005).
 29
f. Remedy of Foreclosure – When the seller assigns his credit to another person, assignee is
likewise bound by the same law. √Zayas v. Luneta Motors, 117 SCRA 726 (1982).120
Barring effect would cover a third-party mortgage, when it was the chattel mortgage that was
first foreclosed. √Ridad v. Filipinas Investment, 120 SCRA 246 (1983).
BUT SEE: A judicious perusal of the records would reveal that mortgagor-buyer never
bought the subject vehicle from financing company but from a third party, and merely sought
financing from mortgagee for its full purchase price. Consequently Art. 184 does not apply
against financing company. √Equitable Savings Bank v. Palces, 787 SCRA 260 (2016).
(1) “Barring” Effects of Foreclosure: All amounts due from the sale, including damages and
attorneys fees, are all barred from recovery. √Macondray & Co. v. Eustaquio, 64 Phil. 446
(1937).
Action of replevin in order to foreclose on the chattel mortgage does not produce the barring
effect under the Recto Law; for it is the fact of foreclosure and actual sale of the mortgaged
chattel that bar further recovery by the seller of any balance on the buyer’s outstanding
obligation not satisfied by the sale. The voluntary payment of the installment by the buyer-
mortgagor is valid and not recoverable in spite the restrictive provisions of Art. 1484(3).
√Northern Motors v. Sapinoso, 33 SCRA 356 (1970). 121
Foreclosure on chattel mortgage prevents further action on the supporting real estate
mortgage, whether the chattel mortgage is first foreclosed √Cruz v. Filipinas Investment &
Finance Corp., 23 SCRA 791 (1968);122 and vice versa when the real estate mortgage is first
foreclosed. √Borbon II v. Servicewide Specialists, 258 SCRA 634 (1996).
(2) Rule on “Perverse Buyer”: √Filipinas Investment. v. Ridad, 30 SCRA 564 (1969).
g. Purported Lease with Option to Buy
Judicial notice has been taken 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. xElisco
Tool Manufacturing Corp. v. Court of Appeals, 307 SCRA 731 (1999).123
Where a lease agreement over equipment is without an express option to purchase, but
nevertheless when a final demand is given prior to suit, the demand letter indicates clearly it
was within the option of the lessee to fully pay the balance of the unpaid rentals and would be
able to keep the equipment, then the real contract between the parties was a sale of movable
on installment disguised as a lease agreement. √PCI Leasing and Finance v. Giraffe-X
Creative Imaging, 527 SCRA 405 (2007).

4. IN CASE OF IMMOVABLES:
a. Anticipatory Breach (Art. 1591). √Legarda v. Saldaña, 55 SCRA 324 (1974).
b. Sales of Subdivision Lots and Condominium Units (P.D. 957) – P.D.957 was issued in the
wake of numerous reports that many real estate subdivision owners, developers, operators
and/or sellers have reneged on their representations and obligations to provide and maintain
properly subdivision roads, drainage, sewerage, water systems, lighting systems and other
basic requirements or the health and safety of home and lot buyers. xCasa Filipinas Realty
Corp. v. Office of the President, 241 SCRA 165 (1995).
It is the intent of P.D. 957 to protect the buyer against unscrupulous developers, operators
and/or sellers who reneged on their obligations. Thus, in order to achieve this purpose, equity
and justice dictate that the injured party should be afforded full recompensed and as such, be
allowed to recover the prevailing market value of the undelivered lot which had ben fully paid
for. xGotesco Properties v. Fajardo, 692 SCRA 319 (2013).
Retroactive application of P.D. No. 957 to transactions entered into prior to its enactment in
1976 is already settled. xEugenio v. Exec. Sec. Drilon, 252 SCRA 106 (1996); xRotario v.
Alcantara, 736 SCRA 584 (2014).
(1) “Buyer” under P.D. 957 includes one who acquires for a valuable consideration a
condominium unit by way of assignment by project owner in payment of its indebtedness
for contractor’s fee. xAMA Computer College v. Factora, 378 SCRA 121 (2002).
(2) Section 20 of P.D. 957 directs every developer of real property to provide the necessary
facilities, improvements, infrastructure and other forms of development, failure to carry out
which is sufficient cause for the buyer to suspend payment, and any sums of money
already paid shall not be forfeited. xTamayo v. Huang, 480 SCRA 156 (2006).
In case the developer fails in its obligation under Section 20, the Sec. 23 provides:
 Buyer has the option to demand reimbursement of the total amount paid, or to wait for
further development of the subdivision; if buyer opts for the latter, he may suspend
payment of the installments until such time that the owner or developer has fulfilled its
obligations. xTamayo v. Huang, 480 SCRA 156 (2006).
120
Borbon II v. Servicewide Specialists, 258 SCRA 634 (1996).
121
Manila Motor Co. v. Fernandez, 99 Phil. 782 (1956); Magna Financial Services Group, v. Colarina, 477 SCRA 245 (2005).
122
Pascual v. Universal Motors Corp., 61 SCRA 121 (1974).
123
Vda. de Jose v. Barrueco, 67 Phil. 191 (1939); U.S. Commercial v. Halili, 93 Phil. 271 (1953); H.E. Heacock v. Bantal Manufacturing, 66
Phil. 245 (1938); Manila Gas Corp. v. Calupita, 66 Phil. 747 (1938); Filinvest Credit Corp. v. CA, 178 SCRA 188 (1989).
 30
 Option granted by law is with buyer and not the developer/seller. xRelucio v. Brillante-
Garfin, 187 SCRA 405 (1990).
 In exercising the option, buyer required only to give due notice to owner/developer of
buyer’s intention to suspend payment. xZamora Realty v. OP, 506 SCRA 591 (2006);
 It is not required that a notice be given first by buyer to seller before a demand for refund
can be made as the notice and demand can be made in the same letter or
communication. xCasa Filipinas Realty Corp v. OP, 241 SCRA 165 (1995);
 Even with a mortgage over the lot, seller still bound to redeem said mortgage without
any cost to buyer apart from the balance of the purchase price and registration fees—
subdivision developers have are obliged to deliver the corresponding clean certificates
of title of the subdivision lots where the purchase price of which have been paid in full by
the buyers. xCantemprate v. CRS Realty Dev. Corp., 587 SCRA 492 (2009).
 Buyers would be justified in suspending payments, when developer-seller fails to give a
copy of the Contract to Sell despite repeated demands, xGold Loop Properties v. CA,
350 SCRA 371 (2001); or when they failed to provide for the amenities mandated under
their development plan, xFedman Dev. Corp. v. Agcaoili, 656 SCRA 354 (2011).
 When Reservation Agreement provides that buyer is entitled to a Contract to Sell only
upon payment of at least 30% of price, non-happening yet of that condition does not
render seller in default as to warrant buyer the right to rescind sale and demand refund.
xG.G. Sportwear Mfg. Corp. v. World Class Properties, 614 SCRA 75 (2010).
 Buyer’s cause of action against the developer for failure to develop ripens only when the
developer fails to complete the project on the lapse of the completion period stated on
the sale contract or the developer’s Licenses to Sell. Any premature demand prior to the
indicated completion date would be premature. xG.G. Sportwear Mfg. Corp. v. World
Class Properties, 614 SCRA 75 (2010).
(3) One of the protections afforded by P.D. 957 to buyers is the right to have the Contract to
Sell registered with the Register of Deeds to bind third parties, THUS:
 Nothing in P.D. 957 provides for the nullification of a contract to sell if seller, at the time
perfection, did not possess a certificate of registration or a license to sell, sale being a
consensual contract. xCo Chien v. Sta. Lucia Realty, 513 SCRA 570 (2007).124
 Buyer’s dissatisfaction under a Contract of Sale as to the completion date of the project
does not constitute substantial breach to allow rescission and ask for refund. xG.G.
Sportwear Mfg. Corp. v. World Class Properties, 614 SCRA 75 (2010).
 Despite non-registration of Contracts to Sell, foreclosing mortgagee-bank cannot be
considered an innocent purchaser for value of the subdivision lots which it accepted as
payment for mortgagor’s obligation—bank was well aware that the assigned properties
were subdivision lots and therefore within the purview of P.D. 957. xLuzon Dev. Bank v.
Enriquez, 639 SCRA 332 (2011).
(4) Sec. 25 of P.D. 957 imposes on the subdivision owner or developer the obligation to cause
the transfer of the corresponding certificate of title to the buyer upon full payment.
xGotesco Properties v. Fajardo, 692 SCRA 319 (2013).
Since the lots are involved in litigation and there is a notice of lis pendens at the back of
the titles involved, the subdivision developer have to be given a reasonable period of time
to work on the adverse claims and deliver clean titles to the buyer, and should the former
fail to deliver clean titles at the end of the period, it ought to reimburse the buyers not only
for the purchase price of the subdivision lots sold to them but also the incremental value
arising from the appreciation of the lots. xCantemprate v. CRS Realty Dev. Corp., 587
SCRA 492 (2009).
(5) Developer’s lack of Certificate of Registration or License to Sell merely subjects it to
administrative sanctions, but do not render the sales entered into on the project null and
void. xG.G. Sportswear Mfg. Corp. v. World Class Properties, 614 SCRA 75 (2010).

5. MACEDA LAW: SALES OF RESIDENTIAL REALTY ON INSTALLMENTS (R.A. 6552).

“The contract for the purchase of a piece of land on installment basis is not only lawful; it is also
of widespread usage or custom in our economic system. . . . If [buyer] eventually found the interest
stipulation in the contract financially disadvantageous to him, he cannot now turn to this Court for
succor without impairing the constitutional right to the obligation of contracts. This Court will not
relieve petitioner of the necessary consequences of his free and voluntary, and otherwise lawful,
act.” xBortikey v. AFP - RSBS, 477 SCRA 511 (2005).
a. “Role” of Maceda Law – Maceda Law’s declared policy is to protect buyers of real estate on
installment basis against onerous and oppressive conditions, and seeks to address the acute
housing shortage problem in our country that has prompted thousands of middle and lower
class buyers of houses, lots and condominium units to enter into all sorts of contracts with
private housing developers involving installment schemes. xActive Realty & Dev. Corp. Daroya,
382 SCRA 152 (2002).125
124
Cantemplate v. CRS Realty Dev. Corp., 587 SCRA 492 (2009); Moldex Realty v. Saberon, 695 SCRA 34331 (2013).
125
OIympia Housing v. Panasiatic Travel, 395 SCRA 298 (2003); Jestra Dev. and Management Corp. v. Pacifico, 513 SCRA 413 (2007).
 31
Maceda Law recognizes in conditional sales of all kinds of real estate seller’s right to cancel
the contract upon non-payment of an installment by the buyer, which is simply an event that
prevents the obligation of the vendor to convey title from acquiring binding force. xPagtulunan v.
Dela Cruz Vda. De Manzano, 533 SCRA 242 (2008).126

b. Transactions Covered – The formal requirements of rescission under the Maceda Law apply
even to contracts entered into prior to its effectivity. xSiska Dev. Corp. v. Office of the President,
231 SCRA 674 (1994).127 BUT SEE: xPeople’s Industrial and Commercial Corp. v. Court of
Appeals, 281 SCRA 206 (1997).
Maceda Law makes no distinctions between “option” and “sale” which under P.D. 957 also
includes “an exchange or attempt to sell, an option of sale or purchase, a solicitation of a sale or
an offer to sell directly,” and the all-embracing definition virtually includes all transactions
concerning land and housing acquisition, including reservation agreements. xRealty Exchange
Venture Corp. v. Sendino, 233 SCRA 665 (1994).
Maceda Law has no application to protect the developer or one who succeeds the developer.
xLagandaon v. Court of Appeals, 290 SCRA 463 (1998).
Maceda Law finds no application to a contract to sell where the suspensive condition has not
been fulfilled, because said Law presuppose the existence of a valid and effective contract to
sell a condominium. [?] xMortel v. KASSCO Inc., 348 SCRA 391, 398 (2000).128
Since Maceda Law governs sales of real estate on installments, Communities Cagayan, Inc.
v. Nanol, 685 SCRA 453 (2012), it has no application to the sale of large tracts of land (69,028
square meters) which do not constitute residential real estate within the contemplation of the
Maceda Law. xGarcia v. Court of Appeals, 619 SCRA 280 (2010).
Maceda Law does not cover a loan extended by the employer to enable its employee to
finance the purchase of a house and lot. The law protects only a buyer acquiring the property by
installment, not a borrower whose rights are governed by the terms of the loan from the
employer xSpouses Sebastian v. BPI Family Bank, 739 SCRA 9 (2014).
c. How to Determine Years of Installments: √Jestra Dev. and Management Corp. v. Pacifico,
513 SCRA 413 (2007).
d. How Cancellation of Contract Can Be Effected: The cancellation of the contract under the
Maceda Law must follow the following steps:
 First, seller should extend the buyer a grace period of at least 60 days from the due date
of the installments.
 Second, at end of grace period, seller shall furnish buyer with a notarial notice of
cancellation or demand for rescission, effective 30 days from buyer’s receipt thereof; a
mere notice or letter, would not suffice. √McLaughlin v. CA, 144 SCRA 693 (1986).129
 Third, for contracts covering more than two years of payments, there must be return to the
buyer of the cash surrender value. xVilldara, Jr. v. Zabala, 545 SCRA 325 (2008).130
 Until and unless seller complies with these mandatory requirements, contract to sell
remains valid and subsisting. xCommunities Cagayan v. Nanol, 685 SCRA 453 (2012).
Additional formality of a demand on [the seller’s] part for rescission by notarial act would
appear, in the premises, to be merely circuitous and consequently superfluous” since the seller
therein filed an action for annulment of contract, which is a kindred concept of rescission by
notarial act. xLayug v. IAC, 167 SCRA 627 (1988).
Decision rendered in an ejectment case operates as the required notice of cancellation under
the Maceda Law; but as buyer was not given the cash surrender value, there was still no actual
cancellation of the contract. xLeaño v. CA, 369 SCRA 36 (2001).
Formal letter demand upon buyer to vacate the premises is not the same as the notice of
cancellation or demand for rescission by a notarial act required by R.A. No. 6552. Evidently,
the case of unlawful detainer filed by petitioner does not exempt him from complying with the
said requirement. xPagtulunan v. Dela Cruz Vda. De Manzano, 533 SCRA 242 (2008).
Where buyers under a contract to sell offers to pay the last installment a year and a half after
the stipulated date, that was beyond the sixty-day grace period under Section 4 of the Maceda
Law. The buyers cannot use the second sentence of Section 4 of the Maceda Law against the
sellers’ alleged failure to give an effective notice of cancellation or demand for rescission
because the sellers merely sent the notice to the address supplied by the buyers in the Contract
to Sell. √Garcia v. CA, 619 SCRA 280 (2010).
Under the Maceda Law, the right of the buyer to refund accrues only when he has paid at
least two years of installments. xManuel Uy & Sons v. Valbueco, Inc., 705 SCRA 537 (2013).

126
Leaño v. CA, 369 SCRA 36 (2001); Cordero v. F.S. Management & Dev. Corp., 506 SCRA 451 (2006); Manuel Uy & Sons v. Valbueco,
705 SCRA 537 (2013).
127
Eugenio v. E.S. Franklin M. Drilon, 252 SCRA 106 (1996); PNB v. Office of the President, 252 SCRA 620 (1996).
128
Boston Bank of the Phil. v. Manalo, 482 SCRA 108 (2006).
129
Luzon Brokerage v. Maritime Bldg., 43 SCRA 93 (1972) & 86 SCRA 305 (1978); Fabrigas v. San Francisco del Monte, 475 SCRA 247
(2005).
130
Active Realty & Dev. Corp. v. Daroya, 382 SCRA 152 (2002); Olympia Housing v. Panasiatic Travel Corp., 395 SCRA 298 (2003); Jestra
Dev. and Management Corp. v. Pacifico, 513 SCRA 413 (2007).
 32
6. RESCISSION ON SALES OF NON-RESIDENTIAL IMMOVABLES ON INSTALLMENTS
(Arts. 1191 and 1592)
Articles 1191 and 1592 on rescission cannot apply to a contract to sell since “there can be no
rescission of an obligation that is still non-existent, the suspensive condition not having happened.”
xValarao v. CA, 304 SCRA 155 (1999).131
Article 1191 providing for rescission cannot be applied to sales of real property on installments
since they are governed by the Maceda Law. Bonrostro v. Luna, 702 SCRA 1 (2013).
Automatic rescission clauses are not valid nor can they be given legal effect under Articles 1191
and 1592. xIringan v. Court of Appeals, 366 SCRA 41 (2001).132
Indeed, rescission requires under the law a positive act of choice on the party of the non-
defaulting party. xOlympia Housing v. Panasiatic Travel Corp., 395 SCRA 298 (2003).
Art. 1592 allows the buyer of an immovable to pay as long as no demand for rescission has
been made; consignation of the balance of the purchase price before the trial court operates as full
payment. xProvince of Cebu v. Heirs of Rufina Morales, 546 SCRA 315 (2008).
Seller cannot recover ownership until and unless the contract itself is resolved and set aside; a
party who fails to invoke judicially or by notarial act the resolution of a sale would be prevented
from blockingits consummation in light of the precept that mere failure to fulfill the contract does not
operate ipso facto as rescission. xPlatinum Plans Phil. v. Cucueco, 488 SCRA 156 (2006).
For Art. 1592 to apply, the following requisites must be present: (1) a contract of sale of an
immovable property and (2) a stipulation in the contract that failure to pay the price at the time
agreed upon will cause the rescission of the contract. Buyer can still pay even after the time agreed
upon, if the agreement between the parties has these requisites. This right of buyer to pay ceases
when seller demands rescission judicially or extrajudicially (which must be notarized). xCabrera v.
Ysaac, 740 SCRA 612 (2014).

B. REMEDIES OF THE BUYER

1. In the Case of Movables (Arts. 1598-1599)
2. In the Case of Immovables (Arts. 1191; Secs. 23 and 24, P.D. 957)
3. Suspension of Payment (Art. 1590)
Pendency of suit over the subject matter of sale justifies buyer in suspending payment of the
balance of the purchase price by reason of aforesaid vindicatory action filed against it. The assurance
made by the seller that the buyer did not have to worry about the case because it was pure and
simple harassment is not the kind of guaranty contemplated under Article 1590 wherein the buyer is
bound to make payment if the seller should give a security for the return of the price. xAdelfa
Properties v. Court of Appeals, 240 SCRA 565 (1995).

XI. REMEDY OF RESCISSION IN SALES OF IMMOVABLES: CONTRACT

OF SALE VERSUS CONTRACT TO SELL
A. NATURE OF REMEDY OF RESOLUTION (Arts. 1191, 1479, 1592)
1. Distinguishing from Other Remedy of Rescission. xUniversal Food Corp. v. Court of Appeals,
33 SCRA 22 (1970).133 BUT SEE CONTRA: xSuria v. IAC, 151 SCRA 661 [1987]).
While Art. 1191 uses the term “rescission,” the original term which was used in the old Civil
Code was “resolution.” Resolution is a principal action which is based on breach of a party, while
rescission under Art. 1383 is a subsidiary action limited to cases of rescission for lesion under Art.
1381. xOng v. Court of Appeals, 310 SCRA 1 (1999).134
Outside of sales that have been entered into in fraud of creditors, the general rule for ordinary
contracts of sale is that the seller’s creditors do not have such material interest as to allow them to
sue for rescission of a sale – theirs is only a personal right to receive payment for the loan, not a
real right over the property subject of the deed of sale. xAdorable v. CA, 319 SCRA 200 (1999).
To rescind is to declare a contract void at its inception and to put an end to it as though it
never was. It is not merely to terminate it and release the parties from further obligations to each
other, but to abrogate it from the beginning and restore the parties to their relative positions as if no
contract has been made. xVelarde v. Court of Appeals, 361 SCRA 56 (2001).135

2. Remedy of Rescission (Resolution) Is Inherent in the Reciprocity of Sale – Rescission

under Art. 1191 is predicated on a breach of faith by the other party who violates the reciprocity
between them—breach contemplated is obligor’s failure to comply with an existing obligation.
131
Caridad Estates v. Santero, 71 Phil. 114 (1940); Albea v. Inquimboy, 86 Phil. 477 (1950); Manuel v. Rodriguez, 109 Phil. 1 (1960); Joseph
& Sons Enterprises v. CA, 143 SCRA 663 (1986) Gimenez v. CA, 195 SCRA 205 (1991); Jacinto v. Kaparaz, 209 SCRA 246 (1992); Odyssey
Park v. CA, 280 SCRA 253 (1997); Rillo v. CA, 274 SCRA 461 (1997); Platinum Plans Phil. v. Cucueco, 488 SCRA 156 (2006); Tan v.
Benolirao, 604 SCRA 36 (2009); Garcia v. CA, 619 SCRA 280 (2010).
132
Escueta v. Pando, 76 Phil. 256 (1946).
133
Congregation of the Religious of the Virgin Mary v. Orola, 553 SCRA 578 (2008); Heirs of Antonio F. Bernabe v. CA, 559 SCRA 53 (2008);
Congregation of the Religious of the Virgin Mary v. Orola, 553 SCRA 578 (2008).
134
Iringan v. CA, 366 SCRA 41 (2001).
135
Ocampo v. CA, 233 SCRA 551 (1994); Co v. CA, 312 SCRA 528 (1999); Orden v. Aurea, 562 SCRA 660 (2008).
 33
When obligee seeks rescission, in the absence of any just cause for courts to determine the period
of compliance, they shall decree the rescission. xVelarde v. CA, 361 SCRA 56 (2001).136
Non-payment of price is a resolutory condition for which the remedy is either rescission or
specific performance under Art. 1191. This is true for reciprocal obligations where the obligation is a
resolutory condition of the other. On the other hand, buyer is entitled to retain the purchase price if
the seller fails to perform any essential obligation of the contract. Such right is premised on the
general principles of reciprocal obligation. xGil v. CA, 411 SCRA 18 (2003).137
Consignation by the buyer of the purchase price of the property, there having been no
previous receipt of a notarial demand for rescission, is sufficient to defeat the right of the seller to
demand for a rescission of the deed of absolute sale. xGil v. CA, 411 SCRA 18 (2003).
When a party asks for the resolution or cancellation of a contract it is implied that he
recognizes it existence – a non-existent contract cannot be cancelled. xPan Pacific Industrial Sales
Co. v. Court of Appeals, 482 SCRA 164 (2006).
Action for Rescission Not Similar to Action for Reconveyance: In sale of real property, seller is
not precluded from going to the court to demand judicial rescission in lieu of a notarial act of
rescission. But such action is different from an action for reconveyance of possession on the thesis
of a prior rescission of the contract covering the property. The effects that flow from an affirmative
judgment in either case would be materially dissimilar in that: (a) judicial resolution gives rise to
mutual restitution which is not necessarily the situation in an action for reconveyance; (b) unlike in
an action for reconveyance predicated on an extrajudicial rescission (rescission by notarial act), in
an action for rescission, the court may authorize for a just cause the fixing of a period. xOlympia
Housing v. Panasiatic Travel Corp., 395 SCRA 298 (2003).

3. Power to Rescind Generally Judicial in Nature – A seller cannot extrajudicially rescind a

contract of sale where there is no express stipulation authorizing it. Unilateral rescission will not be
judicially favored or allowed if the breach is not substantial and fundamental to the fulfillment of the
obligation. xBenito v. Saquitan-Ruiz, 394 SCRA 250 (2002); 138 nonetheless, the law does not
prohibit the parties from entering into agreement that violation of the terms of the contract would
cause cancellation thereof, even without court intervention. xFroilan v. Pan Oriental Shipping Co.,
12 SCRA 276 (1964).139

4. Mutual Restitution and Forfeiture (Art. 1385) – When sale is rescinded, the general rule under
Art. 1398 is for parties to restore to each other the things which have been the subject matter of the
contract, their fruits, and price with interest. xInes v. CA, 247 SCRA 312 (1995).140
HOWEVER: Seller’s right in a contract to sell with reserved title to extrajudicially cancel the sale
upon failure of the buyer to pay the stipulated installments and retain the sums and installments
already received has long been recognized by the well-established doctrine of 39 years standing.
xPangilinan v. Court of Appeals, 279 SCRA 590 (1997).141
Pursuant to Art. 1188, in a contract to sell, even if buyers did not mistakenly make partial
payments, inasmuch as the suspensive condition was not fulfilled, it is only fair and just that buyers
be allowed to recover what they had paid in expectancy that the condition would happen;
otherwise, there would be unjust enrichment on part of seller. xBuot v. CA, 357 SCRA 846 (2001).

B. DISTINCTIONS BETWEEN CONTRACT OF SALE AND CONTRACT TO SELL

1. CONTRACT OF SALE versus CONTRACT TO SELL (Art. 1458)

In a contract of sale, title to the property passes to buyer upon the delivery of the thing sold; in a
contract to sell, ownership is, by agreement, reserved in the seller and is not to pass to buyer until
full payment of purchase price. Otherwise stated, in a contract of sale, seller loses ownership over
the property and cannot recover it until and unless the contract is resolved or rescinded, whereas
in a contract to sell, title is retained by the seller until full payment of the price. In the latter contract,
payment of the price is a positive suspensive condition, failure of which is not a breach but an
event that prevents the obligation of the vendor to convey title from becoming effective. √Adelfa
Properties v. Court of Appeals, 240 SCRA 575 (1995).142

a. Does Contract to Sell Fall under the Definition of “Sale” in Article 1458? – A “Contract to
Sell” as “a bilateral contract whereby the prospective seller, while expressly reserving the

136
Almira v. CA, 399 SCRA 351 (2003).
137
Central Philippine University v. CA, 246 SCRA 511 (1995); Romeo v. CA, 250 SCRA 223 (1995); Cheng v. Genato, 300 SCRA 722 (1998);
Uy v. CA, 314 SCRA 63 (1999).
138
Ocejo, Perez & Co. v. International Banking Corp. 37 Phil. 631 (1918); Republic v. Hospital de San Juan de Dios, 84 Phil. 820 (1949); De
la Rama Steamship Co. v. Tan, G.R. No. 8784, May 21, 1956; 99 Phil. 1034 (unrep.) (1956); Heirs of Jesus M. Mascuñana v. CA, 461 SCRA
186 (2005).
139
Luzon Brokerage Co., v. Maritime Building Co., 43 SCRA 95 (1972); 86 SCRA 305 (1978); Pangilinan v. CA, 279 SCRA 590 (1997);
Calilap-Asmeron v. DBP, 661 SCRA 54 (2011).
140
Velarde v. CA, 361 SCRA 56 (2001); Orden v. Aurea, 562 SCRA 660 (2008).
141
Manila Racing Club v. Manila Jockey Club, 69 Phil. 55 (1939).
142
Lim v. CA, 182 SCRA 564 (1990); Buot v. CA, 357 SCRA 846 (2001); Abesamis v. CA, 361 SCRA 328 (2001); Tuazon v. Garilao, 362
SCRA 654 (2001); Leaño v. CA, 369 SCRA 36 (2001); Universal Robina Sugar Milling Corp. v. Heirs of Angel Teves, 389 SCRA 316 (2002);
Almira v. CA, 399 SCRA 351 (2003); Chua v. CA, 401 SCRA 54 (2002); Flancia v. CA, 457 SCRA 224 (2005); Vidad, Sr. v. Tayamen, 531
SCRA 147 (2007); Hulst v. PR Builders, 532 SCRA 74 (2007); Castillo v. Reyes, 539 SCRA 193 (2007); Heirs of Antonio F. Bernabe v. CA, 559
SCRA 53 (2008); Sta. Lucia Realty & Dev., v. Uyecio, 562 SCRA 226 (2008); Orden v. Aurea, 562 SCRA 660 (2008); Ver Reyes v. Salvador,
Sr., 564 SCRA 456 (2008); Tan v. Benolirao, 604 SCRA36 (2009); Bank of P.I. v. SMP, Inc., 609 SCRA 134 (2009); De Leon v. Ong, 611 SCRA
381 (2010); Montecalvo v. Heirs of Eugenia T. Primero, 624 SCRA 575 (2010).
 34
ownership of the subject property despite delivery thereof to the prospective buyer, binds himself
to sell the said property exclusively to the prospective buyer upon fulfillment of the condition
agreed upon, that is, full payment of the purchase price.” √Coronel v. CA, 263 SCRA 15, 27
(1996).143 BUT SEE: √PNB v. Court of Appeals, 262 SCRA 464 (1996).
To be sure, a contract of sale may either be absolute or conditional. One form of conditional
sales is what is now popularly termed as a “Contract to Sell,” where ownership or title is
retained until the fulfillment of a positive suspensive condition normally the payment of the
purchase price in the manner agreed upon. For a contract, like a contract to sell, involves a
meeting of minds between two persons whereby one binds himself, with respect to the other, to
give something or to render some service. xGomez v. CA, 340 SCRA 720, 728 (2000).144
A Contract to Sell is akin to a conditional sale, in which the efficacy or obligatory force of
the seller’s obligation to transfer title is subordinated to the happening of a future and uncertain
event, so that if the suspensive condition does not take place, the parties would stand as if the
conditional obligation never existed. xOrden v. Aurea, 562 SCRA 660 (2008).145
A Contract to Sell is perfected at the moment there is a meeting of minds upon the thing
which is the object of the contract and upon the price. It undergoes also the three stages of a
contract: negotiation, perfection and consummation. xRobern Dev. Corp. v. People’s Landless
Assn., 693 SCRA 24 (2013).
A contract of sale is defined under Article 1458 of the Civil Code. A contract to sell, on the
other hand, is defined by Article 1479 of the Civil Code: [A] bilateral contract whereby the
prospective seller, while expressly reserving the ownership of the subject property despite
delivery thereof to the prospective seller, while expressly reserving the ownership of the subject
property despite delivery thereof to the prospective buyer, binds himself to sell the said property
exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that is, full
payment of the purchase price. xAkang v. Municipality of Isulan, Sultan Kudarat Province, 699
SCRA 745 (2013).
b. What Is the Difference in Legal Effect Between a “Contract to Sell” and a Conditional
Contract of Sale? – While conditionality inheres in a contract to sell, the same should not be
confused with a conditional contract of sale. In a contract to sell, the fulfillment of the
suspensive condition will not automatically transfer ownership 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. On the other hand, in a
conditional contract of sale, the fulfillment of the suspensive condition renders the sale absolute
and the previous delivery of the property has the effect of automatically transferring the seller’s
owenrship or title to the property to the buyer. xVentura v. Heirs of Spouses Endaya, 706 SCRA
631 (2013).
In contracts of sale, seller loses ownership over the property and cannot recover it until and
unless the contract is resolved or rescinded; in a contract to sell, title is retained by seller until
full payment of the price. xMontecalvo v. Heirs of Eugenia Primero, 624 SCRA 575 (2010).
In a contract to sell, the prospective seller explicitly reserves the transfer of title to the
prospective buyer, meaning, the prospective seller does not as yet agree or consent to transfer
ownership of the property subject of the contract to sell until the happening of an event, which
for present purposes we shall take as the full payment of the purchase price. xRepublic v.
Marawi-Marantao General Hospital, 686 SCRA 546 (2012).
A contract to sell is defined as a bilateral contract whereby the prospective seller, while
expressly reserving the ownership of the subject property despite delivery thereof to the
prospective buyer, binds himself to sell the said property exclusively to the latter upon his
fulfillment of the conditions agreed upon, i.e., the full payment of the purchase price and/or
compliance with the other obligations stated in the contract to sell. Given its contingent nature,
the failure of the prospective buyer to make full payment and/or abide by his commitments
stated in the contract to sell prevents the obligation of the prospective seller to execute the
corresponding deed of sale to effect the transfer of ownership to the buyer form arising.
xVentura v. Heirs of Spouses Endaya, 706 SCRA 631 (2013).146
c. Importance of “Locating” the Condition Placed on the Obligation to Pay Price in Full – In a
contract of sale, the non-payment of the price is a resolutory condition which extinguishes the
transaction that, for a time existed, and discharges the obligations created thereunder. xBlas v.
Angeles-Hutalla, 439 SCRA 273 (2004). 147 Whereas, in a contract to sell, the payment of the
purchase price is a positive suspensive condition, and seller’s obligation to convey the title does
not become effective in case of failure to pay. xBuot v. CA, 357 SCRA 846 (2001).148
When buyer’s obligation to pay the the purchase price was made subject to the condition
that seller first delivers clean title over the parcel bough within 20 months from the signing of the
contract, such condition is imposed merely on the performance of the obligation, as
143
Platinum Plans Phil. v. Cucueco, 488 SCRA 156 (2006); Valenzuela v. Kalayaan Dev. and Industrial Corp., 590 SCRA 380 (2009);Tan v.
Benolirao, 604 SCRA 36 (2009);
144
Demafelis v. CA, 538 SCRA 305 (2007).
145
De Leon v. De Leon, 593 SCRA 768 (2009).
146
Luzon Dev. Bank v. Enriquez, 639 SCRA 332 (2011); Associated Marine Officers and Seamen’s Union PTGWO-ITF v. Decena, 683 SCRA
308 (2012);Tumibay v. Lopez, 697 SCRA 21 (2013).
147
Valenzuela v. Kalayaan Dev’t and Ind’l Corp., 590 SCRA 380 (2009); Traders Royal Bank v. Cuison Lumber Co., 588 SCRA 690 (2009).
148
Heirs of Spouses Sandejas v. Lina, 351 SCRA 183 (2001); Zamora Realty and Dev. Corp v. Office of the President, 506 SCRA 591
(2006); Nabus v. Pacson, 605 SCRA 334 (2009); Union Bank v. Maunlad Homes, 678 SCRA 539 (2012).
 35
distinguished from a condition imposed on the perfection of the contract. The non-happening of
the condition merely granted the buyer the right to rescind the contract or even to waive it and
enforce performance on the part of the seller, all in consonance with Art. 1545 of Civil Code
which provides that “Where the obligation of either party to a contract of sale is subject to any
condition which is not performed, such party may refuse to proceed with the contract or he may
waive performance of the condition.” √Babasa v. CA, 290 SCRA 532 (1998).
Rationale for Contracts to Sell: A contract to sell is commonly entered into so as to protect
the seller against a buyer who intends to buy the property in installments by withholding
ownership over the property until the buyer effects full payment therefor. It cannot be inferred in
a situation where both parties understood the price to be paid in cash. xCity of Cebu v. Heirs of
Candido Rubi, 306 SCRA 408 (1999).149
Remedy of Rescission Does Not Apply to Contracts to Sell: The remedy of rescission under
Article 1191 of the Civil Code cannot apply to mere contracts to sell—in a contract to sell, the
payment of the purchase price is a positive suspensive condition, and failure to pay the price
agreed upon is not a mere breach, casual or serious, but a situation that prevents the obligation
of the vendor to convey title from acquiring an obligatory force. xTan v. Benolirao, 604 SCRA 36
(2009).150
In a contract to sell, payment of the price is a positive suspensive condition, failure of which
is not a breach of contract warranting rescission under Article 1191 of the Civil Code but rather
just an event that prevents the supposes seller from being bound to convey title to the supposed
buyer. xBonrostro v. Luna, 702 SCRA 1 (2013).
In a contract to sell, the seller’s obligation to deliver the corresponding certificates of title is
simultaneous and reciprocal to the buyer’s full payment of the purchase price. xGotesco
Properties v. Fajardo, 692 SCRA 319 (2013).

d. Essential Stipulations to Constitute a Contract to Sell – A contract is one of sale, absent any
stipulation therein (a) reserving title over the property to the vendee until full payment of the
purchase price,151 and (b) giving the vendor the right to unilaterally rescind the contract in case
of non-payment.152 √Valdez v. CA, 439 SCRA 55 (2004); De Leon v. Ong, 611 SCRA 381
(2010);153 BUT SEE: √Dignos v. CA, 158 SCRA 375 (1988). CONSEQUENTLY:
 It was enough to characterize the Deed of Condition Sale as a “contract to sell” alone by
the reservation of ownership. xHeirs of Antonio F. Bernabe v. CA, 559 SCRA 53 (2008).
 Reservation of title may not be found in express provision of the contract, but may also be
determined from proven acts of the parties. xSalazar v. CA, 258 SCRA 325 (1996).
 Absence of a formal deed of conveyance [or a stipulation to execute the deed of sale only
full payment of the purchase price] is a strong indication that parties did not intend
immediate transfer of ownership, but only a transfer after full payment of purchase price, 154
especially where seller retained possession of the certificate of tile and all other documents
relative to the sale until there was full payment of the price. xChua v. Court of Appeals, 401
SCRA 54 (2003).
 An agreement in which ownership is reserved in the seller and is not to pass to the buyer
until full payment of the purchase price is known as a contract to sell. The absence of full
payment suspends the seller’s obligation to convey title, even if the sale has already been
registered. Registration does not vest, but merely serves as evidence of, title to a particular
property. xPortic v. Cristobal, 456 SCRA 577 (2005).155
 It is not the title of the contract, but its express terms or stipulations that determine the kind
of contract entered into by the parties. Where seller promises to execute a deed of absolute
sale upon the completion by buyer of the payment of the price, which shows that seller
reserved title to the property until full payment of the purchase price, the contract is only a
contract to sell. xNabus v. Pacson, 605 SCRA 334 (2009).156
e. Substantial Breach (Arts. 1191 and 1234) – Concept of substantial breach is irrelevant in
contracts to sell. xLuzon Brokerage Co. v. Maritime Building Co., 43 SCRA 93 (1972).157
In a contract to sell real property on installments, the full payment of the purchase price is a
positive condition, the failure of which is not considered a breach, casual or serious, but simply
an event that prevented the obligation of the vendor to convey title from acquiring any obligatory

149
Montecalvo v. Heirs of Eugenia T. Primero, 624 SCRA 575 (2010); Tumibay v. Lopez, 697 SCRA 21 (2013).
150
Traders Royal Bank v. Cuison Lumber Co., 588 SCRA 690 (2009); Nabus v. Pacson, 605 SCRA 334 (2009); Diego v. Diego, 691 SCRA
361 (2013).
151
Topacio v. CA, 211 SCRA 219 (1992); Laforteza v. Machuca, 333 SCRA 643 (2000); Almira v. CA, 399 SCRA351 (2003); Manuel Uy &
Sons v. Valbueco, Inc., 705 SCRA 537 (2013); Reyes v. Tuparan, 650 SCRA 238 (2011).
152
Roque v. Lapuz, 96 SCRA 741 (1980); Angeles v. Calanz, 135 SCRA 323 (1985); Alfonso v. CA, 186 SCRA 400 (1990)
153
San Andres v. Rodriguez, 332 SCRA 769 (2000); Vda. De Mistica v. Naguiat, 418 SCRA 73 (2003); Blas v. Angeles-Hutalla, 439 SCRA
273 (2004); Villadar, Jr. V. Zabala, 545 SCRA 325 (2008); Heirs of Antonio F. Bernabe v. CA, 559 SCRA 53 (2008); Ver Reyes v. Salvador, Sr.,
564 SCRA 456 (2008).
154
Bowe v. CA, 220 SCRA 158 (1993); Rayos v. CA, 434 SCRA 365 (2004); Solidstate Multi-Products Corp. v. Catienza-Villaverde, 559
SCRA 197 (2008); Tan v. Benolirao, 604 SCRA 36 (2009); Nabus v. Pacson, 605 SCRA 334 (2009).
155
Antonio F. Bernabe v. CA, 559 SCRA 53 (2008); Bank of P.I. v. SMP, Inc., 609 SCRA 134 (2009).
156
Heirs of Antonio F. Bernabe v. CA, 559 SCRA 53 (2008); Solidstate Multi-Products Corp. v. Catienza-Villaverde, 559 SCRA 197 (2008)Tan
v. Benolirao, 604 SCRA 36 (2009); Nabus v. Pacson, 605 SCRA 334 (2009); Union Bank v. Maunlad Homes, 678 SCRA 539 (2012); Diego v.
Diego, 691 SCRA 361 (2013).
157
Siska Dev. Corp. v. Office of the President, 231 SCRA 674 (1994); Sta. Lucia Realty & Dev. v. Uyecio, 562 SCRA 226 (2008).
 36
force. The transfer of ownership and title would occur after full payment of the price. xLeaño v.
Court of Appeals, 369 SCRA 36 (2001).158

2. Minimum Requirement for Cancellation of Contracts to Sell

The act of a party in treating a contract as cancelled should be made known to the other party
because this act is subject to scrutiny and review of the courts in case the alleged defaulter bring
the matter for judicial determination. √University of the Philippines v. De los Angeles, 35 SCRA
103 (1970); √Palay Inc. v. Clave, 124 SCRA 638 (1983).159
√ BUT SEE: In a contract to sell, upon failure of buyer to comply with its obligation, there was
no need to judicially rescind the contract to sell. Failure by one of the parties to abide by the
conditions in a contract to sell resulted in the rescission of the contract. √AFP Mutual Benefit
Assn. v. CA, 364 SCRA 768 (2001).160
The notice of termination of a Contract to Sell may take any of the following forms:
 Act of the seller in notifying the buyer of his intention to sell the properties to other interested
persons if the latter failed to pay the balance of the purchase price is sufficient notice for the
cancellation or resolution of their contract to sell. xOrden v. Aurea, 562 SCRA 660 (2008).
 If mere nonpayment is enough to cancel a contract to sell, the letter given to petitioner’s lawyer
is also an acceptable form of rescinding the contract. The law does not require notarization for a
letter to rescind a contract to sell immovable. Notarization is only required if a contract of sale is
being rescinded. Cabrera v. xYsaac, 740 SCRA 612 (2014).

3. Equity Resolutions on Contracts to Sell

Although buyer clearly defaulted in his installment payments in a contract to sell covering two
parcels of land, he should nevertheless be awarded ownership over one of the two (2) lots jointly
purchased by the buyer, on the basis that the total amount of installments paid, although not
enough to cover the purchase price of the two lots were enough to cover fully the purchase price of
one lot, ruling there was substantial performance insofar as one of the lots concerned as to prevent
rescission thereto. xLegarda Hermanos v. Saldaña, 55 SCRA 3246 (1974).
Where buyer had religiously been paying monthly installments for 8 years, but even after
default he was willing and had offered to pay all the arrears, on the basis of equity he shall be
granted additional period of 60 days from receipt of judgment to make all installments payments in
arrears plus interests, although demand for rescission had already been made. xJ.M. Tuazon Co.
v. Javier, 31 SCRA 829 (1970).

XII. CONDITIONS AND WARRANTIES

1. Conditions (Art. 1545)
Failure to comply with condition imposed upon perfection of the contract results in failure of a
contract, while the failure to comply with a condition imposed on the performance of an obligation
only gives the other party the option either to refuse to proceed with sale or waive the condition.
√Laforteza v. Machuca, 333 SCRA 643 (2000).161
In a “Sale with Assumption of Mortgage,” assumption of mortgage is a condition to the seller’s
consent so that without approval by the mortgagee, no sale is perfected. In such case, the seller
remains the owner and mortgagor of the property and retains the right to redeem the foreclosed
property, xRamos v. CA, 279 SCRA 118 (1997);162 however, such condition is deemed fulfilled when
the seller takes any action to prevent its happening, xDe Leon v. Ong, 611 SCRA 381 (2010).
There has arisen a confusion in the concepts of “validity” and “efficacy” of a contract. Under
Art. 1318, absence any of the essential requisites of a contract (i.e., consent of the parties, object
certain which is the subject matter, and cause of the obligation), then no contract arises.
Conversely, where all are present, the result is a valid contract. However, some parties introduce
various kinds of restrictions or modalities, the lack of which will not, however, affect the validity of
the contract. A provision “this Contract of Sale of rights, interests and participations shall become
effective only upon the approval by the Honorable Court,” in the event of non-approval by the
courts, affect only the effectivity and not the validity of the contract of sale. √Heirs of Pedro
Escanlar v. Court of Appeals, 281 SCRA 176 (1997).
The condition in the contract of sale of buyer’s assumption of the mortgage constituted on the
subject matter is deemed fulfilled when the seller prevented its fulfillment by paying his outstanding
obligation to the bank and taking back the certificates of title without even notifying the buyer. xDe
Leon v. Ong, 611 SCRA 381 (2010).
158
Manuel v. Rodriguez, 109 Phil. 1 (1960); Laforteza v. Machuca, 333 SCRA 643 (2000); Villamaria, Jr. v. CA, 487 SCRA 571 (2006);
Valenzuela v. Kalayaan Dev. and Industrial Corp. 590 SCRA 380 (2009).
159
Jison v. CA, 164 SCRA 339 (1988); Lim v. CA, 182 SCRA 564 (1990); Lim v. CA, 182 SCRA 564 (1990); Cheng v. Genato, 300 SCRA 722
(1998); Toledo v. CA, 765 SCRA 104 (2015).
160
Torralba v. Delos Angeles, 96 SCRA 69 (1980).
161
Romero v. CA, 250 SCRA 223 (1995); Adalin v. CA, 280 SCRA 536 (1997); Republic v. Florendo, 549 SCRA 527 (2008).
162
Biñan Steel Corp. v. CA, 391 SCRA 90 (2002).
 37
2. Conditions versus Warranties. √Power Commercial and Industrial Corp. v. Court of
Appeals, 274 SCRA 597 (1997).

3. Express Warranties (Art. 1546)

A warranty is a statement or representation made by the seller of goods, contemporaneously
and as part of the contract of sale, having reference to the character, quality or title of the goods,
and by which he promises or undertakes to insure that certain facts are or shall be as he then
represents them. xAng v. CA, 567 SCRA 53 (2008).
A warranty is an affirmation of fact or any promise made by a vendor in relation to the thing
sold. The decisive test is whether the vendor assumes to assert a fact of which the vendee is
ignorant. xGoodyear Philippines v. Sy, 474 SCRA 427 (2005).
Seller’s Talk: “The law allows considerable latitude to seller’s statements or dealer’s talk, and
experience teaches that it is exceedingly risky to accept it at face value. Assertions concerning the
subject of a contract of sale, or in regard to its qualities and characteristics, are the usual and
ordinary means used by sellers to obtain a high price and are always understood as affording to
buyers no ground for omitting to make inquiries. A man who relies upon such an affirmation made
by a person whose interest might so readily prompt him to exaggerate the value of his property
does so as his peril, and must take the consequences of his own imprudence.” xSongco v. Sellner,
37 Phil. 254 (1917).
Caveat emptor only requires the purchaser to exercise care and attention ordinarily exercised
by prudent men in like business affairs, and only applies to defects which are open and patent to
the service of one exercising such care. It can only be applied where it is shown or conceded that
the parties stand on equal footing and have equal knowledge or equal means of knowledge and
there is no relation of trust or confidence between them. It does not apply to a representation that
amounts to a warranty by the seller and the situation requires the buyer to rely upon such promise
or affirmation. √Guinhawa v. People, 468 SCRA 278 (2005).163
Breach of an express warranty makes seller liable for damages. The following requisites
essential to establish an express warranty: (1) it must be an affirmation of fact or any promise by
the seller relating to the subject matter of the sale; (2) natural tendency of such affirmation or
promise is to induce the buyer to purchase the thing; and (3) buyer purchases the thing relying on
such affirmation or promise thereon. xCarrascoso, Jr. v. Court of Appeals, 477 SCRA 666 (2005).

4. Implied Warranties (Art. 1547)

a. Seller Has Right to Sell
b. Warranty Against Eviction (Arts. 1548-1560) – Seller must be summoned in the suit for
eviction at the instance of the buyer (Art. 1558), and be made a co-defendant (or made a third-
party defendant (Art. 1559). xEscaler v. Court of Appeals, 138 SCRA 1 (1985).164
A dacion en pago is governed by the law of sales, and contracts of sale come with
warranties, either express (if explicitly stipulated by the parties) or implied (under Article 1547 et
seq. of the Civil Code). The implied warranty in case of eviction is waivable and cannot be
invoked if the buyer knew of the risks or danger of eviction and assumed its consequences.
xLuzon Dev. Bank v. Enriquez, 639 SCRA 332 (2011).
No Warranty Against Eviction When Execution Sale: In voluntary sales, vendor can be
expected to defend his title because of his warranty to the vendees but no such obligation is
owed by the owner whose land is sold at execution sale. xSantiago Land Dev. Corp. v. CA, 276
SCRA 674 (1997). BUT SEE: Art. 1552.
The seller, in declaring that he owned and had clean title to the vehicle, gave an implied
warranty of title, and in pledging that he “will defend the same from all claims or any claim
whatsoever [and] will save the vendee from any suit by the government of the Republic of the
Philippines,” he gave a warranty against eviction, and the prescriptive period to file a breach
thereof is six months after the delivery of the vehicle. √Ang v. CA, 567 SCRA 53 (2008).
c. Warranty Against Non-Apparent Servitudes (Arts. 1560)
d. Warranty Against Hidden Defects (Arts. 1561, 1566-1580)
Stipulation in a lease with option to purchase (treated as a sale of movable on installments)
that buyer-lessee “absolutely releases the lessor from any liability whatsoever as to any and all
matters in relation to warranty in accordance with the provisions hereinafter stipulated,” is an
express waiver of warranty against hidden defect in favor of seller-lessor who is absolved from
any liability arising from any defect or deficiency of the machinery sold. xFilinvest Credit Corp. v.
CA, 178 SCRA 188 (1989).
A hidden defect is unknown or could not have been known to the buyer. Requisites to
recover on account of hidden defects are: 1. Defect must: (a) be hidden; (b) exist at perfection of
contract; (c) ordinarily have been excluded from the contract; and (d) be important to render the
thing unfit or considerably decreases fitness; and 2. Action must be instituted within the statute
of limitations. √Nutrimix Feeds Corp. v. Court of Appeals, 441 SCRA 357 (2004).165

163
Oro Land Realty Dev. Corp. v. Claunan, 516 SCRA 681 (2007)
164
Canizares Tiana v. Torrejos, 21 Phil. 127 (1911); J.M. Tuazon v. CA, 94 SCRA 413 (1979).
165
Investments & Dev’t, Inc. v. CA, 162 SCRA 636 [1988]).
 38
Seller’s agent can by agreement be liable for the warranty against hidden defects. xSchmid
and Oberly, Inc. v. RJL Martinez, 166 SCRA 493 (1988).
e. Warranty as to Fitness or Quality of Goods (Arts. 1562, 1565, 1599)
In order to enforce the implied warranty that the goods are reasonably fit and suitable to be
used for the purpose which both parties contemplated, the following must be established: (a)
that the buyer sustained injury because of the product; (b) that the injury occurred because the
product was defective or unreasonably unsafe; and finally (c) the defect existed when the
product left the hands of the petitioner. √Nutrimix Feeds Corp. v. CA, 441 SCRA 357 (2004).
A manufacturer or seller of a product cannot be held liable for any damage allegedly
caused by the product in the absence of any proof that the product in question is defective,
which was present upon the delivery or manufacture of the product; or when the product left the
seller’s or manufacturer’s control; or when the product was sold to the purchaser; or the product
must have reached the user or consumer without substantial change in the condition it was
sold. √Nutrimix Feeds Corp. v. Court of Appeals, 441 SCRA 357 (2004).
f. Sale of Goods by Sample (Art. 1565)
There is a sale by sample when a small quantity is exhibited by the seller as a fair
specimen of the bulk, which is not present and there is no opportunity to inspect or examine the
same. To constitute a sale by sample, it must appear that the parties treated the sample as the
standard of quality and that they contracted with reference to the sample with the understanding
that the product to be delivered would correspondent with the sample. In a contract of sale by
sample, there is an implied warranty that the goods shall be free from any defect which is not
apparent on reasonable examination of the sample and which would render the goods
unmerchantable. xMendoza v. David, 441 SCRA 172 (2004).
g. Additional Warranties for Consumer Products (Arts. 68, Consumer Act, R.A. 7394).

5. Effects and Prescription of Warranties (Art. 1599)

A breach in the warranties of the seller entitles the buyer to a proportionate reduction of the
purchase price. xPNB v. Mega Prime Realty and Holding Corp., 567 SCRA 633 (2008).
The prescriptive period for instituting actions based on a breach of express warranty is that
specified in the contract, and in the absence of such period, the general rule on rescission of
contract, which is 4 years, while for actions based on breach of implied warranty, the prescriptive
period is 6 months from the date of the delivery of the thing sold. xAng v. Court of Appeals, 567
SCRA 53 (2008).

6. Effects of Waivers
The phrase “as is, where is” basis pertains solely to the physical condition of the thing sold,
not to its legal situation. THUS:
 The US tax liabilities constitute a potential lien which applies to the subject’s matter’s legal
situation, not to its physical aspect; thus, the buyer has no obligation to shoulder the same.
xNDC v. Madrigal Wan Hui Lines Corp., 412 SCRA 375 (2003).
 “As Is, Where Is” basis merely describes the actual state and location of the subject matter
sold, but does not relieve the seller of his primary obligation and implied warranty to deliver
the object to the buyer. xAPT v. T.J. Enterprises, 587 SCRA 481 (2009).

7. Buyer’s Options in Case of Breach of Warranty (Art. 1599)

The remedy for breach of warranty against hidden defects is either to withdraw from the
contract (accion redhibitoria) or to demand a proportionate reduction of the price (accion quanti
minoris), with damages in either case. √Nutrimix Feeds Corp. v. CA, 441 SCRA 357 (2004).

XIII. EXTINGUISHMENT OF THE CONTRACT OF SALE

A. IN GENERAL (Arts. 1231 and 1600)

B. CONVENTIONAL REDEMPTION (SALE A RETRO)

1. Definition (Art. 1601)
Right to repurchase must be constituted as part of a valid sale at perfection. xVillarica v. CA, 26
SCRA 189 (1968).166
An agreement to repurchase becomes a promise to sell when made after the sale because
when the sale is made without such agreement the purchases acquires the things sold absolutely;
and, if he afterwards grants the vendor the right to repurchase, it is a new contract entered into by
the purchases as absolute owner. √Roberts v. Papio, 515 SCRA 346 (2007).167
In sales pacto de retro, the price agreed upon should not generally be considered as the just
value of the thing sold, absent other corroborative evidence—there is no requirement in sales that

166
Claravall v. CA, 190 SCRA 439 (1990); Torres v. CA, 216 SCRA 287 (1992); Roberts v. Papio, 515 SCRA 346 (2007).
167
Ramos v. Icasiano, 51 Phil (1927).
 39
the price be equal to the exact value of the thing subject matter of the sale. xDorado Vda. De
Delfin v. Dellota, 542 SCRA 397 (2008).

2. Redemption Period (Art. 1606) – In a sale a retro where it is stipulated that:

 the redemption shall not be made within 3 years from the date of the sale, and nothing is
stipulated on the period that redemption can be made, its duration shall be 7 years from the
date of the contract. xRosales v. Reyes and Ordoveza, 25 Phil. 495 (1913).
 the repurchase could not be effected until 10 years from the date of the sale, such stipulation
is void under Article 1606, and the repurchase must be made within 10 years from the date
of the sale; otherwise, ownership is consolidated in the buyer a retro. Santos v. Heirs of
Crisostomo and Tiongson, 41 Phil. 342 (1921).
 the seller can repurchase the thing sold “until he or his heirs, has the means,” the right to
repurchase may be exercised only within 10 years from the execution of the contract. The
nullity of the stipulation as to the redemption period does not affect the validity of the sale,
because said stipulation is accidental to the sale and may or may not be adopted, at will, by
the parties. xAlojado v. Lim Siongco, 51 Phil. 339 (1927).
 the seller reserves the right to repurchase the thing sold “when he might have an earthen jar
factory” does not stipulate a period for the repurchase; consequently, the repurchase should
be made in 4 yeas, not 10 years. xMedel v. Francisco, 51 Phil. 367 (1928).
 the seller reserves the right to repurchase the land sold to the school upon the occurrence of
either of two suspensive conditions: (i) the cessation of existence of the school; or (ii) the
transfer of the school to another site, there is no stipulation as to period; consequently, the
period of redemption shall be deemed to be 4 years, but not from the execution of the
contract of sale, but from the happening of the conditions, √Misterio v. Cebu State College
of Science and Technology, 461 SCRA 122 (2005); but in either of the two conditions shall
the right of redemption be exerciseable more than 10 years from the date of the execution of
the sale. √Cebu State College of Science and Technology, 759 SCRA 1 (2015).
a. Does the Filing of a Case Toll the Running of the Redemption Period?
The pendency of an action brought in good faith and relating to the validity of a sale with
pacto de retro tolls or suspends the term for the right of redemption: “Neither was it error on the
part of the court to hold that the pendency of the ation tolled the term for the right to redemption;
that is an old and well established rule.” √Ong Chua v. Carr, 53 Phil. 975 (1928).
The redemption period is not suspended merely because there is a divergence of opinion
between the parties as to the precise meaning of the phrase providing for the condition upon
which the right to repurchase is triggered. The existence of seller a retro’s right to repurchase
the proper is not dependent upon the prior final interpretation by the court of the said phrase.
√Misterio v. Cebu State College of Science and Technology, 461 SCRA 122 (2005).

3. Situation Prior to Redemption (Art. 1606)

In a sale a retro, the buyer has a right to the immediate possession of the property sold, unless
otherwise agreed upon, since title and ownership of the property sold are immediately vested in the
buyer a retro, subject only to the resolutory condition of repurchase by the seller a retro within the
stipulated period. xVda. de Rigonan v. Derecho, 463 SCRA 627 (2005).168

4. Who Can Exercise Right of Redemption? (Arts. 1611 to 1614)

When seller a retro dies, the right to redeem cannot be exercised by a co-heir alone, since the
right belonged in common to all the co-heirs as co-owners of the conventional right of redemption
so inherited. xDe Guzman v. CA, 148 SCRA 75 (1987)
When the seller a retro dies, his heirs become co-owners of the conventional right of
redemption, and each heir may exercise the right to repurchase only with respect to his share
alone. Where a co-owner/co-heir redeems the entire property for his own account, he is deemed to
have done so for the benefit of all his co-owners and entitled to be reimbursed for the expenses
incurred. Adille v Court of Appeals, 157 SCRA 455 (1988).169

5. How Is Redemption Effected? (Art. 1616)

In order to exercise the right to redeem, only tender of payment is sufficient xLegaspi v. Court of
Appeals, 142 SCRA 82 1986); consignation is not required after tender is refused xMariano v.
Court of Appeals, 222 SCRA 736 (1993). BUT: When tender not possible, consignation should be
made xCatangcatang v. Legayada, 84 SCRA 51 (1978).
A formal offer to redeem accompanied by a tender of redemption price is not essential where
the right is exercised through a judicial action within the redemption period and simultaneously
depositing the redemption price. xLee Chuy Realty Corp. v. CA, 250 SCRA 596 (1995).170

6. Redemption Price (Art. 1616)

168
Reyes v. Hamada, 14 SCRA 215 (1965); Solid Homes v. CA, 275 SCRA 267 (1997); Misterio v. Cebu State College of Science and
Technology, 461 SCRA 122 (2005); Cadungog v. Yap, 469 SCRA 561 (2005); Ramos v. Dizon, 498 SCRA 17 (2006); Lumayag v. Heirs of
Jacinto Nemeño, 526 SCRA 51 (2007).
169
170
Villegas v. CA, 499 SCRA 276 (2006).
 40
A stipulation in a sale a retro requiring as part of the redemption price interest for the cost of
money, is not in contravention with Art. 1616, since the provision is not restrictive nor exclusive,
and does not bar additional amounts that the parties may agree upon, since the article itself
provides “and other stipulations which may have been agreed upon.” xSolid Homes v. CA, 275
SCRA 267 (1997).
Article 448 on the rights of a builder in good faith is inapplicable in contracts of sale with right of
repurchase—where true owner himself is the builder of the works on his own land, the issue of
good faith or bad faith is entirely irrelevant. The right to repurchase may be exercised only by the
vendor in whom the right is recognized by contract or by any person to whom the right may have
been transferred. In a sale with right of repurchase, the applicable provisions are Articles 1606 and
1616 of the Civil Code, and not Article 448. xNarvaez v. Alciso, 594 SCRA 60 (2009).

7. Fruits (Art. 1617) – Article 1617 on the disposition of fruits of property redeemed applies only
when the parties failed to provide a sharing arrangement thereof; otherwise, the parties contractual
stipulations prevail. xAlmeda v. Daluro, 79 SCRA 327 (1977).

8. Effect When No Redemption Made (Art. 1607): CONSOLIDATION OF TITLE IN THE BUYER
Article 1607 abolished automatic consolidation of ownership in the vendee a retro upon
expiration of the redemption period by requiring buyer to institute an action for consolidation where
seller a retro may be duly heard. If buyer succeeds in proving that the transaction was indeed a
pacto de retro, the vendor is still given a period of 30 days from the finality of the judgment within
which to repurchase the property. xSolid Homes v. CA, 275 SCRA 267 (1997).
Once vendor fails to redeem the property within the stipulated period, irrevocable title shall be
vested in the vendee by operation of law. xVda. de Rigonan v. Derecho, 463 SCRA 627 (2005).
Under a sale a retro, failure of buyer to consolidate title under Art. 1607 does not impair such
title and ownership because the method prescribed thereunder is merely for purpose of registering
and consolidating titles to the property. In fact, failure of a seller a retro to exercise the redemption
right within the period agreed upon or provided for by law, vests upon the buyer a retro absolute
title and ownership over the property sold by operation of law. Consequently, after the effect of
consolidation, the mortgage or re-sale by the seller a retro of the same property would not transfer
title and ownership to the mortgagee or buyer, as the case may be, under the Latin maxim NEMO
DAT QUOD NON HABET. xCadungog v. Yap, 469 SCRA 561 (2005).

9. EQUITABLE MORTGAGE (Arts. 1602-1604)

It is a fact that in time of grave financial distress which render persons hard-pressed to meet
even their basic needs or answer an emergency, such persons would have no choice but to sign a
deed of absolute sale of property or a sale thereof with pacto de retro if only to obtain a much-
needed loan from unscrupulous money lenders. xMatanguihan v. CA, 275 SCRA 380 (1997).171
Parol evidence is competent and admissible in support of the allegations that an instrument
purporting on its face to transfer the absolute title to property, or to transfer the title with a right to
repurchase under specified conditions reserved to the seller, was in truth and in fact given merely
as security for the repayment of a loan. xMariano v. CA, 220 SCRA 716 (1993).172
Equitable mortgage favors the least transmission of rights and interest over a property in
controversy, since the law seeks to prevent circumvention of the law on usury and the prohibition
against pactum commissorium provisions.173 Additionally, it is aimed to end unjust or oppressive
transactions or violations in connection with a sale or property. The wisdom of these provisions
cannot be doubted, considering many cases of unlettered persons or even those with average
intelligence invariably finding themselves in no position whatsoever to bargain fairly with their
creditors. xSpouses Miseña v. Rongavilla, 303 SCRA 749 (1999).174
An equitable mortgage is defined as one although lacking in some formality, or form or words, or
other requisites demanded by a statute, nevertheless reveals the parties’ intention to charge real
property as security for a debt, and contains nothing impossible or contrary to law. For equitable
mortgage to arise, two requisites must concur: (1) that the parties entered into a contract
denominated as a sale; and (2) the intention was to secure an existing debt by way of mortgage.
xRaymundo v. Bandong, 526 SCRA 514 (2007).175
This kind of arrangement, where the ownership of the land is supposedly transferred to the
buyer who provides for the funds to redeem the property from the bank but nonetheless allows the
seller to later on buy back the properties, is in the nature of an equitable mortgage governed by
Arts. 1602 and 1604 of the Civil Code. xBacungan v. CA, 574 SCRA 642 (2008).
Sales with rights of repurchase are not favored. Courts will not construe instruments to be sales
with a right to repurchase, with the stringent and onerous effects which follow, unless the terms of

171
Salonga v. Concepcion, 470 SCRA 291 (2005).
172
Lim v. Calaguas, 45 O.G. No. 8, p. 3394 (1948); Cuyugan v. Santos, 34 Phil. 100 (1916); Matanguihan v. CA, 275 SCRA 380 (1997);
Hilado v. Heirs of Rafael Medlla, 37 SCRA 257 (2002); Madrigal v. CA, 456 SCRA 659 (2005); Legaspi v. Ong, 459 SCRA 122 (2005); Banga v.
Bello, 471 SCRA 653 (2005); Diño v. Jardines, 481 SCRA 226 (2006); Ayson, Jr. v. Paragas, 557 SCRA 50 (2008).
173
Heirs of Jose Reyes, Jr. v. Reyes, 626 SCRA 758 (2010).
174
Lao v. CA, 275 SCRA 237 (1997).
175
Ceballos v. Intestate Estate of the Late Emigdio Mercado, 430 SCRA 323 (2004); Alvaro v. Ternida, 479 SCRA 288 (2006); Cirelos v.
Hernandez, 490 SCRA 624 (2006); Lumayag v. Heirs of Jacinto Nemeño, 526 SCRA 51 (2007); Olivares v. Sarmiento, 554 SCRA 384 (2008);
Tio v. Abayata, 556 SCRA 175 (2008); Deheza-Inamarga v. Alano, 574 SCRA 651 (2008); Rockville Excel Int’l Exim Corp. v. Culla, 602 SCRA
124 (2009); Kings Properties Corp. v. Galido, 606 SCRA 137 (2009); Muñoz, Jr. v. Ramirez, 629 SCRA 38 (2010); Martires v. Chua, 694 SCRA
38 (2013); Heirs of Soliva v. Soliva, 757 SCRA 26 (2015).
 41
the document and the surrounding circumstances require it. Whenever, any other construction can
fairly and reasonably be made, such construction will be adopted and the contract will be construed
as a mere loan unless the court can see that, if enforced according to its terms, it is not an
unconscionable one. xBautista v. Unangst, 557 SCRA 256 (2008).176
The decisive factor in evaluating whether an agreement is an equitable mortgage is the
intention of the parties, as shown not necessarily by the terminology used in the contract but by all
the surrounding circumstances, such as the relative situation of the parties at that time, the attitude,
acts, conduct, declarations of the parties, the negotiations between them leading to the deed, and
generally, all pertinent facts having a tendency to fix and determine the real nature of their design
and understanding. xBanga v. Bello, 471 SCRA 653 (2005).177
Consequently, the non-payment of the debt when due gives the mortgagee the right to foreclose
the mortgage, sell the property and apply the proceeds of the sale for the satisfaction of the loan
obligation. While there is no single test to determine whether the deed of absolute sale on its face
is really a simple loan accommodation secured by a mortgage, Art. 1602 of the Civil Code,
however, enumerates several instances when a contract is presumed to be an equitable mortgage.
xHeirs of Dela Rosa v. Batongbacal, 731 SCRA 263 (2014).178
a. Badges of Equitable Mortgage under Art. 1602179 – A sale a retro actually intended to secure
the payment of an obligation is presumed an equitable mortgage. xRomulo v. Layug, Jr., 501
SCRA262 (2006);180 such presumption of equitable mortgage applies also to a contract
purporting to be an absolute sale. xTuazon v. CA, 341 SCRA 707 (2000).181
The presence of only one Art. 1602 circumstance is sufficient for a contract of sale a retro to
be presumed an equitable mortgage. xHilado v. Medalla 377 SCRA 257 (2002).182
When doubt exists as to the true nature of the transaction purporting to be a sale, courts
must construe it as an equitable mortgage, as the latter involves a lesser transmission of rights
and interest over the property. Solitarios v. Jaque, 740 SCRA 226 (2014).
The presumption in Art. 1602 jibes with the rule that the law favors the least transmission of
property rights. xEnriquez, Sr. v. Heirs of Spouses Baldonado, 498 SCRA 365 (2006); but it is
not conclusive, for it may be rebutted by competent and satisfactory proof to the contrary.
xSantiago v. Dizon, 543 SCRA 402 (2008).
A contract purporting to be an absolute sale is presumed to be an equitable mortgage: (a)
when the price of the sale is unusually inadequate; 183 (b) when the vendor remains in
possession as lessee or otherwise;184 (c) when after the expiration of the right of repurchase, it is
extended by the buyer. xHilado v. Heirs of Rafael Medalla, 37 SCRA 257 (2002);185 (d) when the
purported seller continues to collect rentals from the lessees of the property sold. Ramos v.
Dizon, 498 SCRA 17 (2006); (e) when the purported seller was in desperate financial situation
when he executed the purported sale. xBautista v. Unangst, 557 SCRA 256 (2008); or under
threat of being sued criminally. xAyson, Jr. V. Paragas, 557 SCRA 50 (2008).
Payment of real estate taxes is a usual burden attached to ownership, and when such
payment is coupled with continuous possession of the property, it constitutes evidence of great
weight that a person under whose name the realty taxes were declared has a valid and right
claim over the land. xGo v. Bacaron, 472 SCRA 229 (2005).186
The fact that the price in a pacto de retro sale is not the true value of the property does not
justify the conclusion that the contract is one of equitable mortgage; in fact a pacto de retro sale,
the practice is to fix a relatively reduced price to afford the seller a retro every facility to redeem
the property. xIgnacio v. CA, 246 SCRA 242 (1995).187
To presume a contract is an equitable mortgaged based on gross inadequacy of price, it
must be clearly shown from the evidence presented that the consideration was in fact grossly
inadequate at the time the sale was executed. Mere inadequacy of price is not sufficient to
create the presumption. xOlivares v. Sarmiento, 554 SCRA 384 (2008).188

176
Padilla v. Linsangan, 19 Phil. 65 (1911); Aquino v. Deala, 63 Phil. 582 (1936); Ramos v. CA 180 SCRA 635 (1989).
177
Austria v. Gonzales, Jr., 420 SCRA 414 (2004); Raymundo v. Bandong, 526 SCRA 514 (2007).
178
Matanguihan v. CA, 275 SCRA 380 (1997); Martinez v. CA, 358 SCRA 38 (2001); Hilado v. Heirs of Rafael Medlla, 37 SCRA 257 (2002);
Ceballos v. Intestate Estate of the Late Emigdio Mercado, 430 SCRA 323 (2004); San Pedro v. Lee, 430 SCRA 338 (2005); Go v. Bacaron, 472
SCRA 229 (2005); Romulo v. Layug, Jr., 501 SCRA262 (2006); Roberts v. Papio, 515 SCRA 346 (2007); Raymundo v. Bandong, 526 SCRA
514 (2007); Dorado Vda. De Delfin v. Dellota, 542 SCRA 397 (2008); Muñoz, Jr. V. Ramirez, 629 SCRA 38 (2010); Heirs of Soliva v. Soliva,
757 SCRA 26 (2015).
179
Lim v. Calaguas, 45 O.G. No. 8, p. 3394 (1948); Balatero v. IAC, 154 SCRA 530 (1987); Mariano v. CA, 220 SCRA 716 (1993); Lobres v.
CA, 351 SCRA 716 (2001).
180
Ayson, Jr. V. Paragas, 557 SCRA 50 (2008); Bautista v. Unangst, 557 SCRA 256 (2008).
181
Zamora v.CA, 260 SCRA 10 (1996).
182
Claravall v. CA, 190 SCRA 439, 448 (1990); Uy v. CA, 230 SCRA 664 (1994); Lobres v. CA, 351 SCRA 716 (2001); Alvaro v. Ternida, 479
SCRA 288 (2006); Diño v. Jardines, 481 SCRA 226 (2006); Raymundo v. Bandong, 526 SCRA 514 (2007); Aleligay v. Laserna, 537 SCRA 699
(2007); Dorado Vda. De Delfin v. Dellota, 542 SCRA 397 (2008); Bautista v. Unangst, 557 SCRA 256 (2008); Rockville Excell International
Exim Corp. V. Culla, 602 SCRA 124 (2009); Heirs of Jose Reyes, Jr. v. Reyes, 626 SCRA 758 (2010); Heirs of Soliva v. Soliva, 757 SCRA 26
(2015).
183
Romulo v. Layug, Jr., 501 SCRA262 (2006).
184
Romulo v. Layug, Jr., 501 SCRA262 (2006); Ayson, Jr. V. Paragas, 557 SCRA 50 (2008); Bautista v. Unangst, 557 SCRA 256 (2008);
Rockville Excell International Exim Corp. v. Culla, 602 SCRA 124 (2009).
185
Cruz v. CA, 412 SCRA 614 (2003).
186
Lumayag v. Heirs of Jacinto Nemeño, 526 SCRA 51 (2007).
187
De Ocampo v. Lim, 38 Phil. 579 (1918); Feliciano v. Limjuco, 41 Phil.147 (1920); Belonio v. Movella, 105 Phil. 756 (1959).
188
Kings Properties Corp. v. Galido, 606 SCRA 137 (2009).
 42
“Inadequacy of purchase price” is considered so far short of the real value of the property as
to startle a correct mind. xSantiago v. Dizon, 543 SCRA 402 (2008); or that the mind revolts at it
as such that a reasonable man would neither directly or indirectly be likely to consent to it.
xVda de Alvarez v. Court of Appeals, 231 SCRA 309 (1994); it must be grossly inadequate or
shocking to the conscience. xTio v. Abayata, 556 SCRA 175 (2008).
Although under the agreement the seller shall remain in possession of the property for only
one year, such stipulation does not detract from the fact that possession of the property, an
indicium of ownership, was retained by the alleged vendor to qualify the arrangement as an
equitable mortgage, especially when it was shown that the vendor retained part of the purchase
price. xLegaspi v. Ong, 459 SCRA 122 (2005).189
Mere tolerated possession is not enough to prove that the transaction was an equitable
mortgage. xRedondo v. Jimenez, 536 SCRA 639 (2007).190
Mere allegations without proof to support inadequacy of price, or when continued possession
by seller is supported by a valid arrangement consistent with the sale, would not support the
allegation of equitable mortgage. xCirelos v. Hernandez, 490 SCRA 624 (2006).191
Under Art. 1602, delay in transferring title is not one of the instances enumerated by law—
instances in which an equitable mortgage can be presumed. Nor does the fact that the original
transaction on the land was to support a loan, which when it was not paid on due date was
negotiated into a sale, without evidence that the subsequent deed of sale does not express the
true intentions of the parties, give rise to a presumption of equitable mortgage. xCeballos v.
Intestate Estate of the Late Emigdio Mercado, 430 SCRA 323 (2004).
Where the ownership of the land is supposedly transferred to the buyer who provides for the
funds to redeem the property from the bank but nonetheless allows the seller to later on buy
back the properties, is in the nature of an equitable mortgage governed by Articles 1602 and
1604 of the Civil Code. xBacungan v. Court of Appeals, 574 SCRA 642 (2008).
An equitable mortgage is a voidable contract. It may be annulled within four (4) years from
the time the cause of action accrues. Ayson, Jr. v. Paragas, 557 SCRA 50 (2008).

b. Remedies Allowed in an Equitable Mortgage Situation (Arts. 1454, 1602, 1605) – In the
case of an equitable mortgage, although Art. 1605 which allows for the remedy of reformation,
nothing therein precludes an aggrieved party from pursuing other remedies to effectively protect
his interest and recover his property, such as an action for declaration of nullity of the deed of
sale and specific performance. xTolentino v. CA, 386 SCRA 36 (2002).
In equitable mortgage, consolidation of ownership in the mortgagee in equity upon failure of
the mortgagor in equity to pay the obligation, would amount to a pactum commissorium. The
only proper remedy is to cause the foreclosure of the mortgage in equity. xBriones-Vasquez v.
CA, 450 SCRA 644 (2005); or to determine if the principal obligation secured by the equitable
mortgage has been paid or settled. xBanga v. Bello, 471 SCRA 653 (2005).

c. Pactum Commissorium (Art. 2088) – A pactum commissorium stipulation enables the

mortgagee to acquire ownership of the mortgaged properties without need of any foreclosure
proceedings—it is a nullity being contrary to the provisions of Art. 2088 of the Civil Code,
xLumayag v. Heirs of Jacinto Nemeño, 526 SCRA 315 (2007); 192 and has been repeatedly
declared as contrary to morals and public policy, xSolitarios v. Jaque, 740 SCRA 226 (2014).
In a pactum commissorium there should bee: (1) a property mortgaged by way of security for
the payment of the principal obligation, and (2) a stipulation for automatic appropriation by the
creditor of the thing mortgaged in case of non-payment of the principal obligation within the
stipulated period. That the questioned contracts were freely and voluntarily executed by
petitioners and respondent is of no moment, pactum commissorium being void for being
prohibited by law. xOng v. Roban Lending Corp., 557 SCRA 516 (2008).193
It does not apply when the security for a debt is also money in the form of time deposit.
xConsing v. Court of Appeals, 177 SCRA 14 (1989).
Provision in MOA/Dacion en Pago with a Right to Repurchase that if borrower fails to comply
with the new terms of restructuring the loan, the agreement shall automatically operate as a
dacion en pago without need of executing any new document does not constitute pactum
commissorium. √Solid Homes v. Court of Appeals, 275 SCRA 267 (1997).
BUT SEE: Stipulation in promissory note that upon failure of makers to pay interests, owner-
ship of property would automatically be transferred to payee, and the covering deed of sale
would be registered, is in substance a pactum commissorium in violation of Art. 2088, and the
resultant sale is void and the registration and obtaining of new title in the name of the buyer
would have be declared void also. √A. Francisco Realty v. CA, 298 SCRA 349 (1998).194
Stipulation in the Contract of Guaranty for the “prompt assignment and conveyance to [Home
Guaranty Corp.] of all the corresponding properties in the Asset Pool” that are held as security
189
Oronce v. CA, 298 SCRA 133 (1998).
190
Kings Properties Corp. v. Galido, 606 SCRA 137 (2009).
191
Austria v. Gonzales, Jr., 420 SCRA 414 (2004).
192
Guerrero v. Yñigo, 96 Phil. 37 (1954); Montevirgin v. CA, 112 SCRA 641 (1982); Vda. de Zulueta v. Octaviano, 121 SCRA 314 (1983);
Ong v. Roban Lending Corp., 557 SCRA 516 (2008); Heirs of Jose Reyes, Jr. V. Reyes, 626 SCRA 758 (2010); Martires v. Chua, 694 SCRA 38
(2013).
193
Philnico Industrial Corp. v. PMO, 733 SCRA 703 (2014).
194
Legaspi v. Ong, 459 SCRA 122 (2005); Home Guaranty Corp. v. La Savoie Dev. Corp., 748 SCRA 312 (2015).
 43
in favor of the guarantor, and dispensing with the need of conducting foreclosure proceedings,
judicial or otherwise, cover a pactum commissorium situation. Thus, whatever conveyance was
made by Planters Development Bank to Home Guaranty Corp. in view of this illicit stipulation is
ineffectual; it did not vest ownership in Home Guaranty Corp. All that this transfer engendered is
a constructive trust in which the properties comprising the Asset Pool are held in trust by Home
Guaranty Corp., as trustee, for the trustor, La Savoie Home Guaranty Corp. v. La Savoie
Dev. Corp., 748 SCRA 312 (2015).

d. Final Chance to Redeem in “Mistaken Equitable Mortgage” (Art. 1606): 30-day period
under Art. 1606 does not apply if courts find the sale to be absolute. xPangilinan v. Ramos, 181
SCRA 359 (1990).195
Sellers in a sale judicially declared as pacto de retro may not exercise right to repurchase
within 30-day period under Art. 1606, although they have taken the position that the same was
an equitable mortgage, if it is shown that there was no honest belief thereof since none of the
circumstances under Art. 1602 were shown to exist. If they truly believed the sale to be an
equitable mortgage, as a sign of good faith, they should have consigned with the amount
representing their alleged loan, on or before the expiration of the right to repurchase. √Abilla v.
Gobonseng, 374 SCRA 51 (2002).196

C. LEGAL REDEMPTION

1. Definition (Art. 1619) – Legal redemption is in the nature of a privilege created by law for
reasons of public policy and for the benefit and convenience of the redemptioner, to afford him a
way out of what might be a disagreeable or an inconvenient association into which he has been
thrust. It is intended to minimize co-ownership. xFernandez v. Tarun, 391 SCRA 653 (2002).197

2. Legal Redemption Rights under the Civil Code

a. Among Co-Heirs (Art. 1088)
Redemption right pertain to disposition of right to inherit, and not when there is a sale of a
particular property of the estate. xPlan v. IAC, 135 SCRA 270 (1985).
When heirs have partitioned the estate among themselves and each have occupied and
treated definite portions thereof as their own, co-ownership has ceased even though the
property is still under one title, and sale by one of the heirs of his definite portion cannot trigger
the right of redemption in favor of the other heirs. xVda. De Ape v. CA, 456 SCRA 193 (2005).
Heirs who actually participated in the execution of the extrajudicial settlement, which included
the sale to a third person of their pro indiviso shares in the property, are bound by the same;
while the co-heirs who did not participate are given the right to redeem their shares pursuant to
Art. 1088. xCua v. Vargas, 506 SCRA 374 (2006).

b. Among Co-Owners (Art. 1620)

The right of redemption may be exercised by a co-owner only when part of the community
property is sold to a stranger, not when sold to another co-owner because a new participant is
not added to the co-ownership. xFernandez v. Tarun, 391 SCRA 653 (2002).
For the right of redemption to be exercised, co-ownership must exist at the time of the
conveyance is made by a co-owner and the redemption is demanded by the other co-owner or
co-owners. xAvila v. Barabat, 485 SCRA 8 (2006).
Where the parents have a conventional right of redemption over a property die without
exercising the right and the title is consolidated by the Bank, but grants to the heirs a right to
repurchase the property from the Bank, what has been constituted is an option right, and not a
conventional nor legal right of redemption. xTan v. Court of Appeals, 172 SCRA 660 (1989).
Where the parents had a legal right to redeem the property mortgaged which after their death
was foreclosed by the bank as the highest bidder, the redemption by one of the co-heirs for her
sole account redounded to the benefit of all co-owners, and thereby the property redeemed
remains to be owned pro-indiviso, such that the sale by the redeeming co-heir of the entire
property to her children triggered the legal right of redemption of the other co-heirs under Article
1620, xMariano v. Court of Appeals, 222 SCRA 736 (1993); and 30-day redemption period,
even when such right has been recognized to exist in a final and executory court decision, does
not begin from the entry of judgment, but from written notice served by seller to the party
entitled to exercise such redemption right, xGuillen v. Court of Appeals, 589 SCRA 399 (2009).
The requisites for the exercise of legal redemption are as follows: (1) there must be co-
ownership; (2) one of the co-owners sold his right to a stranger; (3) the sale was made before
the partition of the co-owned property; (4) the right of redemption must be exercised by one or
more co-owners within a period of thirty days to be counted from the time he or they were

195
Tapas v. CA, 69 SCRA 393 (1976).
196
Vda. de Macoy v. CA, 206 SCRA 244 (1992).
197
Basa v. Aguilar, 117 SCRA 128 (1982).
 44
notified in writing by the co-owner vendor; and (5) the vendee must be reimbursed the price of
the sale. xCalma v. Santos, 590 SCRA 359 (2009).

c. Distinguishing Between Right of Redemption of Co-Heirs and Co-Owners

According to Tolentino, the fine distinction between Article 1088 and Article 1620 is that when
the sale consists of an interest in some particular property or properties of the inheritance, the
right of redemption that arises in favor of the other co-heirs is that recognized in Article 1620. On
the other hand, if the sale is the hereditary right itself, full or in part, in the abstract sense,
without specifying any particular object, the right recognized in Article 1088 exists. xMariano v.
Court of Appeals, 222 SCRA 736 (1993).

d. Among Adjoining Owners (Arts. 1621 and 1622)

Right of redemption covers only “resale” and does not cover exchanges or barter of
properties xDe Santos v. City of Manila, 45 SCRA 409 (1972).
Requisite to show property previously bought on “speculation” dropped. xLegaspi v. Court of
Appeals, 69 SCRA 360 (1976).
When there is no issue that adjoining lands involved are both rural lands, right to redeem can
be exercised and the only exemption provided is when the buyer cannot show that he did not
own any other rural land. xPrimary Structures Corp. v. Valencia, 409 SCRA 371 (2003).

e. Sale of Credit in Litigation (Art. 1634) – 30 Days from Notice of Demand to Pay.
For debtor to be entitled to extinguish his credit by reimbursing the assignee under Art. 1634,
the following requisites must concur: (a) there must be a credit or other incorporeal right; (b) the
credit or other incorporeal right must be in litigation; (c) credit or other incorporeal right must be
sold to an assignee pending litigation; (d) assignee must have demanded payment from the
debtor; (e) debtor must reimburse the assignee for the price paid, judicial costs incurred and
interest on the price form the day on which the same was paid; and (f) reimburse-ment must be
done within 30 days from the date of the assignee’s demand. xSitus Dev. Corp. v. Asiatrust
Bank, 677 SCRA 495 (2012).

3. When Period of Legal Redemption Begins (Art. 1623)

Both the letter and the spirit of the law argue against any attempt to widen the scope of the
notice specified in the Civil Code to include any other kind of notice, such as verbal or by
registration. xMarinao v. Court of Appeals, 222 SCRA 736 (1993).198
The 30-day period for the commencement of the right to exercise the legal redemption right,
even when such right has been recognized to exist in a final and executory court decision, does not
begin from the entry of judgment, but from the written notice served by the seller to the party
entitled to exercise such redemption right. xGuillen v. CA, 589 SCRA 399 (2009).
Interpretation of Art. 1623 where there is a need for notice in writing, should always tilt in favor
of redemptioner and against buyer, since the purpose is to reduce the number of participants until
the community is terminated, being a hindrance to the development and better administration of the
property. “It is a one-way street,” in favor of redemptioner who can compel buyer to sell to him but
he cannot be compelled to buy. xHermoso v. Court of Appeals, 300 SCRA 516 (1998).
Written notice of sale is mandatory, notwithstanding actual knowledge of a co-owner, in order to
remove all uncertainties about the sale, its terms and conditions, as well as its efficacy and status.
xVerdad v. Court of Appeals, 256 SCRA 593 (1996).
The 30-day period does not begin to run in the absence of written notification coming from the
seller. xCua v. Vargas, 506 SCRA 374 (2006);199 and it must be a written notice of a perfected sale.
xSpouses Doromal v. Court of Appeals, 66 SCRA 575 (1975).
Notice may validly be served upon parents even when they have not been judicially appointed
as guardians since same is beneficial to the children. xBadillo v. Ferrer, 152 SCRA 407 (1987).
Neither the registration of the sale, xCabrera v. Villanueva, 160 SCRA 627 (1988); nor the
annotation of an adverse claim, xVda. De Ape v. CA, 456 SCRA 193 (2005); nor notice being given
by the city treasurer, xVerdad v. CA, 256 SCRA 593 (1996); comply with the written notice required
under Art. 1623 to begin the tolling of the 30-day period of redemption.
Notice required under Art. 1623 is deemed to have been complied with when other co-owner
has signed Deed of Extrajudicial Partition which embodies the disposition of part of the property
owned in common. xFernandez v. Tarun, 391 SCRA 653 (2002).
The clause in the deed of sale that seller has complied with the provisions of Art. 1623, cannot
be taken to “being the written affirmation under oath, as well as the evidence, that the required
written notice to petitioner under Art. 1623 has been meet, for the person entitled to the right is not
a party to the deed of sale. xPrimary Structures Corp. v. Valencia, 409 SCRA 371 (2003).
√Francisco v. Boiser, 332 SCRA 305 (2000), summarized the case-law on Art. 1623, and with
definitiveness declared:
 For 30-day redemption period to begin to run, notice must be given by seller; notice given by the
buyer or even by the Register of Deeds is not sufficient. This expressly affirms the original rulings in
xButte v. Manuel Uy and Sons, 4 SCRA 526 (1962), xSalatandol v. Retes, 162 SCRA 568 (1988);
198
Hernaez v. Hernaez, 32 Phil. 214 (1915); Castillo v. Samonte, 106 Phil. 1024 (1960).
199
Garcia v. Calaliman, 17 SCRA 201 (1989); Mariano v. CA, 222 SCRA 736 (1993).
 45
and expressly overruled the ruling in xEtcuban v. CA, 148 SCRA 507 (1987), which allowed the
giving of notice by the buyer to be effective.
 When notice is given by the proper party (seller), no particular form of written notice is prescribed
under Art. 1623, so that the furnishing of the copies of the deeds of sale to the co-owner would be
sufficient, as held previously in xDistrito v. CA, 197 SCRA 606 (1991); xConejero v. CA, 16 SCRA
775 (1966); xBadillo v. Ferrer, 152 SCRA 407 (1987).
 Affirmed ruling in xAlonzo v. IAC, 150 SCRA 259 (1987), that filing of suit for ejectment or collection
of rentals against a co-owner actually dispenses with the written notice, and commences running of
period to exercise the right of redemption, since filing of the suit amounted to actual knowledge of
the sale.

a. New Exceptions – When sale to the buyer was effected through the co-owner acting as broker,
and never indicated that he would exercise his right to redeem. xDistrito v. Court of Appeals, 197
SCRA 606 (1991).
When buyers took possession of the property immediately after the execution of the deed of
sale in their favor and lived in the midst of the other co-owners who never questioned the same.
xPilapil v. Court of Appeals, 250 SCRA 560 (1995).
When the co-owner admits that he actually knew of the sale by the other co-owners for more
than 7 years; he is guilty of laches; and more so he seeks to exercise the right of redemption
long after the property has ceased to be co-owned pro-indiviso. √Aguilar v. Aguilar, 478 SCRA
187 (2005).
Where the co-owners had actual (not constructive) notice of the sale at the time thereof
and/or afterwards, a written notice of a fact already known to them would be superfluous. The
statute does not demand what is uncessary. √Si v. Court of Appeals, 342 SCRA 653 (2000).

4. OTHER LEGAL REDEMPTION RIGHTS

a. Redemption in Patents (Sec. 119, C.A. 141)
Right to repurchase is granted by law and need not be provided for in the deed of sale.
xBerin v. Court of Appeals, 194 SCRA 508 (1991).
Under free/homestead patent provisions of the Public Land Act a period of 5 years from the
date of conveyance is provided, to be reckoned from the date of the sale and not from the date
of registration in the Register of Deeds. xLee Chuy Realty v. CA, 250 SCRA 596 (1995).200

b. Redemption in Tax Sales (Sec. 215, NIRC of 1997)

c. Redemption by Judgment Debtor (Secs. 27-28, Rule 39, Rules of Civil Procedure)
Written notice must be given to judgment debtor before sale of the property on execution, to
give him the opportunity to prevent the sale by paying the judgment debt sought to be enforced
and the costs which have been incurred. xTorres v. Cabling, 275 SCRA 329 (1997).
Where there is a third-party claim, sheriff should demand from the judgment creditor who
becomes the highest bidder, payment in cash of his bid instead of merely crediting the amount
to the partial satisfaction of the judgment debt. xTorres v. Cabling, 275 SCRA 329 (1997).
Under Sec. 28, Rule 39 of the 1997 Rules of Civil Procedure, the period of redemption shall
be “at any time within one (1) year from the date of registration of the certificate of sale,” so that
the period is now to be understood as composed of 365 days, unlike the 360 days under the old
provisions of the Rules of Court. xYsmael v. Court of Appeals, 318 SCRA 215 (1999).

d. Redemption in Extrajudicial Foreclosure (Sec. 6, Act 3135)

Redemption of extra-judicially foreclosed properties is exercised within 1-year from date of
auction sale as provided r in Act 3135. xLee Chuy Realty Corp. v. CA, 250 SCRA 596 (1995).
Execution of a dacion en pago by sellers effectively waives the redemption period normally
given a mortgagor. xFirst Global Realty and Dev. Corp. v. San Agustin, 377 SCRA 341 (2002).

e. Redemption in Judicial Foreclosure of Mortgage (Sec. 47, R.A. 8791)

A stipulation to render the right to redeem defeasible by an option to buy on the part of the
creditor. √Soriano v. Bautista, 6 SCRA 946 (1962).
No right to redeem from a judicial foreclosure sale, except those granted by banks or banking
institutions. xGSIS v. CFI, 175 SCRA 19 (1989).
One-year redemption period in foreclosure is not interrupted by filing an action assailing the
validity of the mortgage, so that at the expiration thereof, the mortgagee who acquires the
property at the foreclosure sale can proceed to have title consolidated in his name and a writ of
possession issued in his favor. xUnion Bank v. CA, 359 SCRA 480 (2001).201
After bank has foreclosed the property as highest bidder in the auction sale, the accepted
offer of spouses-borrowers to “repurchase” the property was actually a new option contract, and
the condition that the spouses-borrowers will pay monthly interest during the one-year option
period is considered to be the separate consideration to hold the option contract valid. xDijamco
v. Court of Appeals, 440 SCRA 190 (2004).

200
Mata v. CA, 318 SCRA 416 (1999).
201
Vaca v. CA, 234 SCRA 146 (1994).
 46
f. Redemption in Foreclosure by Rural Banks (R.A. No. 720)
If the land is mortgaged to a rural bank, mortgagor may redeem within two (2) years from the
date of foreclosure or from the registration of the sheriff's certificate of sale at such foreclosure if
the property is not covered or is covered, respectively, by Torrens title. If the mortgagor fails to
exercise such right, he or his heirs may still repurchase within five (5) years from expiration of
the two (2) year redemption period pursuant to Sec. 119 of the Public Land Act (C.A. 141).
xRural Bank of Davao City v. Court of Appeals, 217 SCRA 554 (1993).202

g. Legal Right to Redeem under Agrarian Reform Code

Under Section 12 of R.A. 3844, as amended, in the event that the landholding is sold to a
third person without the knowledge of the agricultural lessee, the latter is granted by law the
right to redeem it within 180 days from notice in writing and at a reasonable price and
consideration. xQuiño v. Court of Appeals, 291 SCRA 249 (1998).203

XIV. ASSIGNMENT (Arts. 1624-1635)

“Assignment” is the process of transferring the right of assignor to assignee who would then
have the right to proceed against the debtor. Assignment may be done gratuitously or onerously, in
latter case, assignment has effect similar to that of a sale. xLicaros v. Gatmaitan, 362 SCRA 548
(2001).204
In its most general and comprehensive sense, an assignment is “a transfer or making over to
another of the whole of any property, real or personal, in possession or in action, or of any estate or
right therein. It includes transfers of all kinds of property, and is peculiarly applicable to intangible
personal property and, accordingly, it is ordinarily employed to describe the transfer of non-negotiable
choses in action and of rights in or connected with property as distinguished from the particular item or
property.” xPNB v. Court of Appeals, 272 SCRA 291 (1997).
1. Perfection by Mere Consent (Art. 1624)
2. But Must Be in Public Instrument to Affect Third Parties (Art. 1625)
3. Effects of Assignment
a. Assignment of Credit
An assignment of credit is an agreement by virtue of which the owner of a credit, known as the
assignor, by a legal cause, such as sale, dacion en pago, exchange or donation, and without the
consent of the debtor, transfers his credit and accessory rights to another, known as the assignee,
who acquires the power to enforce it to the same extent as the assignor could enforce it against the
debtor. xAquintey v. Tibong, 511 SCRA 414 (2006).205
As a consequence, the third party steps into the shoes of the original creditor as subrogee of the
latter. Although constituting a novation, such assignment does not extinguish the obligation under
the credit assigned, even when the assignment is effected without his consent. xSouth City Homes
V. BA Finance Corp., 371 SCRA 603 (2001).
By virtue of the Deed of Assignment, assignee is deemed subrogated to the rights and
obligations of assignor and is bound by exactly the same conditions as those which bound the
assignor. Accordingly, assignee of a nonnegotiable chose in action acquires no greater right than
what was possessed by his assignor and simply stands into the shoes of the latter. xFort Bonifacio
Dev. Corp. v. Fong, 754 SCRA 544 (2015).
b. Issues Relating to Debtor (Art. 1626)
In an assignment of credit, the debtor’s consent is not essential for its perfection, his knowledge
thereof or lack of it affecting only the efficaciousness or inefficaciousness of any payment he might
make. xProject Builders v. Court of Appeals, 358 SCRA 626 (2001).
Consent of debtor is not necessary in order that assignment may fully produce legal effects, and
the duty to pay does not depend on the consent of the debtor. Otherwise, all creditors would be
prevented from assigning their credits because of the possibility of the debtors’ refusal to given
consent. What the law requires in an assignment of credit is mere notice to debtor, the purpose of
which is only to inform the debtor that from the date of the assignment, payment should be made to
the assignee and not to the original creditor. xNIDC v. Delos Angeles, 40 SCRA 489 (1971).206
c. Accessories and Accessions (Art. 1627)
Assignment of a credit includes all the accessory rights, such as guaranty, mortgage, pledge or
preference. xUnited Planters Sugar Milling Co. (UPSUMCO) v. CA, 527 SCRA 336 (2007).

202
Heirs of Felicidad Canque v. CA, 275 SCRA 741 (1997).
203
Springsun Management Systems Corp. v. Camerino, 449 SCRA 65 (2005).
204
Nyco Sales Corp. v. BA Finance Corp., 200 SCRA 637 (1991); Rodriguez v. CA, 207 SCRA 553 (1992); Project Builders v. CA, 358 SCRA
626 (2001).
205
Lo v. KJS Eco-Formwork System Phil., 413 SCRA 182 (2003); Spouses Chin Kong Wong Choi v. UCPB, 753 SCRA 153 (2015).
206
Sison & Sison v. Yap Tico, 37 Phil. 587 (1918); C&C Commercial Corp. v. PNB, 175 SCRA 1 (1989); Project Builders v. CA, 358 SCRA
626 (2001); Aquintey v. Tibong, 511 SCRA 414 (2006); Ledonio v. Capitol Dev’t Corp., 526 SCRA 379 (2007).
 47
d. Tradition in Assignment - Notarization converts a private document Assignment of Credit into a
public document, thus complying with the mandate of Art. 1625 and making it enforceable even
as against third persons. xLedonio v. Capitol Dev. Corp., 526 SCRA 379 (2007).
4. Warranties of Assignor (Art. 1628)
Assignor warrants only the existence or legality of the credit but not the solvency of the debtor.
√Nyco Sales Corp. v. BA Finance, 200 SCRA 637 (1991).
EXCEPTIONS: (a) If this is expressly warranted;
(b) If insolvency is known by the assignor prior to assignment;
(c) If insolvency is prior to assignment is common knowledge.
When dacion en pago takes the form of an assignment of credit, it may extinguishe the obligation;
however, by virtue of the warranty in Art. 1628, which makes the vendor liable for the existence and
legality of the credit at the time of sale, when it is shown that the assigned credit no longer existed at
the time of dation, then it behooves the assignor to make good its warranty and pay the obligation.
xLo v. KJS Eco-Formwork System Phil., 413 SCRA 182 (2003).

5. Right of Repurchase on Assignment of Credit under Litigation (Arts. 1634 and1635)

6. Subrogation versus Assignment of Credit (Art.1301)

Subrogation extinguishes the obligation and gives rise to a new one; assignment refers to the
same right which passes from one person to another. Nullity of an old obligation may be cured by
subrogation, such that a new obligation will be perfectly valid; but such nullity is not remedied by the
assignment of the creditor’s right to another. In an assignment of credit, the consent of the debtor is
not necessary in order that the assignment may fully produce legal effects; whereas, conventional
subrogation requires an agreement among the three parties concerned – original creditor, debtor, and
new creditor. It is a new contractual relation based on the mutual agreement among all the necessary
parties. √Licaros v. Gatmaitan, 362 SCRA 548 (2001).207

7. Assignment of Copyright (Sec. 180, Intellectual Property Code)

8. Assignment as an Equitable Mortgage

When assignor executes a Deed of Assignment covering her leasehold rights in order to secure
payment of promissory notes covering the loan she obtained from the bank, such assignment is
equivalent to an equitable mortgage, and non-payment of the loan cannot authorize bank to register
the leasehold rights in its name as it would be a violation of Art. 2088 against pactum commissorium.
The proper remedy of the assignee is to proceed to foreclose on the leasehold right assigned as
security for the loan. xDBP v. Court of Appeals, 284 SCRA 14 (1998).

XV. BULK SALES LAW (ACT NO. 3952)

1. Scope: √Chin v. Uy, 40 O.G. 4 Supp. 52.
2. Coverage of “Bulk Sale” – Every sale, transfer, assignment, or mortgage of:
a. Goods, wares, merchandise, provisions or material other than in the ordinary course of
business;
b. All, or substantially all, of the fixtures and equipment used in and about the business;
c. All, or substantially all, of the business or trade conducted.
EXCEPTION: (i) When the seller obtains a written waiver from all creditors;
(ii) Those effected by executors, administrators, receivers, assignees in
insolvency, or public officers, acting under legal process. (Sec. 8)
The Bulk Sales Law (BSL) must be construed strictly. The disposal by the owner of a foundry
shop of all his iron bars and others does not fall under the law, because the contents of a foundry
shop are not wares and merchandise. BSL only covers sales in bulk of fixtures and equipment
used in the mercantile business, which involves the buying and selling of merchandise. xPeople v.
Wong, [CA] 50 O.G. 4867 (1954).
BSL applies to merchants who are in the business of selling goods, wares and similar
merchandise, and cannot cover the sale of assets by a manufacturer since the nature of his
business does not partake of merchandise. √DBP v. Judge of the RTC of Manila, 86 O.G. No. 6
1137 (05 Feb. 1990).

3. Compliance Requirements Under the Law

a. Ten (10) days before the intended sale in bulk, the seller must take an inventory of his stock and
advise all his creditors of the same.
b. At the time of sale, merchant must give the buyer a certified schedule of his debts: names of
creditors, amounts owing to each and the nature of the debt.
b. Purchase price paid must be applied proportionately to these debts.

207
Ledonio v. Capitol Dev. Corp., 526 SCRA 379 (2007).
 48
4. Effects of Non-Compliance
a. If purchase money or mortgage proceeds are not applied pro-rata to payment of the bona fide
claims of the creditors, the sale is deemed fraudulent and void. (Sec. 4)
b. Non-giving of the list of creditors or intentional omission of the names of some of the creditors,
and placing of wrong data required by law, would subject the seller or mortgagor to penal
sanctions. (Sec. 4)
c. Bulk transfer without consideration or for nominal consideration punishable. (Sec. 7)
d. Failure to comply with other provisions of the law the non-application of the consideration
proportionately to the creditors, the preparation of the inventory, and the notification to creditors,
are also made punishable. (Sec. 11)
A bulk sale done without complying with the Law, makes the transaction fraudulent and void,
but does not change the relationship between seller/assignor/encumbrancer and his creditor.
Hence, a judgment providing for subsidiary liability is invalid—proper remedy is to collect on the
credit against the defendants, and if they cannot pay, to attach on the property fraudulently
mortgage since it still pertain to the debtors-defendants. xPeople v. Mapoy, 73 Phil. 678 (1942).

XVI. RETAIL TRADE LIBERALIZATION ACT

1. Public Policy under RTLA: Reversal of Paradigm; Focus from Protecting Filipino
Retailers to Promoting the Consumers’ Interests.
The control and regulation of trade in the interest of the public welfare is an exercise of the
police power of the State. To the extent that the Retail Trade Liberalization Act (R.A. 8762), lessens
the restraint on the foreigners’ right to property or to engage in an ordinarily lawful business, it
cannot be said that the law amounts to a denial of the Filipinos’ right to property and to due
process of law. xEspina v. Zamora, 631 SCRA 17 (2010).
2. Scope and Definition of “Retail Trade”
a. Elements: (1) Seller engaged in habitual selling;
(2) Selling direct to the general public; and
(3) Object of the sale is limited to merchandise,
commodities or goods for consumption.
b. Meaning of “Habitual Selling”
Engaging in sale of merchandise as an incident to the primary purpose of a corporation
[e.g., operation of a pharmacy by a hospital; sale of cellphones by a telecommunication
company] does not constitute “retail trade” within the purview of RTNL, as this is taken from the
provision thereof excluding form the term “retail business” the operation of a restaurant by a
hotel-owner or -keeper since the same does not constitute the act of habitually selling direct to
the general public merchandise, commodities or goods for consumption. √SEC Opinion No. 11,
s. 2002, 13 Nov. 2002.
c. Meaning of “For Consumption” (DOJ Opinion No. 325, s. 1945; IRR of Law).
The Law limits its application to the sale of items sold for domestic or household, or
properly called consumer goods; whereas, when the same items are sold to commercial users,
they would constitute non-consumer goods and not covered by the Law. √Balmaceda v. Union
Carbide Philippines, 124 SCRA 893 (1983).208
d. Meaning of “General Public” (DOJ Opinion No. 253, s. 1954).
Even when consumer goods is limited only to the company officers, same would still be
retail trade covered by the Law. √Goodyear Tire v. Reyes, Sr., 123 SCRA 273 (1983).
Where company manufactures glass products only on specific orders, it does not sell
directly to consumers but manufacturers, it cannot be said that it is a merchandiser. √DBP v.
Judge of RTC of Manila, 86 O.G. No. 6 1137, 05 Feb. 1990.

3. Categories of Retail Trade Enterprises

a. CATEGORY A: < US$2.5 Million – Exclusive to Filipino citizens and 100% Filipino entities
b. CATEGORY B: ≥ US$2.5 Million, but < US$7.5 Million; Store investment not < US$30,000.00;
Net Worth of US$200 Million
c. CATEGORIES C: ≥ US$7.5 Million; Store investment not < US$830,000.00; Net Worth of
US$200 Million
d. CATEGORY D – Luxury Items: Store investment of not < US$250,000.00; Net Worth of US$
50 Million
e. EXEMPTED AREAS
f. Rights Granted to Former Natural-Born Filipinos

4. Foreign Investment or Engagement in Retail Trade in the Philippines

208
Marsman & Co. v. First Coconut Central Co., 162 SCRA 206 (1988); B.F. Goodrich Phil. v. Reyes, Sr., 121 SCRA 363 (1983).
 49
a. Requirement of Foreign Retailers: (i) 5 retailing branches in the world; unless one store
capitalized at minimum of US$25 Million; (ii) 5-year track record at retailing; (iii) with
reciprocity for Filipino retailers
b. Requirements for Foreign Investors
c. Grandfather Rule on 100% Filipino Ownership of Corporate Entity: SEC Opinions, dated 20
March 1972 and 22 April 1983; DTI Opinion to Tanada, Teehankee & Carreon Law Office, dated
3 August 1959.
d. Public Offerings of Shares of Stock
5. Foreign Retailers in the Philippines
a. Pre-qualification Requirements
b. Rules on Branches/Stores
c. Promotion of Locally-Manufactured Products
d. Prohibited Activities of Foreign Retailers
e. Binding Effect of License to Engage in Retail on Private Parties – When a license to
engage in cocktail lounge and restaurant is issued to a Filipino married to a foreigner, it is
conclusive evidence of the latter's ownership of the retail business as far as private parties are
concerned. xDando v. Fraser, 227 SCRA 126 (1993).
6. Penalty Provision
7. The Anti-Dummy Act (Comm. Act No. 108, as amended by P.D. 715)
a. Purpose of Law: Penalizes Filipinos who permit aliens to use them as nominees/dummies to
enjoy privileges reserved for Filipinos. Criminal sanctions are imposed on the president,
manager, board member or persons in charge of the violating entity and causing the latter to
forfeit its privileges, rights and franchises.
b. Particular Prohibition: Section 2-A prohibits aliens from intervening in the management,
operation, administration or control of nationalized business (whether wholly or partially),
whether as officers, employees or laborers, with or without remuneration. Aliens may not take
part in technical aspects, provided no Filipino can do such technical work, and with express
authority from the Philippine President.
c. Later, P.D. 715 amended the Law by adding of a proviso expressly allowing the election of
aliens to the Boards of Directors of corporations engaged in partially nationalized activities in
proportion to their allowable participation or share in the capital of such entities.
The amendment was meant to settle the uncertainty created in the obiter opinion in xLuzon
Stevedoring Corp. v. Anti-Dummy Board, 46 SCRA 474 (1972), which rejected the argument that
the Anti-Dummy Law covered only employment in wholly nationalized businesses and not in
those that are only partly nationalized.
The Filipino common-law wife of a Chinese national is not barred from engaging in the
retail business provided she uses capital exclusively derived from her paraphernal properties;
allowing her common-law Chinese husband to take part in management of the retail business
would be a violation of the law. xTalan v. People, 169 SCRA 586 (1989).

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