I. INTRODUCTION A. Definition of Sale (Art. 1458): 6. Lease (Arts. 1484 and 1485).

When a lease clearly shows that the rentals are meant to be installment payments to a sale contract, despite the nomenclature given by the parties, it is a sale by installments.

1. Definition covers both contract of sale and contract to sell. In a contract of sale, one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other party to II. PARTIES TO A CONTRACT OF SALE (Arts. 1489-1492) pay a price certain in money or its equivalent. The essential elements of a contract of sale are the following: (a) Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the A. General Rule is that any person who is authorized under the law to obligate price; (b) Determinate subject matter; and (c) Price certain in money or its himself, may enter into a contract of sale, whether as party seller or as party buyer equivalent. ( Art. 1489). The age of majority now begins at 18 years. ( Art. 234, Family Code, as amended by Rep. Act. No.6809). 2. The existence of a contract of sale creates two sets of real obligations to give. 3. The characteristics of a contract of sale: (a) Nominate and Principal; (b) Consensual (c) Bilateral; (d) Onerous (e) Commutative; (f) Title and not Mode. B. Distinguished From B. Others (Arts. 1491 and 1492): In determining the real character of the contract, the title given to it by the parties is not as much significant as its substance. 1. Donation (Art. 725) 2. Barter (Arts. 1468, 1638-1641). (a) Legal status of contracts entered into in violation of Art. 1491 Contracts entered into in violation of Arts. 1490 and 1492 are not merely viodable, but are null and void. (b) Guardians, Agents and Administrators Hereditary rights are not included in the prohibition insofar as the administrator or executor of the estate of the deceased is concerned. Exceptions: 1. Minors, insane and demented persons, deaf-mutes who do not know how to write (Arts. 1327, 1397, and 1399). (a) Necessaries (Arts. 1489 and 290). (b) Emancipation (Arts. 399 and 1397; Art 234 and 236, Family Code; rendered inutile by Rep. Act No. 6809). 2. Sales By and Between Spouses: (a) Contracts with third parties (Arts 75 and 69, Family Code); (b) Sale between spouses (Arts. 133, 1490 and 1492) (c) Applicability to Common Law Spouses (Art. 133)

An assignment of property to the corporation by controlling shareholders in exchange for shares is not a sale nor barter because the corporation cannot be considered a third party when it would be controlled by the transferor as part of (c) Attorneys estate planning. (i)Prohibition applies only to sale to a lawyer who in fact represented the client in the particular suit involving the object of the sale, and cannot cover the assignment of the property given in judgement made by a client to an attorney, who 3. Contract for piece of Work (Arts. 1713 to 1715, and 1467) has not taken part in the case wherein said Judgement was rendered, made in payment of professional services in other cases. When a person stipulates for the future sale of articles which he is (ii) The prohibition applies only during the period the litigation is habitually making, and which at the time are not made or finished, it is essentially apending; the pendency of a certiorari proceeding even after final judgement is still contract of sale and not a contract for labor. covered by the restriction. As can be clearly seen from the wordings of Art. 1467, what determines The prohibition under Art. 1491 applies only to attorneys when the whether the contract is one of work or of sale is whether the thing has been property they are buying is the subject of litigation, and does not apply to a sale to manufactured especially for the customer and upon his special order. Thus, if the attorneys in that case. thing is specially done at the order of another, this is a contract for a piece of work. The prohibition does not apply to a lawyer who acquired the property If, on the other hand, the thing is manufactured or procured for the general market prior to the time he intervened as counsel in an ejectment suit involving such in the ordinary course of ones business, it is a contract of sale/ property. To Tolentino, the distinction between the two contracts depends on the (iii) The agreement on contingent fee based on the value of the property intention of the parties. Thus, if the parties intended that at some future date an is not prohibited since the payment of said fee is not made during the pendency of object has to be delivered , without considering the work or labor of the party bound the litigation but only after judgement has been rendered in the case handled by the to deliver, the contract is one of sale. But if one of the parties accepts the lawyer. undertaking on the basis of some plan, taking into account the work he will employ (iv) The prohibition under Art. 1491 does not apply to a contingent fee personally or through another, there is a contract for a piece of work. based on the value of property involved in litigation and therefore does not prohibit a lawyer from acquiring a certain percentage of the value of the properties in litigation that may be awarded to his client. 4. Agency to Sell (Art. 1466) a) The special position of a broker A commercial broker, commission merchant or indentor on the other hand is a middleman acting in his own name, and (d) Judges whose function is to act as agent for both seller and buyer to effect a sale between Even when the main cause is a collection of a sum of money, the properties them. Although he is neither seller nor buyer to the contract effected, he may levied is still subject to the prohibition. voluntarily assume the warranties of a seller. b) A contract of agency to sell on commission basis does not belong to III. SUBJECT MATTER OF SALE (ARTS. 1459-1465) any of the three categories of contracts covered by Articles 1357 and 1358 and not one enumerated under the Statute of Frauds in Art. 1403. Hence, it is valid and enforceable in whatever form it may be entered into. A. Must Be Existing, Future or Contingent 5. Dacion en Pago (Art. 1245). 1. Emptio rei speratae (Arts. 1461 and 1347) Dation in payment requires delivery and transmission of ownership of a Pending crops which have potential existence may be the valid subject thing owned by the debtor to the creditor as an accepted equivalent of the matter of sale. performance of the obligation. When there is no such transfer of ownership in favor To remove all doubts, we hereby categorically rule that, pursuant to of the creditor, as when the possession is only by way of security, there is no dation Article 1347 of the Civil Code, no contract may be entered into upon a future in payment. inheritance except in cases expressly authorized by law. Consequently, said

contract made in 1962 is not valid and cannot be the source of any right nor the creator of any obligation between the parties.

As to Subject Matter

1. Special Laws: Narcotics; wild bird or mammal rare wild plants; poisonous plants The waiver of hereditary rights is not equivalent to the sale of hereditary or fruits; dynamited fish; gunpowder and explosives; firearms and ammunitions; rights. The first is technically a mode of extinction of ownership where there is sale of realty by non-Christians. abdication or intentional relinquishment of a known right with knowledge of its existence and intention to relinquish it, in favor of the other persons who are co2. The sale of land by Non-Christians is void if not approved by the Provincial heirs in the succession. The second presumes the existence of a contract or deed of Governor as provided in Sec. 145 of Revised Administrative Code. sale between the parties. When Motive Essential In a contract of sale, consideration is, as a rule, different from the motive 2. Emptio Spei (Art. 1461). sale by vain hope of the parties, and when the primary motive is illegal, such as when the sale was executed over a parcel of land to illegally frustrate a persons right to inheritance and to avoid payment of estate tax, the sale is void because illegal motive 3. Subject to Resolatory Condition (Art. 1465). predetermined the purpose of the conract. 4. In a contract of sale, it is essential that the seller is the owner of the property he is IV. PRICE (Arts. 1469-1474) selling. The principal obligation of a seller isto transfer the ownership of the property sold (Civil Code of the Phillipines, Art. 1458). This law stems from the principal that nobody can dispose of that which does not belong to him. NEMO Price signifies the sum stipulated as the equivalent of the thing sold and DAT QUOD NON HABE also every incident taken into consideration for the fixing of the price put to the debit of the buyer and agreed to by him. A seller cannot unilaterally increase the purchase price previously agreed B. Must Be Licit (Arts. 1347, 1459 and 1575). upon with the buyer, even when the need to adjust the price of sale is due to increased construction cost. C. Must Be Determinate or Determinable (Art. 1460) A. Must Be Real (Arts 1471): 1. Generic things may be object of sale. The seller is liable for breach of contract for failing to deliver the subject 1. The sale is void if the price is simulated; unless it can be shown to be a donation matter of the sale, which was clearly generic, thereby affirming the existence of a or another contract. valid contract of sale even when the subject matter was not determinate. However, (a) Curiously, there seems to be jurisprudence to the effect that when the price when the originally generic subject matter is finally chosen for delivery, either by is not paid, the contract is void. physical segregation or particular designation, only then does the contract of sale begin to exist with respect to the chosen subject matter,although a valid contract of sale existed between the parties even before the choosing of the particular subject A contract of sale is void and produces no effect whatsoever where the matter for delivery. price, which appears thereon as paid, has in fact never been paid, has in fact never been paid by the purchaser to the vendor. 2. Undivided interest may be object of sale (Art. 1463). A contract of sale being consensual, it is perfected by the mere consent of the parties. Delivery of the thing bought or payment of the price is not necessary 3. Undivided share in a mass of fungible goods may be object of sale (Art. 1464). for the perfection of the contract; and failure of the buyer to pay the price after the This results in proportional ownership. When parties to a sale, the execution of the contract does not make the sale null and void for lack of subject matter of which is a specific mass, have not made any provisions in their consideration but results at most in default on the part of the buyer, for which the contract for the measuring or weighing of the subject matter sold, and that the price seller may exercise his legal remedies. 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 the seller Gaite was to B. Must Be in Money or its Equivalent (Arts. 1458 and 1468) deliver in good faith to his buyer all of the ore found in the mass, notwithstanding that the quantity delivered is less than the amount estimated in the contract. C. Must Be Certain or Ascertainable at Time of Perfection (Art. 1469) A sale in mass of separate known lots or parcels will not be set aside, unless it is made to appear that a larger sum could have been realized from a sale in parcels or that a sale of less than the whole would have been sufficient to satisfy the How Price Determined: debt. 1. By a third person (Art. 1469). 2. By the courts (Art. 1469). 3. By reference to a definite day, particular exchange or market (Art. 1472). D. Quantity of Subject Matter Not Essential for Perfection 4. By reference to another thing certain. E. Sellers Obligation to Transfer Ownership Required at Time of Delivery (Arts. 1459, 1505). The price of a thing is certain at the point of perfection by reference to another thing certain, such as to certain invoices that are in existence and clearly identified by the agreement, or known factors or stipulated formula.

1.Sellers ownership need not exist at perfection of contract because future goods may be sold at time of perfection. It is sufficient that he be the owner at the time of 5. But never by one party to the contract (Arts. 1473, 1182) unless the price is delivery. A contract of sale cannot be declared null and void for failure of the seller separately accepted by the other party. to reveal the fact that it was not the owner of the property sold. Sale of copra for 6. Effect of unascertainability: Contract is inefficacious; but if buyer nonetheless future delivery does not make the seller liable for estafa for failing to deliver appropriates the object, he must pay reasonable price. (Art. 1474). because the contract is still valid and the obligation becomes civil and not criminal. 2. Subsequent acquisition of title by a seller without title validates the sale and title passes to the seller by operation of law. (Art.1434). 3. Acquisition by the buyer may even depend on contingency. (Art. 1462). F. Legality of Sale (Arts. 1409, 2nd par. Of 1458, 1461 and 2nd par. Of 1462, 1575). C. Manner of Payment of Price Must be Agreed Upon A receipt which is merely an acknowledgement 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 a valid sale. When the manner of payment of the purchase price is discussed after

acceptance, then such acceptance did not produce a binding and enforceable 4. Promise to sell a determinate thing coupled with a correlative promise to buy at contract of sale; there was therefore no complete meeting of the minds and there is a specified price: Binding as an executory agreement. (Art.1479). no basis to sue on a contract that does not exist. Even in this case, the certainty of the price must also exist, otherwise, Although no consideration is expressly mentioned in an option contractthere is no valid and enforceable contract to sell. for the purchase of a sugar central, it is presumed that it exist and may be proved, In an agreement to buy and sell, which is an executory contract, title to and once proven, the contract is binding. the property does not pass to the promise and the contracting parties are merely given the right to demand fulfillment of the contract in the proper cases, or damages for breach thereof where it is not possible to carry out its terms. The consideration appearing in the supplemental agreement to a sale must have been part of the consideration for the sale of the hacienda. It is not normal human behavior for parties to a contract of sale to execute a deed of sale B. PERFECTION (Arts. 1475, 1319, 1325 and 1326) without a settled consideration and later agree on further consideration. The In order for an acceptance to have the effect of converting an offer to sell consideration is generally agreed upon as whole even if it consists of several parts, into a perfected contract, it must be plain and unconditional, and it will not be so, if and even if it is contained in one or more instruments. Otherwise there would be no it involves any new proposition, for in that case, it will not be the acceptants price certain, and there would be no meeting of minds as to the consideration; and conformity with the offer which is what gives rise to the birth of the contract. the contract of sale could not be perfected. Promises are binding when and so long as they are accepted in the exact terms in which they are made, it not being legally proper to modify the conditions imposed by the promissor without his consent. In order that the acceptance of a E. Inadequacy of Price Does Not Affect Ordinary Sale proposition or offer may be efficacious, perfect and binding upon the parties thereto, it is necessary that such acceptance should be unequivocal and Inadequacy of price may be a ground for setting aside an execution sale unconditional and the acceptance and proposition shall be without any variation but is not a sufficient ground for cancellation of a voluntary contract of sale whatsoever. Any modification or deviation from the terms of the offer annuls the otherwise free from invalidating effects. latter and frees the offerer. 1. Gross inadequacy of price may avoid judicial sale of realty only when it is 1. When Deviation Allowed: shocking to the conscience of man. (a) Unless there is right of redemption. 2. Sale of Auction (Arts. 1476, 1403(2)(d), 1326). (b) Where a judicial sale is voided without fault of the purchaser, the latter is The owner of the property sold at auction may provide the terms under entitled to reimbursement of the purchase money paid by him. A judicial sale which the auction will proceed and the same are binding upon all bidders, whether can only be set aside upon the return to the buyer of the purchase price with simple they knew of such conditions or not. interest, together with all sums paid out by him in improvements introduced on the property , taxes, and other expenses by him. 3. Perfection: Generally by mere consent (Art. 1475); perfected even when the exact 2. In instances covered by Art. 1381, lesion of more than of value of thing makes quantity or quality is not known, so long as the source of the subject is certain. sale rescissible unless approved by court. (Art.1386). Where the seller quoted to the buyer the items offered for sale, by item number quantity, quantity, part number, description and unit price and total price, 3. In sales a retro, gross inadequacy of price raises a presumption of equitable and the buyer had sent in reply a purchase order, there was already a perfected mortgage. (Art. 1602). contract of sale, even if the required letter of credit had not been opened by the buyer. V. FORMATION OF CONTRACT OF SALE (Arts. 1475-1488) (a) Except if sale subject to suspensive condition; thus there can be no perfected sale of a subdivision lot where the award thereof was expressly made subject to The phases that a contract goes through may be summarized as follows: approval by the higher authorities and there eventually was no acceptance (a) preparation, conception or generation, which is the period negotiation and manifested by the supposed awardee. bargaining , ending at the movement of agreement of the parties; (b) perfection or (b) Sales at Auction (Art. 1476). birth of the contract, which is the moment when the parties come to agree on the (i) How auction sale perfected. terms of the contract; and consummation or death, which is the fulfillment or (ii) Participation of owner. performance of the terms agreed upon in the contract. A. PREPARATORY (Art. 1479) 1. Policitacion: Unaccepted unilateral promise to sell 4. Earnest Money 5. Place of Perfection (Art. 1319).

6. Expenses of Execution and Registration (Art. 1487), and of putting goods in 2. Accepted Unilateral Promise to Sell with promise at liberty to buy or not at his deliverable state. (Art. 1521). option, or vice versa: must have separate consideration independent from price. A unilateral promise to sell, in order to be binding upon the promissory, must be for a price certain and supported by a consideration separate from the C. FORM OF SALES (Arts. 1358 and 1483) price . (a) An option to buy is not a contract of purchase and sale. 1. Really No Form; the sale of land under private instrument is valid. (b) Meaning of Consideration. (a) The provisions of Art. 1358 on the necessity of public document are for purposes of convenience, not for validity or enforceability; and the failure to An option to buy attached to a real estate mortgage was deemed to be comply therewith does not affect the validity and binding effect of the act between valid stipulation, and the mortgagors promise to sell is supported by the same the parties. consideration as that of the mortgage itself, which is distinct from that which would support the sale, an additional amount having been agreed upon to make up the 2. Exceptions: When Form Important entire price of P3,300.00 should the option be exercised. (c) Without Consideration Void as Option, But Valid as Offer (d) The proper exercise of an option contract. (e) There must be acceptance of the option. 3. Distinguish Option from Right of First Refusal. (a) Statute of Frauds 9Arts. 1403 and 1405) The purpose of the statue is to prevent fraud and perjury in the enforcement of obligations depending for their evidence upon the unassisted memory of witnesses. (i) Memorandum

Various correspondences when taken together would constitute sufficient to actual delivery only when the thing sold is subject to the control of the seller memoranda- since they include the names of the parties, the terms and conditions of The mere execution of the deed of sale in a public document is the contract, the price and a description of the property as the object of the contract. equivalent to the delivery of the property, and that prior physical delivery or The sufficient memorandum may be contained in two or more possession is not legally required since the execution of the deed of sale is deemed documents. equivalent to delivery. For the memorandum to take the sale transaction out of the coverage of Execution of the Deed of Conditional Sale with provision that final deed the Statute of Frauds, it must contain all the essential terms of the contract of sale. of sale to be executed upon full payment does not transfer ownership (ii) Partial execution (ii) As to Movables (Art. 1498, 1499, 1513 and 1514) The partial execution of a contract of sale over real property takes the Issuance of an invoice is not constructive delivery. transaction out of the provisions of the Statute of Frauds, and consequently even when not complete in form, so long as the essential requisites of consent of the (iii) As to Incorporeal Property (Arts. 1498, 1501). contracting parties, object and cause of the obligation concur and they were clearly established to be present (even by parol evidence), the sale is valid and binding. (c) Constitutum Possessorium (Arts. 1500) 4. Transfer ownership to vendee upon delivery (Arts. 1477, 1478, and 1496) Where there is no express provision that the title shall not pass until Delivery of the deed to the agent of the buyer, with no intention to part payment of the price, and the thing sold has been delivered, title passes from the with the title until the purchase price is paid, does not take the case out of the moment the thing sold is placed in the possession and control of the buyer. Statute of Frauds. Delivery produces its natural effects in law, the principal and most important of which being the conveyance of ownership, without prejudice to the (iii) Waiver Cross-examination on the contract is deemed a waiver of the defense right of the seller to claim payment of the price. of the Statute of Frauds. (a) Rule when buyer refuses to accept. (Art. 1588). (b) Rule in FAS sales (c) Rule on delivery to carrier. (Art. 1523). (d) Rule in CIF or FOB sales. The Statute of Frauds does not stand in the way of treating an absolute (e) When delivery does not transfer title: deed as a mortgage, when such was the intention of the parties, although the (i) In delivery on approval, trial or sarisfaction agreement for redemption or defeasance rests wholly in parol, or is proved by parol (ii) In case of implied reservation (Arts. 1478, 1503) evidence. The courts will not be used as a shield for fraud, or as a means for (f) Devoid of any stipulation that ownership in the thing shall not pass to the perpetrating fraud. purchaser until he has fully paid the price (Art. 1478), ownership in the thing shall pass from the vendor to the buyer upon actual or constructive delivery of the thing (b) Sale of realty through agent (Art. 1874) sold even if the purchaser has not yet been fully paid. The failure of the buyer to The authority of an agent to execute a contract for the sale of real estate make good the price does not, in law, cause the ownership to revest to the seller must be conferred in writing and must give him specific authority; and that the unless the bilateral contract of sale is first rescinded or resolved pursuant to Article express mandate required by law to enable an appointee of an agency couched in 1191 of the New Civil Code. No-payment only creates a right to demand the general terms to sell must be one that expressly mentions a sale or that includes a fulfillment of the obligation or to rescind the contract. sale as a necessary ingredient of the mentioned. The power granted to an agent to institute a suit and to appear at pre-trial and enter into any stipulation of facts and/or 5. Buyers right to inspect before acceptance (Arts. 1481 and 1584) except when compromise agreement does not include the authority to sell the land by way of carrier delivers COD. compromise, and any sale effected under such authority is void. (iv) Equitable Mortgage Claims. 6. Sale by description and/or sample: the bulk of goods must correspond to either or both (Art. 1481). Even in sales by description and/or sample, the purchaser will not be VI. CONSUMMATION (Arts. 1493-1506) AND PERFORMANCE OFreleased from his obligation to accept and pay for the goods by deviations on the CONTRACT (Arts. 1536-1544, 1582-1590) part of the seller from the exact terms of the contract, if the purchaser had acquiesced to such deviations after due notice thereof. When the machine delivered by the seller is in accordance with the A. Obligations of Seller: 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 1. Preserve thing (Art. 1163). used satisfactorily for the purposes for which he bought it when such purpose was not made known to the seller. (c) Sale of large cattle. (Art. 15854; Sec. 529, Revised Adm. Code). 2. Deliver thing with fruits and accessories (Arts. 1164, 1495, and 1537). 7. Taking-Out Insurance Coverage (Art. 1523). 3. Types of Delivery (Art. 1477): A. Completeness of Delivery (a) Physical delivery (Art. 1497). (b) Constructive delivery: 1. In Case of Immovables: i. Where sold per unit or number (Arts. 1539 and 1540) ii. Where sold for a lump sum 9Arts. 1542)

(i) As to Immovables (Art. 1498) The rule is quite well-settled that what really defines a piece of land is not the In the case of immovables, when the sale is made through a publici area calculated with more or less certainty mentioned in the description but the nstrument, the execution thereof shall be equivalent to the delivery of the thing boundaries therein laid down as enclosing the land and indicating its limits. Where which is the object contract, if from the deed, the contrary does not appear or cannot the land is sold for a lump sum and not so much per unit of measure or number, the clearly be inferred. boundaries of the land stated in the contract determine the effects and scope of the The legal effects and consequences of actual or physical delivery also sale not the area thereof. apply equally to constructive delivery by the execution of public instrument. Except when there is a stipulation in the instrument to the contrary, since not even the full payment of the price is a condition precedent to the transfer of title to the buyer 2. In Case of Movables (Art. 1522 and 1537, 1480) once delivery has been made. If there is no provision in the contract for the measuring or Symbolic delivery by the execution of a public instrument is equivalent weighing of the fungible movables sold in order to complete or perfect the sale,

nor is the price agreed upon by the parties to be based upon such measurement, then10. When one of the sales is a forgery. the subject matter of the sale is, therefore, a determinate object, the mass, and not the actual number of units or tons contained therein. Knowledge of the first unregistered sale by the second buyer is equivalent to registration in favor of the first buyer. (i) When quantity less than that agreed upon; (ii) When quantity more than that agreed upon; 12. Registration by the first buyer under Act. No. 3344 can have the effect of (iii) When quantity different. constructive notice to the second buyer that can defeat his right as such buyer in good faith. B. Time and Place of Delivery 9Art. 1521) C. Acceptance Not Condition to Delivery D. Effects of Delivery (Art. 1477) 14. As between two purchaser, 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 1. Transfer of Ownership (Art. 1477) is in actual possession of the immovable property. In the absence of an express stipulation to the contrary, the payment of the purchase price of the goods is not a condition precedent to the transfer of the title to the buyer, but title passes by the delivery of the goods. F. Obligations of Buyer: 2. The parties may stipulate that ownership in the thing shall not pass to the 1. Pay price of thing sold (Arts. 1582). purchaser until he has fully paid the price (Art. 1478). The failure of the buyer to pay the price in full within a fixed period In the absence of stipulation to the contrary, the ownership of the thing does not, by itself, bar the transfer of the ownership or possession, much less sold passes to the vendee upon the actual or constructive delivery thereof. dissolve the contract of sale. E. Double Sales (Art. 1544) 2. Accept delivery of thing sold (Arts. 1582-1585). 13. The registration of the Extra-Juducial Partition which merely mentions the sale is not registration covered under Article 1544 on double sales and cannot prevail over the registration of the pacto de retro sale.

1. Main Rule: Prior Tempore, Prior Jure 3. Pay for expenses of delivery. The . . . provision on double sale presumes title or ownership to pass to VII. DOCUMENTS OF TITLE (Arts. 1507-1520) the first buyer, the exception being: (a) when the second buyer, in good faith, registers the sale ahead of the first buyer, and (b) should there be no inscription by A. Definition (Art. 1636) either of the two buyers, when the second buyer, in good faith, acquires possession of the property ahead of the first buyer. Unless, the second buyer satisfies these requirements, title or ownership will not transfer to him to the prejudice of B. Purpose of Documents of Title the first buyer. 2. Priority of registration over possession. 3. Possession refers both to material and symbolic possession. 4. The meaning of Better Right. 5. Who is a purchaser in good faith? C. Negotiable Documents of Title: A purchaser in good faith is one who buys property of another, without notice that some other person has a right to, or interest in, such property and pays a 1. How negotiated (Arts. 1508-1509) full and fair price for the same at the time of such purchase, or before he has 2. Who can negotiate (Art. 1512) notice of the claim or interest of some other person in the property 3. Effects of negotiation (Art. 1513) The sale to ones daughter and sons will give rise to the conclusion that 4. Unathorized Negotiation (Art. 1518) 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 D. Non-negotiable Documents of Title: by virtue of their relationship to their sellers. 1. How transferred or assigned (Art. 1514) 6. Rule not applicable when the first sale is the property itself and the second sale 2. Effects of transfer (Art. 1514) involves the right to repurchase the property. 7. The rule on double sale cannot apply when the first transactions involved a contract to sell. E. Warranties of Seller of Documents of Title (Art. 1516) Through the use of a document of title, the 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 the buyer may take the document of title as though he had actually taken possession and control over the goods described therein. The endorsement and delivery of a negotiable quedan operates as the transfer of possession and ownership of the property referred to therein, and he had the effect of divorcing the property covered therein from the estate of the insolvent prior to the filing of the petition for insolvency.

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 8. When what is involved is unregistered land. title to whom it was negotiated and who received it in good faith and for value, the latter is preferred, under the principal that as between two innocent persons, he Registration by the first buyer under Act. No. 3344 can have the effect of who made the loss possible should bear the loss. constructive notice to the second buyer that can defeat his right as such buyer in good faith. F. Rules of Levy/Garnishment of Goods Covered by Documents of Title (Arts. 1514, 1519, 1520). 9. When the first sale is over unregistered land and the second sale is when it is registered. VIII. SALE BY A NON-OWNER OR BY ONE HAVING VIODABLE TITLE: THE LIFE OF A CONTRACT OF SALE

A. Effect of Sale Where Seller Not Owner at Time of Delivery

(b) Remedies available to the unpaid seller.

In a contract of sale, it is essential that the seller is the owner of the (c) Remedy of Specific Performance; no bar to full recovery. property he is selling. The principal obligation of a seller is to transfer the (i) Even when it is the mortgaged property that is sold on execution. ownership of the property sold (Civil Code of the Philippines, Art. 1458). This law (ii) Even with replevin and recovery of the subject property, the action stems from the principle that nobody can dispose of that which does not belong to may still be for specific performance. him. (d) Nature of the Remedy of Rescission The remedies under Art. 1484 are not A co-owner who sells one of the two lands owned in common with cumulative but alternative and exclusive. another co-owner, and does not turn-over one-half of the proceeds of the sale to the (i) Surrender of mortgaged property not equivalent to rescission; writ of other co-owner, the latter may, by law and equity, lay exclusive claim to the replevin consistent with all three remedies. remaining parcel of land. (ii) Stipulation on the non-return of payments previously made is valid provided not unconscionable. As a general rule, 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 (e) Meaning of action; Remedies Available to Unpaid Seller; Extrajudicial parties, the seller has in fact no title at all. Equity will cancel the sale and cause the foreclosure. purchase money to be restored to the buyer, putting both parties in status quo. Exceptions: 1. Estoppel. 2. Recording laws. 3. Statutory power Order of Court. (f) What constitutes Foreclosure: (i) Third Party Mortgage. (ii) Assignor-Assignee. When the seller assigns his credit to another likewise bound by the same law. person, the latter is

Upon refusal of the petitioner to execute the absolute deed of sale, the court may direct the act to be done at the cost of the disobedient party by some (g) The barring effect of foreclosure. other person appointed by the court and the act when so done shall have the like effect as is done by the party. (h) Amounts barred from recovery 4. Sale in merchants stores, fairs, or markets. (i) When expenses of litigation may be recovered despite foreclosure effected. B. Sale by One Having Viodable Title (j) Purported lease with option to buy. IX. LOSS, DETERIORATION, FRUITS AND OTHER BENEFITS 2. In Case of Immovables: A. Effect of Loss/Deterioration of Thing Sold: (a) Anticipatory breach 1. Before perfection 2. At time of perfection (Arts. 1493 and 1494). 3. After perfection and before delivery (Arts. 1165, 1189, and 1262). (b) Sections 23 and 24, Pres. Decree No. 957; Option granted by law to demand reimbursement or wait for further development.

(a) The general rule is that before delivery, the risk of loss is borne by the seller Pres. Decree No. was designed to stem the tied of fraudulent under the rule of res perit domino. manipulations perpetrated by unscrupulous subdivision and condominium sellers (b) Loss by fault of one party. (Arts. 1480, 1504, 1538 1636) and operators, such as failure to deliver titles to buyer or titles free from liens and (c) Loss by fortuitous event. (Arts.1480, 1163, 1164, 1165, 1504, 1538, 1189) encumbrances. Under Sec. 23 thereof, the notice need not be given separately (d) Fruits or improvements from time of perfection pertain to buyer. (Art.1537). before the buyer desists from payment due to non-development of the subdivision. 4. After delivery (Art. 1504) X. REMEDIES FOR BREACH OF CONTRACT OF SALE (Arts. 1594-1599) A. ON THE PART OF THE SELLER 1. In Case of Movables: (Arts. 1593, 1595 and 1596). Unpaid Seller (Arts. 1534-1535) (a) Definition of Unpaid Seller (Art. 1525). (b) Rights of Unpaid Seller: (i) Possessory lien (Arts. 1526-1529, 1503, 1535). (ii) Stoppage in transitu (Arts. 1530-1532, 1535, 1636) (iii) Right of Resale (Art. 1533). (iv) Right to Rescind (Art. 1534). Seller in possession of the goods may sell them at buyers risk. 2. Recto Law: Sales of Personality on Installments 9Arts. 1484, 1485, and 1486). (a) Meaning of Installment Sale. 2. In case of Immovables 9Arts. 1191; Secs. 23 and 24, Pres. Decree No. 957). 3. Suspension of Payment (Art. 1590). 4. Maceda Law: Sales of Realty on Installments Pres. Decree No. 957 was issued in the wake of numerous reports that may real estate subdivision owners, developers, operators and/or seller have reneged on their representations and obligations to provide and maintain properly subdivisions roads, drainage, sewerage, water systems, lighting systems and other basic requirements for the health and safety of home and lot buyers. It was designed to stem the tide of fraudulent manipulations perpetrated by unscrupulous subdivision and condominium sellers free from liens and encumbrances. The formal requirements of rescession under the Maceda Law apply even to contracts entered into prior to its effectivity. B. ACTION OF THE BUYER 1. In case of Movables (Arts. 1598-1599).

Sale, the transaction is still to be classified as a contract to sell in that the true intent of the seller was to transfer ownership of the property to the buyer only after the The pendency of suit over the subject matter of the sale justifies the latter pays full consideration. 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 (a) Condition on payment of price. harassment is not the kind of guaranty contemplated under the exceptive clause (b) Effect of Delivery on Transfer of Ownership. in Article 1590 wherein the buyer is bound to make payment even with the (c) The Issue of Substantial Breach. existence of a vindicatory action if the seller should give a security for the return of the price. 2. Governing Law on Rescission in Contracts of Sales: Arts. 1591 and 1592. Section 23 of Pres. Decree No. 957 does not require that a notice be Art. 1592 applies only to a contract of sale of immovable, and given first by the buyer to the seller before a demand for refund can be made as application to a contract to sell. the notice and demand can be made in the same letter or communication. has no

Art. 1592 is not applicable to a contract to sell or a deed of XI. THEREMEDY OF RESCISSION IN SALES CONTRACTS COVERING conditional sale, citing therein the nature of a contract to sell extrajudicially IMMOVABLES: CONTRACT OF SALE VERSUS CONTRACT TO SELL terminate the operation of the contract, refuse conveyance and retain the sums or installments already received, where such rights are expressly provided A. The Nature of the Remedy of Rescission 9Arts. 1191, 1479 and 1592) for. 1. Distinguish from Other Remedy of Rescission. Arts. 1192 and 1592 of the Civil Code on rescission cannot apply to a contract to sell since there can be no rescission of an obligation that is still nonexistent, the suspensive condition not having happened.

2. The power to rescind is generally judicial in nature, and therefore a rightful party may demand rescission as against the defaulting party only by seeking remedy from courts. 3. The minimum Requirement of Rescission

3. The non-injured party has no right to seek rescission of the sale where the 4. A grace period is a right, not an obligation of the debtor, and when condition has not happened. unconditionally conferred, the grace period is effective without further need of demand either calling for the payment of the obligation or for honoring the right. 4. Installments with Stipulated Interests C. Equity Resolution on Contracts to Sell When a contract to sell provides for a specified amounts of installments, and the payment of interests, Art. 1253 of the Civil Code requires that each 1. Although the buyer clearly defaulted in the payment of his installments on a payment must first be applied to the payment of interest due before any application contract to sell covering two parcels of land, the Supreme Court nevertheless to the principal. Therefore in a contract involving installments with interestawarded ownership over one of the two (2) lots jointly purchased by the buyer, chargeable against the remaining balance of the obligation, it is the duty of the when the Court found that the total amount of installments paid, although not creditor-seller to inform the debtor-buyer of the amount of the interest that falls dueenough to cover the purchase price of the two lots, were enough to cover fully the and that is applying the installment payments to cover said interest. Otherwise, the purchase price of one lot. The Court deemed that there was substantial performance creditor cannot apply the payments to the interest and then hold the debtor ininsofar as one of the lots concerned as to prevent rescission thereof. default for non-payment of installments on the principal. 2. Where the buyer had religiously been paying his monthly installments for eight 5. Stipulation on Extra-judicial Rescission years, with interests, but even after default he was wiling and had offered to pay all There is nothing in the law that prohibits the parties from entering into the arrears, the Court granted additional period of 60 days from receipt of agreement that violation of the terms of the contract would cause cancellation judgement for the buyer to make all installment payments in arrears plus interests, thereof, even without court intervention. although demand for rescission had already been made. 6. Mutual Restitution (Art. 1385) Under the agreement, the seller was obliged to evict the squatters on the property. The vendors failure to remove the squatters from the property within the stipulated period gave the buyer the right to either refuse to proceed with the A provision in the contract providing for forfeiture of the amounts paid agreement or waive that condition in consonance with Art. 1545 of the Civil Code. in a contract of sale is valid being in the nature of a penal clause. The option clearly belongs to the buyer and not to the vendor. The vendors act of rescission cannot therefore be allowed, because the vendor is not the injured party. When the sale is annulled, the parties are governed by Art. 1398 of the The right of resolution of a party to an obligation under Art. 1191 of the Civil Code Civil Code whereunder they shall restore to each other things which have been the is predicated on breach of faith by the other party that violates the reciprocity subject matter of the contract, with their fruits, and the price with interest. between them. B. Distinctions Between Contract of Sale and Contract to Sell Under Art. 1545, where the obligation of either party to a contract of sale is subject to any condition which is not performance, such party may refuse to proceed with the contract or he may waive performance of the condition. When the 1. Contract of Sale versus Contract to Sell. condition is set not on the perfection of the contract, but on the performance of the obligation, the choice of rescission or waiver of the non-fulfillment of the In one recent case, the Supreme Court defined a contract to sell a condition is with the obligee. bilateral contract whereby the prospective seller, while expressly reserving the ownership of the subject property despite delivery thereof to the prospective buyer, A grace period is a right, not an obligation of the debtor, and when binds himself to sell the said property exclusively to the prospective buyer upon unconditionally conferred, the grace period is effective without further need of fulfillment of the condition agreed upon, that is, full payment of the purchase demand either calling for the payment of the obligation or for honoring the right. price. XII. CONDITIONS AND WARRANTIES Notwithstanding the language of the Deed of Absolute Sale, which does not reserve ownership with the seller, however, considering the other documents executed at the same time as the Deed of Absolute Sale, as well as the oral A. Conditions (Art. 1545) testimony of the circumstances surrounding the execution of the Deed of Absolute

B. Express Warranties (Art. 1546) C. Implied Warranties (Art. 1547) 1. Seller has right to sell. 2. Warranty against eviction. (Arts. 1548-1560).

5. Effects of Presumption of Equitable Mortgage (Art. 1602, 1605). 6. Pactum Commissorium 7. Period of Redemption

(a) When no period agreed upon (Art/ 1606) 30-day period does not apply if the The seller must be summoned in the suit for eviction at the instance of court should find the sale to be absolute. the buyer (Art. 1558), and be made a co-defendant. (Art. 1559); or made a thirdparty defendant by the buyer who files a third-party complaint. (b) When period agreed upon, it cannot exceed 10 years; if exceeds, the agreement is valid only for the first 10 years. 3. Warranty against encumbrances. 4. Warranty against hidden defects. (Arts. 1561-1580). (c) When there is a period of non-redemption. The stipulation in a contract of lease with option to purchase (which it (d) The pendency of an action brought in good faith and relating to the validity of a treated as a sale of movable on installments) that the buyer-lessee absolutely sale a retro tolls the term for the right of redemption. releases the lessor from any liability whatsoever as to any and all matters in relation to warranty in accordance with the provisions provisions hereinafter stipulated, was held as an express waiver of warranty against hidden defects in favor of (e) When no redemption is made, buyer a retro automatically acquires full the seller-lessor which absolved the [seller-lessor] from any liability arising ownership. from any defect or deficiency of the machinery they bought. 8. Situation Prior to Redemption A mere agent of the seller, such as an indentor can, by agreement, be liable for the warranty against hidden defects. D. Effects of Warranties E. Effects of Waivers F. Buyers Options in Case of Breach of Warranty (Art. 1599). (b) When tender not possible, consignation should be made. XIII. EXTINGUISHMENT OF SALE A. In General (Arts. 1231, 1600) B. Conventional Redemption: 1. Definition (Art. 1601); nature of the right to repurchase. Right to repurchase must be reserved in the same instrument. 2. Equitable Mortgage (Arts. 1602-1604) (a) (b) Definition and elements of Equitable Mortgage. Badges of Equitable Mortgage (c) A formal offer to redeem, accompanied by a bona fide tender of redemption price is not essential where the right to redeem is excercised through a judicial action within the redemption period and simultaneously depositing the redemption price. 11. Fruits (Art. 1617) C. Legal Redemption: 1. Definition (Art. 1619). 2. When Period of Legal Redemption Begins (Art. 1623). (a) It must be a written notice of a perfected sale. The presence of only one circumstance defined in Art. 1602 is sufficient for a contract of sale a retro to be presumed an equitable mortgage. (b) Notice to minors may validly be served upon parents even when the latter have not been judicially appointed as guardians since the same is beneficial to the children. According to Tolentino, the presumption of equitable mortgage will apply only if the consideration is unusually inadequate such that the mind revolts at it and such that a reasonable man would neither directly or indirectly be likely to 3. Instances of Legal Redemption: consent to it. (a) Among Co-heirs (Art. 1088) Since Art. 1602 is remedial in nature, it may be applied retroactively in cases prior to the effectively of the New Civil Code. 3. Parol evidence is competent and admissible in support of the allegations that an instrument in writing, purporting on its face 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. A co-heir cannot exercise the right of redemption alone. 9. Who Can Redeem (Arts. 1611-1614). 10. How Redemption Effected (Art. 1616). (a) In order to exercise the right to redeem, only tender of payment is sufficient. Consignation is not required after tender is refused.

No legal redemption for sale of the property of the estate.

4. The fact that the price in a pacto de retro sale is not the true value of the property The 30-day period does not begin to run in the absence of written does not justify the conclusion that the contract is one of equitable mortgage; in notification. fact, in a pacto de retro sale, the ford the seller a retro every facility to redeem the property. The provision of the law requiring the seller of the property to give a written notice of sale to the other co-owners had been rendered inutile by the fact

that even as the buyers took possession of the property immediately after the execution of the deed of sale in their favor, no one of the co-owners questioned the same. XIV. ASSIGNMENT (Arts. 1624-1635) When a co-owner learns of the sale of the co-ownership interest only from the city treasurer, her exercise of the right of redemption was timely since no A. Definition written notice of the sale was ever given by the vendors as required under Article 1623 of the Civil Code, and therefore the 30-day period has not even began to run. B. Perfection by mere consent (Art. 1624); but has to be in public instrument to The written notice of sale is mandatory; and notwithstanding actual knowledge of a affect third parties. (Art. 1625). co-owner, the latter is still entitled to a written notice from the selling co-owner in order to remove all uncertainties about the sale, its terms and conditions, as well as its efficacy and status. The meeting of the minds in assignment contemplates that between the assignor of the credit and his assignee, there being no necessity for the consent of the debtor. It is sufficient that the assignment be brought to the debtors (b) Among Co-owners (Art. 1620) knowledge in order to be binding upon him. C. Effects of Assignment: 1. Notice but not consent, to the debtor is enough (Art. 1626), but payment by Notice required to be given to co-owner must be in writing; and debtor before notice of assignment, extinguishing obligation, but with consent of redemption by co-owner redounds to the benefit of all other co-owner. creditor. 2. Assignee takes the right subject to all defenses of debtor prior notice to notice of assignment. No written notice to co-owner who acted as active intermediary in the 3. The debtor who, before having knowledge of the assignment, pays his consummation of the sale. creditor shall be released from the obligation (Art. 1626). 4. The assignment of a credit includes all the accessory rights, such as Distinguishing Between Right of Redemption of Co-heirs and Co-guaranty, mortgage, pledge or preference (Art. 1627). owners. The Supreme Court has construed Art. 1620 of the Civil Code to include the doctrine that a redemption by a co-owner of the property owned in common, D. Warranties of Assignor (Art. 1628) even when uses his own fund, within the period prescribed by law inures to the benefit of all the other co-owners. The assignor warrants only the existence or legality of the credit but not the solvency of the debtor. (c) Among adjoining owners (Art. 1621-1622) Redemption covers only resale and does not cover exchanges of properties. Requisite of speculation not a must. E. Right of Repurchase on Assignment of Credit under Litigation (Arts. 1634-1635) (d) Sale of credit in litigation (Art. 1634) 30 days. XV. THE BULK SALES LAW (Act. No. 3952) (e) Redemption of homesteads (Sec. 119, C.A. 141). A. Scope The right to repurchase is granted by law and need to be provided for in the deed of sale. The Bulk Sales Law must be construed strictly. Thus, the disposal by the owner of a foundry shop of all his irons bars and others does not fall under the law, because the Under the free patent or homestead provisions of the Public Land Act, a contents of a foundry shop are not wares and merchandise. The Law only covers period of five (5) years from the date of conveyance is provided, the five-year sales in bulk of fixtures and equipment used in the mercantile business, which period to be reckoned from the date of the sale and not from the date of registration involves the buying and selling of merchandise. in the office of Register of Deeds. B. Coverage of Bulk Sale: (f) Redemption in tax sales (Section 215, National Internal Revenue Code, as amended). (g) Redemption by judgment debtor (Sec. 23, Rule 39, Rules of Court). (h) Redemption in extrajudicial foreclosure. - 1 year from registration in the Registry of Deeds if mortgage (Sec. 6, Act. 3135). The redemption of extra-judicially foreclosed properties is exercised within one (1) year from the date o the auction sale as provided for in Act. No. 3135. C. Compliance Requirements Under the Law (i) Redemption in judicial foreclosure of mortgage (Section 78 General Banking Act, R.A. No. 337, as amended). 1. The merchant must be give the buyer a certified schedule of his debts: names of creditors, amounts owing to each and the nature of the debt. 2. Purchase price paid must be applied to these debts. 2. The sale, transfer, mortgage, or assignment of all, or substantially all of the business or trade theretofore conducted by the vendor, mortgagor, transferor, or assignor; 3. The sale transfer, mortgage, or assignment of all, or substantially all of the fixtures and equipment used in and about the business. 1. A sale, transfer, mortgage or assignment of goods, wares, merchandise, provisions or materials other than in the ordinary course of business. Exceptions: (a) If the expressly warranted. (b) If insolvency is known by the assignor prior to assignment. (c) If insolvency prior to assignment is common knowledge. Registration of the sale does not estop a co-owner.

3. Ten (10) days before the sale, the seller must take an inventory of his stock and advise all his creditors of the same. Exception: When the seller obtains a written waiver from all creditors.

D. Effects of Non-Compliance 1. If the purchase money or mortgage proceeds are not applied pro-rata to the payment of the bona fide claims of the creditors, the sale is deemed fraudulent and void (Sec. 4); 2. 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; 3. Transfer in bulk without consideration or for nominal consideration is also punishable (Sec. 7); 4. 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 sale in bulk done without complying with the terms of the Law, makes the transaction fraudulent and void, but does not change the basic relationship between the seller, assignor or encumbrancer and his creditor. The portion of a judgment providing for subsidiary liability is invalid, since the proper remedy of the creditor is to collect on the credit against the defendant, and if they cannot pay, to attach on the property fraudulently mortgaged since the same still pertain to the debtors- defendants.

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