Atty.

Carlo Busmente Sales and Lease Finals Reviewer Ina Cojuangco Guingona | Dana Beatrice Lopez

Title VI. – SALES § real

§ money or its equivalent
CHAPTER 1 § certain or ascertainable
NATURE AND FORM OF THE CONTRACT • expressed in specific terms
• with reference to another thing
Art. 1458. By the contract of sale one of the contracting parties obligates • determination is left to the judgment of a
himself to transfer the ownership and to deliver a determinate thing, and specified person
the other to pay therefor a price certain in money or its equivalent. • Natural elements
A contract of sale may be absolute or conditional. (1445a) o those which are deemed to exist in certain contracts in the
absence of any contrary stipulations
• Contract of sale is an agreement whereby one of the parties (seller or o (ex. warranty against eviction, hidden defects)
vendor) obligated himself to deliver something to the other (buyer, • Accidental elements
purchaser or vendee) who, on his part, binds himself to pay therefor a sum o Those which may be present or absent depending on the
of money or its equivalent (price). stipulations of the parties
o (ex. conditions, interest, penalty, time or place of payment)
• Characteristics • Stages of a contract of sale
o Consensual - perfected by mere consent, meeting of the minds o Negotiation - indicate interest
o Bilateral - correlative obligations o Perfection - concurrence of all elements
o Onerous - consideration of price for thing sold and vice versa o Consummation - performance or undertakings
o Commutative - thing sold is equivalent of price and vice versa o extinguishment - all complete
o Nominate - special name/contract • Absence vs. non-payment of price
o Principal - does not depend for its existence and validity upon o absence is void for no consideration
another contract o non-payment allows the other party to ask for rescission or
• Essential requisites specific performance
o Consent or meeting of the mind o failure to pay within a stipulated period - only default
o Subject matter o stipulation for automatic rescission for non-payment is valid
§ licit
• correlative duty of the seller to deliver, obligation of the buyer to pay
§ possible thing
• agreement to transfer title for a price actually paid or promised is the
• existing
essence of sale, even without mere physical transfer
• potential to exist
• Payment of the purchase price is not essential to the transfer of ownership
• future thing as long as the property sold has been delivered
• subject to resolutory condition • Kinds of contract of sale
§ determinate o Absolute – not subject to any condition whatsoever, and the
• capacity to segregate title to the property passes to the purchase upon delivery of the
• no further agreement necessary thing, ownership upon actual or constructive delivery
§ determinable o Conditional – Contemplates a contingency, subject to certain
• particularly designated conditions, ownership remains with the vendor until
• physically segregated fulfillment of the conditions
o Consideration (price) § Ex. Full payment of the agreed purchase price
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Atty. Carlo Busmente Sales and Lease Finals Reviewer Ina Cojuangco Guingona | Dana Beatrice Lopez

o Other kinds
§ As to the nature – real or personal, tangible or
intangible Contract to sell Conditional Sale
§ Manner of payment of price, cash or installment Transfer of title to Does not unequivocally Suspensive condition
the buyer agree or consent to a fulfilled – contract is
Contract to Sell with transfer of ownership, perfected
Contract of sale
Reserved Title upon full payment,
Transfer of title Passes to buyer upon Reservation of prospective seller still
delivery ownership until full has to convey title to
payment consummate the
Ownership of Vendor loses Title remains in the transaction
vendor ownership, cannot vendor if the vendee Sale of subject No previous sale, so Fulfillment of suspensive
recover thing delivered does not comply property to a third third person buying the condition, the sale
Type of condition Non-payment of price Non payment = renders person property cannot be becomes absolute,
= Negative resolutory contract without force deemed a buyer in bad ownership transferred to
condition (remedy: and effect faith and no recourse of the buyer, seller no
fulfillment or reconveyance, even longer has any title to
rescission) Full despite the fulfillment of transfer to a third person
payment = positive the suspensive condition
suspensive condition,
breach is not a failure
Rescission of Rescission (1191) No remedy of rescission Art. 1459. The thing must be licit and the vendor must have a right to
contract transfer the ownership thereof at the time it is delivered. (n)
Specific Specific performance No specific performance
Performance for non-payment if cancelled for non- • Requisites concerning object
payment of purchase o Services cannot be the object of a contract of sale
price o Things
Execution of sale No need for additional Need to execute another § Determinate
document instrument for sale instrument to convey § Licit
property § Within the commerce of men
o Rights
• Contract to sell – a bilateral contract whereby the prospective seller § All rights which are not intransmissible or personal
while expressly reserving the ownership of the subject property despite • Ex. Usufruct, credit
delivery thereof to the prospective buyer, binds himself to sell the said • Kinds of illicit things
property exclusively to the prospective buyer upon fulfillment of the o Illicit per se – of its nature
condition agreed upon (full payment of purchase price) § Ex. Decayed food unfit for consumption
o Illicit per accidens
§ Ex: Sale of an animal suffering from a contagious
disease
§ Ex: Sale of future inheritance
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• Right of vendor to transfer ownership
o Vendor must be able to transfer ownership
o Or at the very least, must be authorized by the owner of the
thing sold
o Nemo dat quod non habet
o One must have the right at time of delivery
o GR: A forged or fraudulent deed is void, conveys no title
§ Exception: Transferred form the name of the true
owner to a forger and there is an innocent purchaser
for value
• Reason: When there is nothing doubtful on
the certificate to cloud judgment, the
purchaser is not required to look any further
than what appears on the face of the title
o A sale entered into in violation of a right of first refusal or
another person is only rescissible, and still valid
§ Only when the grantee fails to exercise his right within
the period contemplated can the owner validly offer to
sell the property to a third person
§ No showing of bad faith – may not be rescinded,
remedy is action for damages against vendor
o The mortgagee’s registered mortgage right over the property is
inferior to that of the buyer’s unregistered right.
Art. 1460. A thing is determinate when it is particularly designated or
physical segregated from all other of the same class.
The requisite that a thing be determinate is satisfied if at the time the
contract is entered into, the thing is capable of being made determinate
without the necessity of a new or further agreement between the parties.
(n)
• Subject matter must be determinate
o Particularly designated
o Physically segregated
o Sufficient if capable of being made determinate without further
necessity of a new agreement between the parties
Art. 1461. Things having a potential existence may be the object of the
contract of sale.
Ina Cojuangco Guingona | Dana Beatrice Lopez
The efficacy of the sale of a mere hope or expectancy is deemed subject
to the condition that the thing will come into existence.
The sale of a vain hope or expectancy is void. (n)
• Requirement that the thing must exist
o Need not be at the time the contract is entered into
o Condition that the thing will come into existence
• Sale of things having potential existence
o Existence is a condition for the effectivity
OR
o Contract is effective and the buyer has to pay the purchase price
whether or not the thing comes into existence
• Sale of thing expected – Emptio Rei Speratae
o Sale of a thing not in existence
o If it doesn't
§ The contract will not be effective
§ Buyer will lose obligation to pay the price
o The thing sold must be specific and identified
• Sale of a mere hope or expectancy – Emptio Rei Spei
o It is agreed that the buyer will pay the price even if the thing does
not eventually exist
o However, the sale of a vain hope or expectancy is VOID
• Presumption in case of doubt is in favor of emptio rei speratae
Emptio Rei Speratae Emptio Rei Spei
Subject to the condition that the thing Not certain that the thing itself will
will come into existence whatever its exist, much less its quantity or
quantity or quality quality
Sale of a future thing Sale of the hope or expectancy
Condition that the thing should exist, Produces effect even though the
if it does not, there is no contract thing does not exist
Art. 1462. The goods which form the subject of a contract of sale may be
either existing goods, owned or possessed by the seller, or goods to be
manufactured, raised, or acquired by the seller after the perfection of the
contract of sale, in this Title called "future goods."
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Atty. Carlo Busmente Sales and Lease Finals Reviewer Ina Cojuangco Guingona | Dana Beatrice Lopez

There may be a contract of sale of goods, whose acquisition by the seller o The owner of a mass of goods, may sell only an undivided share
depends upon a contingency which may or may not happen. (n) thereof, provided the mass is specific or capable of being made
determinate
• Goods which may be the object of sale § Buyer becomes co-owner
o Existing goods – owned or possessed by the seller o Risk of loss – the whole mass is at the risk of all the parties
o Future goods – goods to be manufactured interested
• Sale of future goods o Ownership passes to the buyer by the intention of the parties
o Valid as an executory contract to be fulfilled • Article may also apply to goods which are not strictly fungible in nature
o Requires delivery of goods, actual or constructive to be applicable
o Paragraph 1 does not apply for contracts for a piece of work Art. 1465. Things subject to a resolutory condition may be the object of
the contract of sale. (n)
Art. 1463. The sole owner of a thing may sell an undivided interest
therein. (n) • Sale of thing subject to a resolutory condition
o Resolutory condition – an uncertain event upon the happening of
• Sale of undivided interest in a thing which, the obligation subject to it is extinguished
o By sole owner o If the resolutory condition attaching to the object should happen,
§ May sell the entire thing then the vendor cannot transfer the ownership of what he sold
§ Or only a specific portion since there is no object
§ Or an undivided interest therein
• Aliquot– fractional, contained in a larger whole Art. 1466. In construing a contract containing provisions characteristic of
o Legal effect –buyer will become co-owner in the thing sold both the contract of sale and of the contract of agency to sell, the
o He can sell it again, but limited to his allotted portion essential clauses of the whole instrument shall be considered. (n)
o Co-owners can dispose of their shares even without the consent of
the other co-owners Sale Agency to Sell
Buyer receives the goods as owner Agent receives the goods as the
Art. 1464. In the case of fungible goods, there may be a sale of an goods of the principal who retains
undivided share of a specific mass, though the seller purports to sell and ownership and has the right to fix the
the buyer to buy a definite number, weight or measure of the goods in the price, terms, and receive the proceeds
mass, and though the number, weight or measure of the goods in the Buyer has to pay the price Agent just has to account for the
mass is undetermined. By such a sale the buyer becomes owner in proceeds
common of such a share of the mass as the number, weight or measure Cannot return the object sold as a The agent can return the object in
bought bears to the number, weight or measure of the mass. If the mass general rule case he is unable to sell the same
contains less than the number, weight or measure bought, the buyer Seller warrants the thing sold Agent makes no warrants, assumes
becomes the owner of the whole mass and the seller is bound to make personal liability
good the deficiency from goods of the same kind and quality, unless a Buyer can deal with the thing sold Must act and is bound according to
contrary intent appears. (n) the instructions of his principal

• Sale of an undivided share of a specific mass • Courts must look at the entire transaction to determine the relationship
o Fungible goods – goods of which any unit is, from its nature or • A contract can create both a sale and an agency
mercantile usage, treated as the equivalent of any other unit
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o Ex: an automobile dealer receives title to the cars he orders from
the manufacturer, and that transaction is a sale but he is an agent to
extent that he is authorized to pass on to the ultimate purchaser the
limited warranty of the manufacturer
Art. 1467. A contract for the delivery at a certain price of an article which
the vendor in the ordinary course of his business manufactures or
procures for the general market, whether the same is on hand at the time
or not, is a contract of sale, but if the goods are to be manufactured
specially for the customer and upon his special order, and not for the
general market, it is a contract for a piece of work. (n)
• Contract for a piece of work – the contractor binds himself to execute a
piece of work for the employer, in consideration of a certain price or
compensation
• TEST: Whether the thing transferred is one not in existence and which
never would have existed but for the order of the party desiring to acquire
it, or a thing which would have existed and been the subject of sale to some
other person even if the order had not been given
Contract of Sale Contract for a Piece of Work
Sale Work, labor, materials
Risk of loss with buyer Risk of loss before delivery borne by
worker or contractor, not employer
Statute of Frauds applies Not within the statute of frauds
Art. 1468. If the consideration of the contract consists partly in money,
and partly in another thing, the transaction shall be characterized by the
manifest intention of the parties. If such intention does not clearly
appear, it shall be considered a barter if the value of the thing given as a
part of the consideration exceeds the amount of the money or its
equivalent; otherwise, it is a sale. (1446a)
• Contract of barter or exchange – one of the parties binds himself to give
one thing in consideration of the other’s promise to give another thing
o Difference with sale – the element of price certain in money or its
equivalent
• Value of thing given > money = barter
• Money > value of thing given = sale
Ina Cojuangco Guingona | Dana Beatrice Lopez
• Manifest intention of the parties is the determining factor
• Lease of things – one of the parties binds himself to give to another the
enjoyment or use of a thing for a price certain and for a period which may
be definite or indefinite
o Temporary possession and enjoyment in lease, which in sale there
is transfer of ownership
Art. 1469. In order that the price may be considered certain, it shall be
sufficient that it be so with reference to another thing certain, or that the
determination thereof be left to the judgment of a special person or
persons.
Should such person or persons be unable or unwilling to fix it, the
contract shall be inefficacious, unless the parties subsequently agree
upon the price.
If the third person or persons acted in bad faith or by mistake, the courts
may fix the price.
Where such third person or persons are prevented from fixing the price or
terms by fault of the seller or the buyer, the party not in fault may have
such remedies against the party in fault as are allowed the seller or the
buyer, as the case may be. (1447a)
• Price certain in money or its equivalent
o Still valid if there was some other consideration, “its equivalent”
• When price considered certain
o Must be certain and capable of being ascertained
o Currency or mercantile instrument
o Price is certain if
§ The parties have fixed or agreed upon a definite amount
§ It be certain with reference to another thing certain
§ The determination of the price is left to the judgment of a
specified person or persons
§ Appraised value
• Effect where price fixed by third person designated
o GR: binding upon the parties if designated by them
o Exceptions:
§ Third person acts in bad faith or mistake (cannot just be
mere error in judgment)
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§ Third person disregards specific instruction or the
procedure marked out be parties or the data given – fixes
an arbitrary price
• Effect where price not fixed by third person designated
o GR: Contract ineffective
o Exception: The parties subsequently agree upon the price
o Prevented from fixing the price by the one of the parties, the
innocent party may obtain redress against the party in fault
Art. 1470. Gross inadequacy of price does not affect a contract of sale,
except as it may indicate a defect in the consent, or that the parties really
intended a donation or some other act or contract. (n)
• Effect of gross inadequacy of price in voluntary sales
o Lesion or inadequacy of cause will not invalidate a contract
§ Unless there has been fraud, mistake, or undue influence
o However, even a small or nominal valuable consideration is
sufficient if given or stipulated in good faith
o Inadequacy of price might indicate a defect in consent – in which
case, it may be annulled for vitiation of consent
o Price might be so low as to indicate that the parties intended
another contract
o The price must not be “so inadequate to shock to court’s
conscience”
• Effect of gross inadequacy of price in involuntary sales
o A judicial or execution sale is one made by a court with respect to
the property of a debtor for the satisfaction of his indebtedness
o Mere inadequacy of price is not a sufficient ground for cancellation
– a better price can be obtained
o Where price is so low as to be shocking to the conscience, a judicial
sale can be set aside
o The seller can be given a price to repurchase
§ Theory that the lesser the price, the easier it is for the
owner to effect the redemption
Art. 1471. If the price is simulated, the sale is void, but the act may be
shown to have been in reality a donation, or some other act or contract.
(n)
• Simulation of contract
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o Absolute – parties do not intend to be bound at all
§ Void
§ Parties may recover from each other what they may have
given under the contract
o Relative – parties conceal their true agreement
§ Binds the parties to their real agreement
• When simulation occurs
o REQUISITES:
§ An outward declaration of will different from the will of
the parties
§ The false appearance must have been intended by mutual
agreement
§ The purpose is to deceive third persons
• Effect where price is simulated
o Sale is void, but may be held valid as a donation
o Parties don't intend to be bound at all, ownership is not transferred
– contract is void and inexistent
• Effect when purchase price stated as paid but not actually paid
o Null and void for lack of consideration
• Effect when contract does not reflect the real price
o Contract remains valid and enforceable, if they intended to be
bound
o Contract subject to reformation
Art. 1472. The price of securities, grain, liquids, and other things shall
also be considered certain, when the price fixed is that which the thing
sold would have on a definite day, or in a particular exchange or market,
or when an amount is fixed above or below the price on such day, or in
such exchange or market, provided said amount be certain. (1448)
• When an amount is fixed above or below the price on a given day or in a
particular exchange or market, the said amount must be certain
• Follows the principle in 1469 that a price is considered certain if it could be
determined with reference to another thing certain
Art. 1473. The fixing of the price can never be left to the discretion of one
of the contracting parties. However, if the price fixed by one of the
parties is accepted by the other, the sale is perfected. (1449a)
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• Fixing of price by one of the contracting parties, not allowed
o Reason: consent is essential to a contract of sale, the determination
cannot be left to the will of only one parties
• To be just, the price must be determined impartially by both parties
• Where the price fixed by one party is accepted by the other, the contract is
deemed perfected because there is a meeting of the minds
Art. 1474. Where the price cannot be determined in accordance with the
preceding articles, or in any other manner, the contract is inefficacious.
However, if the thing or any part thereof has been delivered to and
appropriated by the buyer he must pay a reasonable price therefor. What
is a reasonable price is a question of fact dependent on the circumstances
of each particular case. (n)
• Effect of failure to determine price
o Contract is without effect
o If delivery has been made, the thing or any part, the buyer must pay
a reasonable price therefor
• Concept reasonable price – generally the market price at the time and place
fixed by the contract or by law for the delivery of the goods
• Determination of fair market value – the reasonable sum which property
would bring on a fair sale by a man willing but not obliged to sell to a man
willing but not obliged to buy
Art. 1475. The contract of sale is perfected at the moment there is a
meeting of minds upon the thing which is the object of the contract and
upon the price.
From that moment, the parties may reciprocally demand performance,
subject to the provisions of the law governing the form of contracts.
(1450a)
• Perfection of contract of sale
o Perfected at the moment of consent without the necessity of any
other circumstances
o Binding regardless of its form
o Actions of the parties may indicate that a binding obligation has
been undertaken
o Appropriate conduct by the parties may be sufficient to establish
and agreement
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o The sale creates the obligation to transfer ownership, sale by itself
does not transfer or affect ownership.
o The registration of the transfer of a car merely constitutes an
administrative proceeding
o Breach of contract by one party – when he/she fails without legal
reason or justification to comply with the terms which form the
whole or part of the contract
§ Injured party may sue for fulfillment or rescission
• Rules with respect to offer
o Offer must be certain
o The person making the offer may fix the time, place, and manner
of acceptance, all of which must be complied with
o When the offerer has allowed the offeree a certain period to accept,
the offer may be withdrawn at any time before acceptance by
communicating such withdrawal, except if the option is founded
upon a consideration, as something paid or promised
• Rules with respect to acceptance
o Must be unqualified and absolute
o An acceptance may contain a request for changes and still be
binding as long as it there is a positive and unequivocal acceptance
of the offer
o May be express or implied except if a formal acceptance is required
• When definite agreement on manner of payment essential
o If payable by installments
§ The parties still have to meet and agree on how and when
the down payment and installment payments are to be
made to perfect the sale
o Payable in full – immediately payable unless another date is
stipulated
o Must meet on the terms or manner of payment of the price
o An agreement on the price, but disagreement as to the terms does
not constitute consent to the sale
• Effect of failure to pay stipulated price – right to demand fulfillment or
cancellation of the obligation under an existing valid contract
o Sales invoices are not evidence of payment – best evidence is the
official receipt
o No payment – produces no effect whatsoever
• Right of owner to fix his own price, reasonable or unreasonable
o It is up to the prospective buyer to accept or reject it
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Art. 1476. In the case of a sale by auction:
(1) Where goods are put up for sale by auction in lots, each lot is the
subject of a separate contract of sale.
(2) A sale by auction is perfected when the auctioneer announces its
perfection by the fall of the hammer, or in other customary manner. Until
such announcement is made, any bidder may retract his bid; and the
auctioneer may withdraw the goods from the sale unless the auction has
been announced to be without reserve.
(3) A right to bid may be reserved expressly by or on behalf of the seller,
unless otherwise provided by law or by stipulation.
(4) Where notice has not been given that a sale by auction is subject to a
right to bid on behalf of the seller, it shall not be lawful for the seller to
bid himself or to employ or induce any person to bid at such sale on his
behalf or for the auctioneer, to employ or induce any person to bid at
such sale on behalf of the seller or knowingly to take any bid from the
seller or any person employed by him. Any sale contravening this rule
may be treated as fraudulent by the buyer. (n)
• Rules governing auction sales
o Sales of separate lots by auction are separate sales
o Sales perfected by the fall of the hammer
§ Each bid is an offer, and the contract is perfects by the fall
of the hammer or any other customary manner
• Ex: “Sold!”
o REQUISITES in order that the seller or his agent may participate
in the auction
§ Such right was reserved
§ Notice was given that the sale is subject to a right to bid
on behalf of the seller
§ The right to bid by the seller is not prohibited by law or
stipulation
o Puffing – the employment of a “puffer” or by bidder to enhance or
inflate the price of the goods sold
§ Fraud upon the purchaser
§ Sufficient ground for a purchaser to be relieved from his
bid
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§ Void sale
• Even if the employment was done without the
owner’s knowledge, because the auctioneer is the
owner’s agent
o Contracts made by intending buyers with each other not to bid to
lower the price are fraudulent
o Advertisements for bidders are mere invitations to make proposals
• The owner of property which is offered for sale, either at public or private
auction has the right to prescribe the manner, conditions and terms of such
sale
Art. 1477. The ownership of the thing sold shall be transferred to the
vendee upon the actual or constructive delivery thereof. (n)
Art. 1478. The parties may stipulate that ownership in the thing shall not
pass to the purchaser until he has fully paid the price. (n)
• Ownership of thing transferred by delivery
• It is only after the delivery of the thing when the purchaser acquired a real
right or ownership over it
• Contract is consummated by delivery of thing sold and purchase money
• With regard to transfer of ownership - payment not as necessary as delivery,
delivery can happen before then demand payment or ask for rescission after
or file criminal proceedings
• Intention to deliver essential
• Pactum reservati dominii or contractual reservation of title
o If the parties stipulate, non-payment of the price, after the thing
has been delivered, prevents the transfer of ownership.
o Common in sales on installment plan
• Free on board stipulation – ownership of the products sold is retained by
the seller until after the postdated checks evidenced by provisional receipts
given as payment by the buyer are cleared, with a stipulation that the loss or
destruction of the products during transit is for the account of the buyer
• A perfected contract of sale even without delivery vests in the vendee
equitable title, an existing interest over the goods sufficient to be the subject
of insurance.
Art. 1479. A promise to buy and sell a determinate thing for a price certain
is reciprocally demandable.
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Atty. Carlo Busmente Sales and Lease Finals Reviewer
An accepted unilateral promise to buy or to sell a determinate thing for a
price certain is binding upon the promisor if the promise is supported by
a consideration distinct from the price. (1451a)
• Kinds of promise treated in Article 1479
o An accepted unilateral promise to sell, in which the acceptor elects
to buy
o An accepted unilateral promise to buy in which the acceptor elects
to sell
o A bilateral promise to buy and sell reciprocally accepted in which
either of the parties chooses to exact fulfillment
• Effect of unaccepted unilateral promise
o Creates no juridical effect or legal bond
o Policitatcion
• Meaning of option
o A contractual privilege existing in one person for which he has paid
a consideration which gives him the right to buy or sell if he
chooses, at any time within the agreed period, at a fixed price or
under, or in compliance with certain terms and conditions
• Nature of option contract – “it secures the privilege to buy or sell”
o Preparatory contract
o The parties may enter into the main contract upon the
consummation of the option
o Imposes no binding obligation
o Must be supported by a consideration distinct from the price – or
else it is void
o May consist of something other than money
• Effect of accepted unilateral promise
o does not bind – to bind you must have a consideration distinct and
separate from the price
o the holder of the option after accepting and before he exercises it
has the RIGHT but not the obligation to buy or sell
o Once the option is exercised, a bilateral promise to sell and buy
ensues,
o The offeror renders himself liable for damages for breach of the
option
• Full payment of price not necessary for exercise of option to buy
o He can effectively exercise his right by merely notifying and
expressing his readiness to pay the stipulated price
Ina Cojuangco Guingona | Dana Beatrice Lopez
• In relation to Article 1324
o 1479 modified 1324 which applies specifically to a promise to buy
or sell
o An offer once accepted, cannot be withdrawn, regardless of
whether or not it is supported by a consideration
o If acceptance is made before withdrawal, it constitutes a binding
contract of sale although the option is given without consideration
o Before acceptance, the offer may be withdrawn as a matter of right
o The offerer cannot revoke before the period has expired in an
arbitrary manner, or else the offeree shall be liable for damages
• When the promise is bilateral – same effect as perfected contract of sale,
reciprocally demandable
Art. 1480. Any injury to or benefit from the thing sold, after the contract
has been perfected, from the moment of the perfection of the contract to
the time of delivery, shall be governed by Articles 1163 to 1165, and 1262.
This rule shall apply to the sale of fungible things, made independently
and for a single price, or without consideration of their weight, number,
or measure.
Should fungible things be sold for a price fixed according to weight,
number, or measure, the risk shall not be imputed to the vendee until
they have been weighed, counted, or measured and delivered, unless the
latter has incurred in delay. (1452a)
• Risk of loss
o If the thing is lost before perfection
§ Seller bears the loss
§ Res perit domino
o Thing is entirely lost at the time of perfection – contract is without
effect
§ Seller bears the risk
o Thing is lost after perfection but before delivery – shifted to the
buyer
§ Exception to the rule of res perit domino
§ EXCEPTIONS (seller still bears the risk after perfection
but before delivery)
• Thing is lost through the fault of the seller
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Atty. Carlo Busmente Sales and Lease Finals Reviewer Ina Cojuangco Guingona | Dana Beatrice Lopez

• When the obligor delays § Improvements – benefit of buyer

• The thing lost is a generic thing § Fruits – vendee from date of perfection
• The things lost are fungible things sold for a price o After deliver - buyer
fixed according to weight, number or measure
Art. 1481. In the contract of sale of goods by description or by sample, the
• The thing lost falls under the definition of
contract may be rescinded if the bulk of the goods delivered do not
“goods”
correspond with the description or the sample, and if the contract be by
• For fortuitous event sample as well as description, it is not sufficient that the bulk of goods
o Thing is lost after delivery correspond with the sample if they do not also correspond with the
§ Buyer bears the risk description.
• Risk of loss in case of fortuitous event
o 1480 – principle of perfection The buyer shall have a reasonable opportunity of comparing the bulk
o The risk of loss is transmitted to the buyer from the moment the with the description or the sample. (n)
contract is perfected
o Buyer is still obligated to pay the purchase price • Sale of goods by description and/or sample
o Supported by Spanish case law o Cause for rescission
• Scope of 1480 o Sale by description
o First rule – the thing is lost after perfection but before delivery – § Seller sells things as being of a particular kind, the buyer
applicable if the thing is determinate, fungible things that have been not knowing whether the seller’s representations are true
particularly designated or physically segregated or false but relying on them as true
§ Buyer assumes the risk of loss cause by the fortuitous § Creates a warranty that the goods will conform to that
event description
• Without the fault of the seller § If the bulk of the goods delivered do not correspond with
o In spite of due diligence exerted the description, the contract may be rescinded
o Before he has incurred in delay § Bought by description – implied warranty of merchantable
o After perfection, before delivery quality
o Second rule – applies to fungible things sold for a price fixed in o Sale by sample
relation to weight, number or measure § Small quantity is exhibited by the seller as a fair specimen
• Article 1504 – the goods generally remain at the seller’s risk until ownership of the bulk, which is not present and there is no
therein is transferred to the buyer opportunity to inspect or examine the same
• Risk of deterioration § Must appear that the parties treated the sample as the
o Before perfection – seller standard of quality and that they contracted with reference
o At the time of perfection – seller to the sample understanding the product would
§ Article 1494 provides that the buyer (at his option) may correspond
treat the sale as o Sale by description and sample
• Avoided § Goods must satisfy all warranties
• Valid in all the existing goods • Bulk of goods – goods which as a whole body, must correspond
• Or in some much thereof as have not been substantially with the sample and description
deteriorated
o After perfection but before delivery – buyer
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Atty. Carlo Busmente Sales and Lease Finals Reviewer Ina Cojuangco Guingona | Dana Beatrice Lopez

Art. 1482. Whenever earnest money is given in a contract of sale, it shall • Legally effective against third persons only from
be considered as part of the price and as proof of the perfection of the the date of registration
contract. (1454a) o Notarization just a private document if merely subscribed and
sworn to but was not properly acknowledged
• Earnest money given in a contract of sale • Statute of Frauds
o Earnest money is something of value given by the buyer to the o Art. 1403. The following contracts are unenforceable, unless they
seller to show that the buyer is really in earnest, and to bind the are ratified:
bargain …
§ Partial payment of the purchase price (2) Those that do not comply with the Statute of Frauds as set
§ Considered as proof of perfection of contract forth in this number. In the following cases an agreement hereafter
o Constitutes an advance or down payment – must be deducted from made shall be unenforceable by action, unless the same, or some
the total price note or memorandum, thereof, be in writing, and subscribed by the
o If given in a contract to sell, this article does not apply party charged, or by his agent; evidence, therefore, of the
• Disputable presumption only that its part of the purchase price – can be agreement cannot be received without the writing, or a secondary
overturned by the absence of contrary or rebuttal evidence evidence of its contents:
(a) An agreement that by its terms is not to be performed
Earnest Money Option Money within a year from the making thereof;
Part of the purchase price Money gives as a distinct (b) A special promise to answer for the debt, default, or
consideration miscarriage of another;
Only given when there is a perfected Applies to sale not perfected (c) An agreement made in consideration of marriage, other
sale than a mutual promise to marry;
Buyer is bound to pay balance Not required to buy, and may even (d) An agreement for the sale of goods, chattels or things in
forfeit it action, at a price not less than five hundred pesos, unless the
Option money may become earnest money if the parties so agree, or if it is in buyer accept and receive part of such goods and chattels, or
the nature of earnest money the evidences, or some of them, of such things in action or pay
at the time some part of the purchase money; but when a sale
is made by auction and entry is made by the auctioneer in his
Art. 1483. Subject to the provisions of the Statute of Frauds and of any sales book, at the time of the sale, of the amount and kind of
other applicable statute, a contract of sale may be made in writing, or by property sold, terms of sale, price, names of the purchasers and
word of mouth, or partly in writing and partly by word of mouth, or may person on whose account the sale is made, it is a sufficient
be inferred from the conduct of the parties. (n) memorandum;
(e) An agreement of the leasing for a longer period than one
year, or for the sale of real property or of an interest therein;
• Form of contract of sale
(f) A representation as to the credit of a third person.
o No particular form required
….
o EXCEPTIONS:
§ Covered by the Statute of Frauds for enforceability • A contract infringing the Statute of Frauds may be ratified.
§ Applicable statute requires it • Modes of satisfaction of the Statute of Frauds
§ Form for convenience of parties to register in the Registry o Giving of a memorandum
of Deeds o Acceptance and receipt of part of the goods (or things in action)
sold and actual receipt of the same
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Atty. Carlo Busmente Sales and Lease Finals Reviewer Ina Cojuangco Guingona | Dana Beatrice Lopez

• Statute of Frauds applicable only to executory contracts § Sale of immovable property

• Sale of real property or an interest therein made through an agent is void § Real estate mortgage
unless the agent’s authority is in writing § Contract to sell
o Registered in the Registry of Deeds in a public document • Remedies
• Electronic Commerce Act – legal effect, validity, enforceability as any other o Specific performance
document or legal writing § Sale of personal property payable in installments and the
o Maintain its integrity and reliability purchaser fails to pay
o Can be authenticated o Cancellation
o Remained complete and unaltered § Failure to pay covers 2 or more installments
§ Vendee can demand only return of payments made unless
Art. 1484. In a contract of sale of personal property the price of which is • There’s a stipulation for forfeiture
payable in installments, the vendor may exercise any of the following • It is not unconscionable
remedies: § Cancellation bars the vendor from recovering any unpaid
balance of the price
(1) Exact fulfillment of the obligation, should the vendee fail to pay; o Foreclosure
§ Failure covers tow or more installments
(2) Cancel the sale, should the vendee's failure to pay cover two or more § Not obliged to return to vendee the amount of
installments; installments paid if there’s an agreement to that effect.
§ Why is there no recovery of unpaid balance allowed in Par.
(3) Foreclose the chattel mortgage on the thing sold, if one has been 3
constituted, should the vendee's failure to pay cover two or more
• To remedy the abuses committed in connection
installments. In this case, he shall have no further action against the
with foreclosure of chattel mortgages
purchaser to recover any unpaid balance of the price. Any agreement to
the contrary shall be void. (1454-A-a) • Prevents mortgagees from seizing the mortgaged
property, buying it at foreclosure sale for a low
price and then bringing suit against the mortgagor
• Remedies of a vendor in sale of personal property payable in installments
for a deficiency in judgment
o Elect fulfillment upon the vendee’s failure to pay
o Cancel the sale if the vendee shall have failed to pay two or more • Sale or financing of real estate on installment payments
installments o Maceda Law
o Foreclose the chattel mortgage, if one has been constituted, if the o Paid at least 2 years installment:
vendee shall have failed to pay two or more installments § Grace period: 1 month per year of installment paid. It shall
be exercised once in 5 years
• Remedies alternative – the election of one is a waiver of the right to resort
§ Cancelled: Seller shall refund 50% of total payments and
to the others
after 5 installments paid, additional 5% per year but not to
• Applicability of Article 1484 exceed 90%Grace period not less than 60 days
o Must appear that there was a contract for the sale of personal o Right to sell his rights or assign the same to another person or
property payable installments and there has been a failure to pay reinstate the contract by updating the account during grace period
two or more installments and before actual cancellation.
o Does not apply to o Right to pay in advance any installments and have it annotated in
§ Sale of personal property on straight term, partly in case the certificate covering the property
and term
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Atty. Carlo Busmente Sales and Lease Finals Reviewer
o Less than 2 yrs. installment:
§ Grace period of not less than 60 days
o What if installments less than 2 years?
§ 60 day grace period
o What is/are the right(s) granted to the seller?
§ To cancel or rescind the contract
o Requisites before cancellation is effective?
§ Notarial act (demand of rescission or cancellation)
§ May cancel the contract 30 days after buyer’s receipt of
Notarial act
§ For more than 2 yrs. installment: Full payment of cash
surrender value
o Layug vs. IAC
§ Connect to Sec. 3 (b)
§ Refund of cash surrender value! To make the cancellation
effective
o If you exceed 5 years of payment – what happens?
§ 5% refund for every year after 5-year installment paid. As
long as it doesn’t exceed 90%
o IMPORTANT! Cancellation
§ Requisites for valid cancellation?
• Notice by notarial act
• Full payment of the cash surrender value
o When will the cancellation be effected?
§ 30 days after buyer’s receipt of notarial act
o What kind of notice?
§ Notarial act – any written narration of facts drawn up by a
notary public authenticated by his signature and official
seal and detailing a procedure which has been transacted
by or before him in his official capacity.
Art. 1485. The preceding article shall be applied to contracts purporting
to be leases of personal property with option to buy, when the lessor has
deprived the lessee of the possession or enjoyment of the thing. (1454-A-
a)
• Lease of personal property with option to buy
• By its nature, a sale of personal property payable in installments
• Delivery voluntarily does not affect applicability
Ina Cojuangco Guingona | Dana Beatrice Lopez
Art. 1486. In the case referred to in two preceding articles, a stipulation
that the installments or rents paid shall not be returned to the vendee or
lessee shall be valid insofar as the same may not be unconscionable
under the circumstances. (n)
• Stipulation authorizing the forfeiture of installment of rents paid
o Parties may stipulate that there is not return, as long as not
unconscionable under the circumstances
Art. 1487. The expenses for the execution and registration of the sale shall
be borne by the vendor, unless there is a stipulation to the contrary.
(1455a)
• Expenses for execution and registration must be borne by the vendor in the
absence of a contrary agreement
• Expenses subsequent to transfer are borne by the buyer unless caused by
the fault of the seller
Art. 1488. The expropriation of property for public use is governed by
special laws. (1456)
• Expropriation of property for public use
o Must be decreed by competent authority and for public use
o Upon payment of just compensation
CHAPTER 2
CAPACITY TO BUY OR SELL
Art. 1489. All persons who are authorized in this Code to obligate
themselves, may enter into a contract of sale, saving the modifications
contained in the following articles.
Where necessaries are those sold and delivered to a minor or other person
without capacity to act, he must pay a reasonable price therefor.
Necessaries are those referred to in Article 290. (1457a)
• Persons who may enter into a contract of sale
o GR: Everyone
o EXCEPTION: those who suffer from relative or absolute
incapacity
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Atty. Carlo Busmente Sales and Lease Finals Reviewer Ina Cojuangco Guingona | Dana Beatrice Lopez

§ Relative incapacity – only with reference to persons or a

certain class of persons Art. 1491. The following persons cannot acquire by purchase, even at a
§ Absolute incapacity – persons who cannot bind public or judicial auction, either in person or through the mediation of
themselves another:
• Cannot give consent to a contract – voidable contract (1) The guardian, the property of the person or persons who may be
o Unemancipated minors under his guardianship;
o Insane or demented persons,
§ Unless entered into during a lucid interval (2) Agents, the property whose administration or sale may have been
o Deaf-mutes who do not know how to write entrusted to them, unless the consent of the principal has been given;
• Necessaries – those things which are needed for sustenance, dwelling,
clothing, medical attendance, education, transportation according to the (3) Executors and administrators, the property of the estate under
financial capacity of the family of the incapacitated person administration;
• Parents of minor can give consent to sale of property owned by the minor
(4) Public officers and employees, the property of the State or of any
subdivision thereof, or of any government-owned or controlled
Art. 1490. The husband and the wife cannot sell property to each other,
corporation, or institution, the administration of which has been
except:
intrusted to them; this provision shall apply to judges and government
experts who, in any manner whatsoever, take part in the sale;
(1) When a separation of property was agreed upon in the marriage
settlements; or
(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior
courts, and other officers and employees connected with the
(2) When there has been a judicial separation of property under Article
administration of justice, the property and rights in litigation or levied
191. (1458a)
upon an execution before the court within whose jurisdiction or territory
they exercise their respective functions; this prohibition includes the act
• Relative incapacity of husband and wife – they are prohibited from selling of acquiring by assignment and shall apply to lawyers, with respect to the
property to each other property and rights which may be the object of any litigation in which
o EXCEPTIONS: they may take part by virtue of their profession.
§ A separation of property was agreed upon in the marriage
settlement (6) Any others specially disqualified by law. (1459a)
§ There has been a judicial separation of property
• Also prohibited: donations • Incapacity by reason of relation to property
o EXCEPTION: moderate gifts on the occasion of family rejoicing o Guardians
• Property covered § Intimacy – presumption of fraud
o ACP – both community property and separate property o Agents
o CPG – communal property and exclusive property § Only against property he is required to sell during
• Expressly prohibited by law existence of agency
• Persons permitted to question sale § Unless consent given by principal by special power
o Heirs o Executors and administrators
o Creditors at the time of transfer § Under the administration of the executor or administrator
o Government if taxable transaction at the time of the acquisition
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Atty. Carlo Busmente Sales and Lease Finals Reviewer
§ Does not apply to a purchase by an executor of such
hereditary rights
o Public officers and employees
§ Belonging to the state or any subdivision, or GOCC or
institution
§ Administration of which has been entrusted to the public
official or employee
o Judicial officers, employees and lawyers
§ Only to property which is the subject of litigation
§ Can purchase after the decision already final
o Others especially disqualified by law
§ Aliens- disqualified to purchase private agricultural lands
• Exceptions:
o By inheritance
o Former Filipino citizen for residential
purposes
§ Unpaid seller having right of lien or having estopped the
good in transit, who is prohibited from buying the goods
either directly or indirectly in the resale of the same at a
public or private sale which he may make
§ The officer conducing the execution sale or his deputies
cannot become a purchaser; or be interested directly or
indirectly in any purchase at an execution sale
• Coverage of the prohibition
o Not even at judicial or public auction or through mediation of
another
• Effect of sale in violation or prohibition
o 1-3 voidable
§ They may be ratified if they become lawful, possible etc.
§ If ratified, valid from the execution of the second contract’
o 4-6 null and void
§ Public interest and public policy dictate
Art. 1492. The prohibitions in the two preceding articles are applicable to
sales in legal redemption, compromises and renunciations. (n)
• Compromise – amicable settlement
• Renunciation – creditor gratuitously abandons his right
• If disqualified to buy, disqualifies to lease as well
Ina Cojuangco Guingona | Dana Beatrice Lopez
CHAPTER 3
EFFECTS OF THE CONTRACT
WHEN THE THINGSOLD HAS BEEN LOST
Art. 1493. If at the time the contract of sale is perfected, the thing which is
the object of the contract has been entirely lost, the contract shall be
without any effect.
But if the thing should have been lost in part only, the vendee may
choose between withdrawing from the contract and demanding the
remaining part, paying its price in proportion to the total sum agreed
upon. (1460a)
• Effect of loss of thing at the time of sale
o Thing entirely lost – contract is inexistent or void
o Thing only partially lost – vendee can elect:
§ Withdraw
§ Demand the remaining part and pay its proportionate price
• When a thing considered lost
o When it perishes or goes out of commerce or disappears in such a
way that its existence is unknown or it cannot be recovered
o Perishes – material deterioration or complete change until it loses
its former utility
Art. 1494. Where the parties purport a sale of specific goods, and the
goods without the knowledge of the seller have perished in part or have
wholly or in a material part so deteriorated in quality as to be
substantially changed in character, the buyer may at his option treat the
sale:
(1) As avoided; or
(2) As valid in all of the existing goods or in so much thereof as have not
deteriorated, and as binding the buyer to pay the agreed price for the
goods in which the ownership will pass, if the sale was divisible. (n)
• Effect of loss in case of specific goods
o Sale divisible – rescind or pay the proportionate price of the
remaining object
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Atty. Carlo Busmente Sales and Lease Finals Reviewer Ina Cojuangco Guingona | Dana Beatrice Lopez

o Sale indivisible – buyer should be made to pay only the o Must be delivered in the condition they were upon the perfection
proportionate price of the remaining goods of the contract.
o Seller has obligation to not transform, alter or alienate – if he does,
CHAPTER 4 he is responsible for any damage to it between perfection and
OBLIGATIONS OF THE VENDOR delivery
SECTION 1. - General Provisions
Art. 1496. The ownership of the thing sold is acquired by the vendee from
Art. 1495. The vendor is bound to transfer the ownership of and deliver, the moment it is delivered to him in any of the ways specified in Articles
as well as warrant the thing which is the object of the sale. (1461a) 1497 to 1501, or in any other manner signifying an agreement that the
possession is transferred from the vendor to the vendee. (n)
• Principal obligations of the vendor
o To transfer the ownership of the determinate thing sold • Ways of effecting delivery
o To deliver the thing, with its accessions and accessories, if any, in o Actual or real
the condition in which they were upon the perfection of the o Constructive or legal
contract o In any other manner signifying an agreement that the possession is
o To warrant against eviction and against hidden defects transferred
o To take care of the thing, pending delivery, with proper diligence • Critical factor: the actual intention of the vendor to deliver and its
o To pay for the expense of the deed of sale, unless there is a acceptance by the vendee
stipulation to contrary • Must be made to the vendee or his authorized representative
• Obligation to transfer ownership and deliver • Constructive delivery – all those acts which although not conferring
o Reciprocal obligation to deliver and to pay, on the part of the physical possession of the thin, have been held by construction of law
vendor and vendee respectively equivalent to acts of real delivery
o With the seller’s right is a corresponding obligation on the part of • Ways of effecting constructive delivery
the buyer to accept delivery o Article 1498
o The vendor need not be the owner of the thing at the time of § Execution of a public instrument tradicion por ministerio de la
perfection, as long as he is the owner at the time it is delivered ley
o Transfer is not essential for the perfection of the contract – but if § Symbolical tradition or tradition symbolica
not delivered at time stipulated, the buyer can ask for fulfillment or o Article 1499
rescission with damaged § Traditio longa manu
o During period of redemption in extra judicial foreclosure sales, § Traditio brevi manu
there is no obligation to make delivery o Article 1500
o Not just the possession and employment of the land but also the § Traditio constitutum possessorium
certificate of title o Article 1501
o The purchaser retains a right to recover the price paid if the § Quasi-delivery or quasi-traditio
contract is set aside by reason of a material mistake
• Obligation to take care of, and preserve, the thing
o Seller is obliged to take care of the thing sold with the diligence of
a good father of a family unless the law or stipulation of the parties
provides requires another standard of care.

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SECTION 2. - Delivery of the Thing Sold
Art. 1497. The thing sold shall be understood as delivered, when it is
placed in the control and possession of the vendee. (1462a)
• Concept of tradition or delivery
o Tradition – one who has the right and intention to alienate a
corporeal thing, transmits it by virtue of a just title to one who
accepts the same
o Delivery – one party parts with the title to and the possession of
the property and the other acquires the right to and possession of
the same
§ “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”
• Importance of tradition
o Actual intention controls
o Delivery is necessary for vendee to enjoy
o Shifts liability to the vendee
o Vendor then has the right to claim payment
o Can be delivered even without payment or partial payment
o Delivery marks consummation
• Actual delivery of the thing sold when the thing sold is placed in the control
and possession of the vendee or his agent
o Actual or manual delivery of an article sold is not always essential
to the passing of title
• Proof of delivery
o Generally evidenced by a written acknowledgement of a person
that he or she has actually received the thing or the goods, like a
delivery receipt
§ Not considered evidence
• Bill of lading
• Factory consignment invoice
Art. 1498. When the sale is made through a public instrument, the
execution thereof shall be equivalent to the delivery of the thing which is
the object of the contract, if from the deed the contrary does not appear
or cannot clearly be inferred.
Ina Cojuangco Guingona | Dana Beatrice Lopez
With regard to movable property, its delivery may also be made by the
delivery of the keys of the place or depository where it is stored or kept.
(1463a)
• Execution of a public instrument or document – attested and certified by a
public officer authorized to administer oath
• Applies to movable and immovable property
• Symbolic delivery of the document as proof of ownership
• The document must reflect the actual intention of the parties to deliver the
property
• Execution of a public instrument only gives rise to a prima facie
presumption
• Delivery - concurrent transfer or possession AND ownership
• There will be no delivery even if a document is executed if the vendor does
not have control and possession over the property sold
o EXCEPTIONS:
§ Sale made under the express agreement of imposing upon
the vendee the obligation to take the necessary steps to
obtain material possession and if it were proven that he
knew that the thing was in the possession of a third person
(Addison v Felix)
§ Buyer was prepared to accept even if there were third part
occupants (PCIC v CA)
• Presumptive delivery can be negated by failure of vendee to take material
possession of the land
• Recording of the sale with the Registry of deeds is necessary only to bind
third parties – as between the seller and the buyer, the transfer of
ownership takes effect upon the execution of a public instrument
• Possession of part may be evidence of constructive possession of the whole
• Symbolic tradition
o When to effect delivery the parties make use of a token symbol to
represent the thing delivered
o Ex. A key
Art. 1499. The delivery of movable property may likewise be made by the
mere consent or agreement of the contracting parties, if the thing sold
cannot be transferred to the possession of the vendee at the time of the
sale, or if the latter already had it in his possession for any other reason.
(1463a)
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Atty. Carlo Busmente Sales and Lease Finals Reviewer
• Traditio longa manu – long hand delivery
o Takes place by mere consent or agreement of the contracting
parties
o Vendor merely points to the thing sold which shall thereafter be at
the control and disposal of the vendee
o ONLY IF the thing sold cannot be transferred to the possession of
the vendee at the time of the sale
• Traditio brevi manu – short hand delivery
o Vendee already has possession of the thing sold by virtue of
another title and instead of turning it over, to be returned for
delivery, its done automatically
§ Ex: Lessor sells the thing leased to the lessee
• 1499 also applied to immovable property – Spanish Civil Code
Art. 1500. There may also be tradition constitutum possessorium. (n)
• Traditio constitutum possessorium
o Opposite of traditio brevi manu
o When the vendor continues in possession of the property sold not
as owner but in some other capacity
§ Ex: Vendor stays as a tenant of the vendee
Art. 1501. With respect to incorporeal property, the provisions of the first
paragraph of article 1498 shall govern. In any other case wherein said
provisions are not applicable, the placing of the titles of ownership in the
possession of the vendee or the use by the vendee of his rights, with the
vendor's consent, shall be understood as a delivery. (1464)
• Quasi-traditio can only be made with respect to corporeal things
o By execution of a public instrument
o When that mode of delivery is not applicable, by the placing of the
titles of ownership in the possession of the vendee
o By allowing the vendee to use his rights as new owner with the
consent of the vendor
• Intention to deliver and to accept a transfer of possession must be present
– without it, no tradition, to delivery
Art. 1502. When goods are delivered to the buyer "on sale or return" to
give the buyer an option to return the goods instead of paying the price,
Ina Cojuangco Guingona | Dana Beatrice Lopez
the ownership passes to the buyer of delivery, but he may revest the
ownership in the seller by returning or tendering the goods within the
time fixed in the contract, or, if no time has been fixed, within a
reasonable time. (n)
When goods are delivered to the buyer on approval or on trial or on
satisfaction, or other similar terms, the ownership therein passes to the
buyer:
(1) When he signifies his approval or acceptance to the seller or does any
other act adopting the transaction;
(2) If he does not signify his approval or acceptance to the seller, but
retains the goods without giving notice of rejection, then if a time has
been fixed for the return of the goods, on the expiration of such time,
and, if no time has been fixed, on the expiration of a reasonable time.
What is a reasonable time is a question of fact. (n)
• Buyer takes the goods temporarily into his possession to see whether they
are satisfactory, and if they are not, then he may refuse to become owner
• Sale or return – property is sold but the buyer who becomes the owner of
the property on delivery has the option to return the same to the seller
instead of paying the price
o If not done within a reasonable (or stipulated time) the sale
becomes absolute and the buyer is liable for the price
o Loss or destruction prior to the exercise of the option falls upon
the buyer and he is responsible for the purchase price or balance
o Return implies a previous transfer of title
o Seller cannot refuse return if buyer makes proper tender
• Sale on trial or approval – nature of an option to purchase if the goods are
satisfactory, the approval of the buyer being a condition precedent
o Title continues in seller until sale is absolute
o May use as much of the trial time as needed, but must exercise his
option by giving notice within a reasonable time from the end of
the trial period
o Buyer must give notice that he does not accept
o Risk is upon the seller since title isn’t transferred
§ EXCEPTION:
• As the buyer may be at fault in respect to the care
and condition of the article
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Atty. Carlo Busmente Sales and Lease Finals Reviewer
• Buyer may have agreed to stand the loss
o The buyer cannot accept part and reject the rest
Sale or return Sale on trial
Subject to resolutory condition Suspensive condition
Depends entirely on will of buyer Depends on character or quality of
the goods
Ownership passes to buyer upon Ownership remains in seller until
delivery, and return re-vests buyer signifies his approval or
ownership in the seller acceptance
Risk of loss or injury with buyer With seller
Art. 1503. When there is a contract of sale of specific goods, the seller
may, by the terms of the contract, reserve the right of possession or
ownership in the goods until certain conditions have been fulfilled. The
right of possession or ownership may be thus reserved notwithstanding
the delivery of the goods to the buyer or to a carrier or other bailee for the
purpose of transmission to the buyer.
Where goods are shipped, and by the bill of lading the goods are
deliverable to the seller or his agent, or to the order of the seller or of his
agent, the seller thereby reserves the ownership in the goods. But, if
except for the form of the bill of lading, the ownership would have passed
to the buyer on shipment of the goods, the seller's property in the goods
shall be deemed to be only for the purpose of securing performance by
the buyer of his obligations under the contract.
Where goods are shipped, and by the bill of lading the goods are
deliverable to order of the buyer or of his agent, but possession of the bill
of lading is retained by the seller or his agent, the seller thereby reserves a
right to the possession of the goods as against the buyer.
Where the seller of goods draws on the buyer for the price and transmits
the bill of exchange and bill of lading together to the buyer to secure
acceptance or payment of the bill of exchange, the buyer is bound to
return the bill of lading if he does not honor the bill of exchange, and if
he wrongfully retains the bill of lading he acquires no added right
thereby. If, however, the bill of lading provides that the goods are
deliverable to the buyer or to the order of the buyer, or is indorsed in
blank, or to the buyer by the consignee named therein, one who
Ina Cojuangco Guingona | Dana Beatrice Lopez
purchases in good faith, for value, the bill of lading, or goods from the
buyer will obtain the ownership in the goods, although the bill of
exchange has not been honored, provided that such purchaser has
received delivery of the bill of lading indorsed by the consignee named
therein, or of the goods, without notice of the facts making the transfer
wrongful. (n)
• General rule: ownership in goods sold passes to the buyer upon their
delivery to the carrier
o EXECPTIONS:
§ If a contrary intention appears by the terms of the contract
§ Paragraph 2 and 3 of Article 1523
§ Paragraph 1-3 of 1503
• Transfer of ownership where goods sold delivered to carrier
o General rule: delivery, be it only constructive, passes title in the
thing sold and delivery to the carrier is deemed to be a delivery to
the buyer
§ Risk of loss falls upon the buyer
o HOWEVER: if the seller directs the carrier to redeliver to goods to
the seller himself, or to his order, it indicates an intention that the
carrier is the bailee for the seller and the ownership will remain in
the latter
o The Seller may reserve the right of possession or ownership in the
goods until certain conditions are fulfilled
o Form is not controlling
• Where seller or his agent is consignee
o The seller thereby reserves the ownership in the foods and the
carrier is a bailee for him and not the buyer
o Even applied if shipped on the buyer’s vessel if intention shows
such
o Seller may not only retain the goods but he may even dispose them
to third persons (but will be liable for damages for violating the
contract)
• Where seller's title only for purpose of security
o Were it not for the form of the bill of lading, the ownership would
have passed to the buyer or shipment of the goods
o Purpose is to reserve the property for security only
• Significance where title held merely as security
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o As security – beneficial owner, the buyer, will be subject to the risk
of loss or deterioration from the time the foods are delivered to the
carrier, even if legal title is not yet transferred
• Where buyer or his agent is consignee but seller retains order bill of lading
o Seller retains a right to possession
o The buyer cannot obtain without the bill
§ Order bill – goods are deliverable to the order of the
consignee
§ Straight bill – specifies a person as consignee without the
use of the word order
• Where a third person who retains the bill is consignee
o Usually a banker
o Requests the third person to retain the bill of lading or goods until
payment of the price
o When the price is paid, the consignee of the goods indorses the bill
or delivers the goods to the buyer
o Immaterial whether order or straight bill
o Title is held just for the benefit of the seller
o Interest is simply to secure repayment of money advanced or
liabilities incurred
• Where bill of lading sent forward with draft attached
o Title is regarded as retained in the seller until the bill of exchange is
paid or accepted
o Seller intends to make the delivery of the goods conditional upon
the payment or acceptance of the draft
o Buyer must return the bill of lading if he does not honor the bill of
exchange
§ Wrongfully retains – acquires no right either way
• Effect of buyer obtaining possession of bill of lading without honoring
draft
o The seller’s right will prevail
o Intent is clearly indicated by the attachment of the draft to the bill
of lading – buyer cannot take advantage of his possession of the
bill of lading to any greater extent than the offer of the seller
authorizes
o Form of bill is material to determine whether the third person will
obtain ownership
§ Buyer as consignee – passed to consignee
Ina Cojuangco Guingona | Dana Beatrice Lopez
§ Seller named as consignee, indorsed by him to the buyer or
in blank – possession gives the buyer title or apparent
ownership
§ Seller or third person as consignee with no indorsement –
possession by buyer does not indicate title
o A purchaser in good faith for value of the bill of lading or goods
from the buyer will obtain ownership although the bill of exchange
has not been honored
o “he should suffer whose act has brought about the loss”
Art. 1504. Unless otherwise agreed, the goods remain at the seller's risk
until the ownership therein is transferred to the buyer, but when the
ownership therein is transferred to the buyer the goods are at the buyer's
risk whether actual delivery has been made or not, except that:
(1) Where delivery of the goods has been made to the buyer or to a bailee
for the buyer, in pursuance of the contract and the ownership in the
goods has been retained by the seller merely to secure performance by
the buyer of his obligations under the contract, the goods are at the
buyer's risk from the time of such delivery;
(2) Where actual delivery has been delayed through the fault of either the
buyer or seller the goods are at the risk of the party in fault. (n)
• Risk of less generally attends title
o If the thing is lost by fortuitous event, the risk is borne by the
owner of the thing at the time of the loss
o Res perit domino
o EXCEPTIONS:
§ Seller reserves the ownership of the goods merely to
secure the performance by the buyer of his obligations
• Ownership transferred to buyer – buyer assumes
risk
§ Actual delivery delayed through the fault of either party –
risk of the party at fault
• Risk of loss by fortuitous event after perfection but before delivery
o Conflict between 1480 and 1504
§ 1480 – lost after perfection but before delivery – buyer’s
risk, and pays, or forfeits payment already made
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Atty. Carlo Busmente Sales and Lease Finals Reviewer
§ 1504 par. 1 – goods remain at sellers risk until ownership is
transferred
o Suggested solution (De Leon)
§ 1504 – restricted, applies only to goods
§ 1480 – to things
o Legislation necessary
Art. 1505. Subject to the provisions of this Title, where goods are sold by a
person who is not the owner thereof, and who does not sell them under
authority or with the consent of the owner, the buyer acquires no better
title to the goods than the seller had, unless the owner of the goods is by
his conduct precluded from denying the seller's authority to sell.
Nothing in this Title, however, shall affect:
(1) The provisions of any factors' act, recording laws, or any other
provision of law enabling the apparent owner of goods to dispose of them
as if he were the true owner thereof;
(2) The validity of any contract of sale under statutory power of sale or
under the order of a court of competent jurisdiction;
(3) Purchases made in a merchant's store, or in fairs, or markets, in
accordance with the Code of Commerce and special laws. (n)
• Sale by a person not the owner
o A person can sell only what he owns or is authorized to sell
o Buyer gets only such rights as the seller had or could legally sell
o EXCEPTIONS:
§ Where the owner of the goods, is by his conduct,
precluded (estopped) from denying the seller’s authority to
sell
• Requisite: the party estopped must have made a
representation by words or acts that someone
shall have acted on the faith of his representation,
that he cannot without damage withdraw from the
transaction
§ Where the law enables the apparent owner to dispose of
the goods as if he were the true owner thereof
§ Where the sale is sanctioned by statutory or judicial
authority
Ina Cojuangco Guingona | Dana Beatrice Lopez
• Ex: execution sale, judicial foreclosure sale,
extrajudicial foreclosure sale
• Court of competent jurisdiction must order
• Government does not warrant the title of the
property sold
§ Where the sale is made at merchant’s stores, fairs or
markets
• Cannot be reclaimed from the buyer even if seller
had no title provided he bought in good faith and
without knowledge of the defect in title
§ Where the seller has a voidable title which has not been
avoided at the time of the sale
§ Where seller subsequently acquires title
• Validates the previous conveyance
• Possession of movable property acquired in good faith is equivalent to title
(Article 559)
o Owner of lost movable may recover it from the person in
possession even if the latter acquired it in good faith
• The principle that a person can sell only what he owns or is authorized to
sell applied to the sale of immovable
o EXCEPTIONS:
§ The owner of land may be estopped from claiming that the
sale of the land was not authorized
§ Fraudulent and forged document of sale may become the
root of a valid title if the certificate of title has already been
transferred from the name of the true owner to the name
indicated by the forger
• Remedy: damages
• Only relevant to registered land
§ Where the sale is sanctioned by statutory or judicial
authority
Art. 1506. Where the seller of goods has a voidable title thereto, but his
title has not been avoided at the time of the sale, the buyer acquires a
good title to the goods, provided he buys them in good faith, for value,
and without notice of the seller's defect of title. (n)
• Requisites (acquisition of good title by buyer)
o Before the title of the seller has been avoided
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Atty. Carlo Busmente Sales and Lease Finals Reviewer Ina Cojuangco Guingona | Dana Beatrice Lopez

o In good faith for value § Contract for receipt for goods deposited with a
o Without notice of the seller’s defect of title warehouseman – undertaking to hold and deliver said
• Sale by one having a voidable title goods to a specified person, order, bearer
o Loss borne by him who is the occasion of the loss § Quedan – warehouse receipt for sugar, received by a
warehouseman
• Classes of documents of titles
Art. 1507. A document of title in which it is stated that the goods referred o Negotiable documents of title – bailee undertakes to deliver the
to therein will be delivered to the bearer, or to the order of any person goods to the bearer and those by the terms of which the bailee
named in such document is a negotiable document of title. (n) undertakes to deliver the goods to the order of a specified person
o Non-negotiable documents of title – by the terms of which the
• Definition of terms goods covered are deliverable to a specified person
o Document of title to goods – document used in the ordinary • Analogous to a bill of exchange or promissory note – paper should be
course of business in the sale or transfer of goods, as proof of the regarded as equivalent of the goods
possession or control of the goods, or authorizing or purporting to
authorize the possessor of the document to transfer or receive Negotiable DoT Non-negotiable DoT
either by indorsement or by delivery, goods represented by such Can be negotiated Can be transferred, not negotiated
document Goods will be delivered to bearer, or Delivered to a specific person
o Goods – all chattels personal in the Philippines. Includes growing order of any person named
fruits or crops Negotiated by indorsement or Can be transferred by delivery
§ Does not include things in action or money of legal tender delivery
o Order – an order by indorsement on the documents If duly negotiated, acquires rights
• Nature and function of documents of title under 1513, 1518 and 1519
o Refer to goods not to money Transferred or not properly
o Document of title negotiated - 1514
§ Symbol of goods covered by it Protected from attachment or levy of May be defeated by the levy or
§ Evidence of transfer of title the goods attachment or execution upon the
§ Evidence of transfer of possession goods by a creditor of the transferor
§ Evidence of contract
• Most common forms of documents of title
o Bill of lading – contract and receipt for the transport of goods and Art. 1508. A negotiable document of title may be negotiated by delivery:
their delivery to the person named therein, to order or to bearer
§ Carrier, shipper and consignee (1) Where by the terms of the document the carrier, warehouseman or
§ Date place of shipment, describes the goods other bailee issuing the same undertakes to deliver the goods to the
§ Names the parties, fixes charges and stipulates obligations bearer; or
of parties
o Dock warrant (2) Where by the terms of the document the carrier, warehouseman or
§ Given by dock owner as recognition of importer’s title to other bailee issuing the same undertakes to deliver the goods to the order
goods upon presenting bill of lading of a specified person, and such person or a subsequent endorsee of the
o Warehouse receipt document has indorsed it in blank or to the bearer.

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Where by the terms of a negotiable document of title the goods are
deliverable to bearer or where a negotiable document of title has been
indorsed in blank or to bearer, any holder may indorse the same to
himself or to any specified person, and in such case the document shall
thereafter be negotiated only by the endorsement of such endorsee. (n)
• Negotiation of negotiable document by delivery if the goods are deliverable
to
o The bearer, or
o When it is indorsed in blank, or
o To the bearer by the person to whose order the goods are
deliverable, or by a subsequent indorsee
• If specially indorsed – it becomes and order document of title and can only
be effected by the indorsement of an indorsee
o Not like a NI (bearer always a bearer)
Art. 1509. A negotiable document of title may be negotiated by the
endorsement of the person to whose order the goods are by the terms of
the document deliverable. Such endorsement may be in blank, to bearer
or to a specified person. If indorsed to a specified person, it may be again
negotiated by the endorsement of such person in blank, to bearer or to
another specified person. Subsequent negotiations may be made in like
manner. (n)
• Negotiation of negotiable document by indorsement
o Deliverable to a specified person – negotiated only by the
indorsement of that person
o Indorsed in blank or to bearer – negotiable by delivery
o Indorsed to a specified person – indorsement of that person in
blank or to bearer or to another specified person.
§ Delivery is not enough
• Title will only pass if the seller intends it shall and the buyer agrees to
accept it
• Delivery with the indorsement is itself an act which without more implies
an intent to transfer
Art. 1510. If a document of title which contains an undertaking by a
carrier, warehouseman or other bailee to deliver the goods to bearer, to a
specified person or order of a specified person or which contains words of
like import, has placed upon it the words "not negotiable," "non-
Ina Cojuangco Guingona | Dana Beatrice Lopez
negotiable" or the like, such document may nevertheless be negotiated
by the holder and is a negotiable document of title within the meaning of
this Title. But nothing in this Title contained shall be construed as
limiting or defining the effect upon the obligations of the carrier,
warehouseman, or other bailee issuing a document of title or placing
thereon the words "not negotiable," "non-negotiable," or the like. (n)
• Negotiable documents of title marked "non-negotiable" – does not have
any effect and the document continues to be negotiable
• Note: the first sentence should read “to a specified person or order or to
the other of a specified person”
Art. 1511. A document of title which is not in such form that it can be
negotiated by delivery may be transferred by the holder by delivery to a
purchaser or donee. A non-negotiable document cannot be negotiated
and the endorsement of such a document gives the transferee no
additional right. (n)
• Negotiation and transfer
o Negotiation – with respect to negotiable documents
o Transfer
§ Transfer of documents originally made out to order but
not properly indorsed for negotiation at the time of the
transfer
• Document is the symbol of the foods
• New holder does not become the promise of the
bailee so the holder is not entitled to enforce the
bailee’s promise
§ Transfer of straight bills of lading and similar documents
in which the bailee’s promise is merely to a specific person
• Straight bill of lading cannot be a symbol of the
goods
• Transfer of non-negotiable documents
o Transferee or assignee only acquires the rights in 1514
o Even if indorsed, the transferee acquires no additional right
Art. 1512. A negotiable document of title may be negotiated:
(1) By the owner therefor; or
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(2) By any person to whom the possession or custody of the document
has been entrusted by the owner, if, by the terms of the document the
bailee issuing the document undertakes to deliver the goods to the order
of the person to whom the possession or custody of the document has
been entrusted, or if at the time of such entrusting the document is in
such form that it may be negotiated by delivery. (n)
• If the owner of the goods permits another to have the possession or
custody of negotiable receipts to the order of another or to bearer, it is a
representation of title
o Bona fide purchasers for virtue are entitled to rely despite breaches
of trust or violations of agreement on the part of the apparent
owner
• Loss must fall upon him who misplaced confidence made the loss possible
Art. 1513. A person to whom a negotiable document of title has been duly
negotiated acquires thereby:
(1) Such title to the goods as the person negotiating the document to him
had or had ability to convey to a purchaser in good faith for value and
also such title to the goods as the person to whose order the goods were
to be delivered by the terms of the document had or had ability to convey
to a purchaser in good faith for value; and
(2) The direct obligation of the bailee issuing the document to hold
possession of the goods for him according to the terms of the document
as fully as if such bailee had contracted directly with him. (n)
• Rights of person to whom document has been negotiated
o Title of the person negotiating the document over the goods
covered by the document
o Title of the person (depositor or owner) to whose order the goods
were to be delivered
o The direct obligation of the bailee to hold possession of the goods
for him
o Acquires the title of the person to whose order the goods were to
be delivered
• Instances when buyer does not acquire title
o Bailee may have never received any goods and may have issued the
document fraudulently
Ina Cojuangco Guingona | Dana Beatrice Lopez
o The depositor of the goods may have no title to goods that were
deposited
o The goods deposited ay have been destroyed after their receipt but
prior to the negotiation
o Delivered by the bailee to one who has the right to retain them
prior to the time of the negotiation of the document
• Goods not received by bailee who issued the document of title – the
purchaser of the document acquires no property rights
o But he may enforce a claim against the bailee claiming
§ Document amounts to a contract
§ It amounts to representation that goods were received and
holder relied on when he purchased
• Bailor having no title to goods cannot give good title to a document of title
over those goods however innocent he may be
o 1505 – where goods are sold by a person who is not the owner and
who does not sell then with authority or consent of owner, the
buyer acquires no better right than the seller had unless the owner
is precluded from denying the seller’s authority to sell
• Goods destroyed after receipt by bailee but prior to negotiation – person to
whom the document is negotiated cannot acquire any goods unless the
buyer agreed to bear the risk of past loss
o But can recover money already paid
• "Spent" documents – if the goods been delivered by the bailee, they are
spent and can no longer be used as symbols for such goods
• Forged and altered documents of title cannot transfer title to the goods
o Altered cannot bind anyone except when the person making the
alteration are precluded from denying its validity by reason of
estoppel or apparent authority
Art. 1514. A person to whom a document of title has been transferred, but
not negotiated, acquires thereby, as against the transferor, the title to the
goods, subject to the terms of any agreement with the transferor.
If the document is non-negotiable, such person also acquires the right to
notify the bailee who issued the document of the transfer thereof, and
thereby to acquire the direct obligation of such bailee to hold possession
of the goods for him according to the terms of the document.
Prior to the notification to such bailee by the transferor or transferee of a
non-negotiable document of title, the title of the transferee to the goods
and the right to acquire the obligation of such bailee may be defeated by
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the levy of an attachment of execution upon the goods by a creditor of the
transferor, or by a notification to such bailee by the transferor or a
subsequent purchaser from the transfer of a subsequent sale of the goods
by the transferor. (n)
• Rights of person to whom document has been transferred
o Person acquires the title to the goods as against the transferor,
subject to any agreement between them
o Right to notify the bailee of the transfer thereof
o Right to acquire the obligation of the bailee to hold the goods for
him
• Right of assignee – steps into shoes of the transferor
• Attachment of goods covered by document transferred
o Non-negotiable document does not control possession of the
goods
§ May be defeated by levy by the creditor of the transferor
or by a notification to such bailee of the subsequent sale of
the goods
o Negotiable – cannot be attached or levied upon under an execution
unless the document is first surrendered to the bailee, or
negotiation enjoined
Art. 1515. Where a negotiable document of title is transferred for value by
delivery, and the endorsement of the transferor is essential for
negotiation, the transferee acquires a right against the transferor to
compel him to endorse the document unless a contrary intention appears.
The negotiation shall take effect as of the time when the endorsement is
actually made. (n)
• Necessity of indorsement
o A negotiable instrument should be indorsed in order that the
person to whom it is negotiated should have a perfect title unless
the document runs to the bearer or is indorsed in blank or to
bearer
• Rights of a person when transfer of order document without indorsement
o Right to the goods as against the transferor
o Right to compel the transferor to indorse the indorsement
• Rule where document subsequently indorsed
o Negotiation becomes complete at the time of indorsement
Ina Cojuangco Guingona | Dana Beatrice Lopez
Art. 1516. A person who for value negotiates or transfers a document of
title by endorsement or delivery, including one who assigns for value a
claim secured by a document of title unless a contrary intention appears,
warrants:
(1) That the document is genuine;
(2) That he has a legal right to negotiate or transfer it;
(3) That he has knowledge of no fact which would impair the validity or
worth of the document; and
(4) That he has a right to transfer the title to the goods and that the goods
are merchantable or fit for a particular purpose, whenever such
warranties would have been implied if the contract of the parties had
been to transfer without a document of title the goods represented
thereby. (n)
• Liability is limited only to violation of the 4 warranties in 1516
• One who assigns for value a claim secured by a document of title also liable
for the 4 warranties unless a contrary intention appears
• Last indorser warrants that all the previous indorsement are genuine
Art. 1517. The endorsement of a document of title shall not make the
endorser liable for any failure on the part of the bailee who issued the
document or previous endorsers thereof to fulfill their respective
obligations. (n)
• Indorser not a guarantor – an indorser of a document of title shall not be
liable to the holder
o The indorsement is merely a conveyance of the instrument by the
indorser
Art. 1518. The validity of the negotiation of a negotiable document of title
is not impaired by the fact that the negotiation was a breach of duty on
the part of the person making the negotiation, or by the fact that the
owner of the document was deprived of the possession of the same by
loss, theft, fraud, accident, mistake, duress, or conversion, if the person to
whom the document was negotiated or a person to whom the document
was subsequently negotiated paid value therefor in good faith without
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notice of the breach of duty, or loss, theft, fraud, accident, mistake,
duress or conversion. (n)
• When negotiation not impaired by fraud, mistake, duress, etc.
o It may be negotiated even by a thief or finder
o The holder thereof would acquire a good title if he paid value
therefor in good faith without notice of the seller’s defect of title
• Theft of the document not the goods.
• If it is the goods which are taken, even a bona fide holder of a document
issued cannot acquire title
• Conflict: Article 1512 – a thief or finder may not negotiate a negotiable
document of title
Art. 1519. If goods are delivered to a bailee by the owner or by a person
whose act in conveying the title to them to a purchaser in good faith for
value would bind the owner and a negotiable document of title is issued
for them they cannot thereafter, while in possession of such bailee, be
attached by garnishment or otherwise or be levied under an execution
unless the document be first surrendered to the bailee or its negotiation
enjoined. The bailee shall in no case be compelled to deliver up the
actual possession of the goods until the document is surrendered to him
or impounded by the court. (n)
• Negotiable document of title represents the goods and a person may deal
safely with the document on that assumption
• An attachment or levy upon the goods is improper when the negotiable
documents hare outstanding
• 1519 applies to a negotiable document of title
o Negotiable – the person to whom the document is negotiated for
value acquired title and delivery of the goods by a delivery to him
of the document
o Non-negotiable – transfer thereof does not prevent the bailor’s
creditor from causing the levy or attachment
• Attachment or levy upon goods covered by a negotiable document
o Bailee has the direct obligation to hold possession of the goods for
the original owner or to the person to whom the negotiable
document of title has been duly negotiated
Ina Cojuangco Guingona | Dana Beatrice Lopez
o Goods cannot be attached or levied under execution unless the
document be first surrendered or its negotiation prohibited by the
court
o Bailee cannot be compelled to deliver up the possession of the
goods until the document is surrendered to him or impounded by
the court
• Article 1519 does not apply where depositor not owner of the goods or
does not have the right to convey title to the goods binding upon the owner
• The rights acquired by attaching creditors cannot be defeated by the
issuance of a negotiable document of title thereafter
Art. 1520. A creditor whose debtor is the owner of a negotiable document
of title shall be entitled to such aid from courts of appropriate jurisdiction
by injunction and otherwise in attaching such document or in satisfying
the claim by means thereof as is allowed at law or in equity in regard to
property which cannot readily be attached or levied upon by ordinary
legal process. (n)
• Creditor's remedies to reach negotiable documents
o Gives the court full power to aid by injunction and by other means
a creditor seeking to get a negotiable document covering such
goods under 1519
o If an injunction is issued but the negotiable document of title is
negotiated, the transfer is nevertheless effectual
Art. 1521. Whether it is for the buyer to take possession of the goods or of
the seller to send them to the buyer is a question depending in each case
on the contract, express or implied, between the parties. Apart from any
such contract, express or implied, or usage of trade to the contrary, the
place of delivery is the seller's place of business if he has one, and if not
his residence; but in case of a contract of sale of specific goods, which to
the knowledge of the parties when the contract or the sale was made were
in some other place, then that place is the place of delivery.
Where by a contract of sale the seller is bound to send the goods to the
buyer, but no time for sending them is fixed, the seller is bound to send
them within a reasonable time.
Where the goods at the time of sale are in the possession of a third
person, the seller has not fulfilled his obligation to deliver to the buyer
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Atty. Carlo Busmente Sales and Lease Finals Reviewer
unless and until such third person acknowledges to the buyer that he
holds the goods on the buyer's behalf.
Demand or tender of delivery may be treated as ineffectual unless made
at a reasonable hour. What is a reasonable hour is a question of fact.
Unless otherwise agreed, the expenses of and incidental to putting the
goods into a deliverable state must be borne by the seller. (n)
• Place of delivery of goods sold – Rules:
o Express or implied agreement- the place of delivery is that agreed
upon
o No agreement- place of delivery is determined by the usage of
trade
o No agreement and no prevalent usage- place of delivery is the
seller’s place of business
o In any other case, the place of delivery is the seller’s residence; and
o In case of specific goods, which to the knowledge of the parties at
the time the contract was made were in some other place, that
place is the place of delivery in the absence of any agreement or
usage of trade to contrary.
• Time of delivery of goods sold
o generally: determined by the agreement of the parties OR in the
absence thereof, by the usage of trade.
o Rules:
§ If no time is fixed by the contract- seller is bound to send
the goods to the buyer within a reasonable time.
§ If the contract provides a fixed time for performance-
question is whether time is of the essence, and if so,
whether correct performance was offered within that time.
• *if time is not of the essence, question is whether
correct performance was offered within a
reasonable time.
§ Where the contract does not specify the time for delivery
so that delivery is to be made within a reasonable time,
time is not of the essence.
• Delivery of goods in possession of a third person
o Essential: third person acknowledges that he holds the goods on
behalf of the buyer
Ina Cojuangco Guingona | Dana Beatrice Lopez
o Important: distinction between the delivery which will satisfy the
seller’s duty to the buyer and delivery, which is necessary to protect
the buyer against third persons.
o It is not enough to discharge the seller that the bailee has become
by operation of law the agent of the buyer.
o To affect third persons, the person holding the goods much
acknowledge being the bailee for the buyer
• Hour of delivery of goods sold
o Must be made at a reasonable hour of the day
o What is a reasonable hour is a question of fact largely dependent
upon the circumstances provable by extrinsic evidence
o Cases where goods are bulky or needed special care- an hour might
be unreasonable which would not be so in an ordinary payment of
a small sum of money
o If the question is not merely of tender but also of demand,
reasonableness will depend on the justifiable expectation that the
hour is reasonable for giving and receiving.
• Duty of seller to put goods in deliverable condition
o General rule: seller bears the expenses to place the thing in a
deliverable state (in such a state that the buyer would be bound to
take delivery of them)
o EXCEPTION: if there is an agreement to the contrary
o Buyer is not bound to make tender of payment until the seller has
complied with his obligations
Art. 1522. Where the seller delivers to the buyer a quantity of goods less
than he contracted to sell, the buyer may reject them, but if the buyer
accepts or retains the goods so delivered, knowing that the seller is not
going to perform the contract in full, he must pay for them at the contract
rate. If, however, the buyer has used or disposed of the goods delivered
before he knows that the seller is not going to perform his contract in full,
the buyer shall not be liable for more than the fair value to him of the
goods so received.
Where the seller delivers to the buyer a quantity of goods larger than he
contracted to sell, the buyer may accept the goods included in the
contract and reject the rest. If the buyer accepts the whole of the goods so
delivered he must pay for them at the contract rate.
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Where the seller delivers to the buyer the goods he contracted to sell
mixed with goods of a different description not included in the contract,
the buyer may accept the goods which are in accordance with the
contract and reject the rest.
In the preceding two paragraphs, if the subject matter is indivisible, the
buyer may reject the whole of the goods.
The provisions of this article are subject to any usage of trade, special
agreement, or course of dealing between the parties. (n)
• Delivery of goods less than quantity contracted – Rules:
o Buyer may reject
o Buyer may accept. If he accepts he must pay for the price at the
contract rate if he knew that no more were to be delivered OR the
fair value to him of the goods (if he did not know that the seller is
going to be guilty of a breach of contract).
• Delivery of goods more than quantity contracted – Rules:
o Buyer may accept the quantity contracted for and reject the excess
o Buyer may accept all the goods delivered. *he is liable for the price
of all of them
o Buyer may reject ALL
• Delivery of goods mixed with others
o buyer may accept those, which are in accordance with the contract
and reject the rest.
o Buyer may accept all, if he so desires.
• Effect of indivisibility of subject matter
o If the subject matter of the sale is indivisible (in case of delivery of
a larger quantity of goods or mixed goods), the buyer may reject
the whole of goods.
• Application of usage of trade, special agreement, or course of dealing
o Usage of trade – any practice or method of dealing having such
regularity of observance in a place, vocation or trade as to justify an
expectation that it will be observed with respect to the transaction
in question. *existence and scope of usage are to be proved as facts
o Course of dealing- a sequence of previous conduct between the
parties to a particular transaction which is fairly to be regarded as
establishing a common basis of understanding for interpreting their
expressions an other conduct.
Ina Cojuangco Guingona | Dana Beatrice Lopez
Art. 1523. Where, in pursuance of a contract of sale, the seller is
authorized or required to send the goods to the buyer, delivery of the
goods to a carrier, whether named by the buyer or not, for the purpose of
transmission to the buyer is deemed to be a delivery of the goods to the
buyer, except in the case provided for in Article 1503, first, second and
third paragraphs, or unless a contrary intent appears.
Unless otherwise authorized by the buyer, the seller must make such
contract with the carrier on behalf of the buyer as may be reasonable,
having regard to the nature of the goods and the other circumstances of
the case. If the seller omit so to do, and the goods are lost or damaged in
course of transit, the buyer may decline to treat the delivery to the carrier
as a delivery to himself, or may hold the seller responsible in damages.
Unless otherwise agreed, where goods are sent by the seller to the buyer
under circumstances in which the seller knows or ought to know that it is
usual to insure, the seller must give such notice to the buyer as may
enable him to insure them during their transit, and, if the seller fails to do
so, the goods shall be deemed to be at his risk during such transit. (n)
• Delivery to carrier on behalf of buyer
o General rule: where the seller is authorized or required to send the
goods to the buyer, the delivery of such goods to the carrier
constitutes delivery to the buyer, whether the carrier is named by
the buyer or not.
o “delivery to carrier is delivery to buyer, if it is the duty of the seller
to send goods to the buyer”
o EXCEPTIONS: Art. 1503 (1), (2), and (3) and when a contrary
intent appears.
• Seller's duty after delivery to carrier
o To enter on behalf of buyer into such contract reasonable under
the circumstances
o To give notice to buyer regarding necessity to insure goods.
o *both obligations of the seller are subject to specific instructions of
the buyer or any agreement to the contrary.
• Definition of shipping terms
o C.O.D.- “collect on delivery”. If the goods are marked C.O.D., the
carrier acts for the seller in collecting the purchase price. The buyer
must pay for the goods before he can obtain possession.
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o F.O.B.- “free on board”. The goods are to be delivered free of
expense to the buyer to he point were they are F.O.B.
o C.I.F- “cost, insurance and freight”- the price fixed covers not only
the cost of goods but also the expense of freight and insurance to
be paid by the seller.
• Presumption arising from payment of freight
o Both F.O.B. and C.I.F. merely make rules of presumption, which
yield to proof of contrary intention.
o Title to the goods transfers to the buyer upon shipment or delivery
to the carrier.
Art. 1524. The vendor shall not be bound to deliver the thing sold, if the
vendee has not paid him the price, or if no period for the payment has
been fixed in the contract. (1466)
• Delivery, simultaneous with payment of price
o Obligations of vendor and vendee reciprocal
o General rule: the obligation to deliver the thing subject matter of a
contract arises from the moment of its perfection and from that
time the obligation may be enforced.
o *but contract of purchase and sale is bilateral- from it arises the
obligation to delivery the thing and also to pay the price.
(obligations are reciprocal)
o Payment before delivery- the vendor is not bound to deliver the
thing if the vendee has not paid the purchase price.
o Delivery before payment- a vendor who continued to effect sales
and deliveries to the vendee even without promptly getting paid is
considered for all intents and purposes to have sold on credit.
• Where period of payment has been fixed
o General rule: the thing shall not be delivered unless the price be
paid
o EXCEPTION: the thing must be delivered though the price has
not been paid yet, if TIME for such payment has been fixed in the
contract.
o If the period was fixed- the vendor is obliged to deliver the thing
sold (even if the period has not terminated, or that he has not
collected the price)
o Even if a period has been fixed for the payment of the price-
vendor is not bound to deliver in case the vendee has lost the right
to make us of the period and still has not paid the price.
Ina Cojuangco Guingona | Dana Beatrice Lopez
Art. 1525. The seller of goods is deemed to be an unpaid seller within the
meaning of this Title:
(1) When the whole of the price has not been paid or tendered;
(2) When a bill of exchange or other negotiable instrument has been
received as conditional payment, and the condition on which it was
received has been broken by reason of the dishonor of the instrument, the
insolvency of the buyer, or otherwise.
In Articles 1525 to 1535 the term "seller" includes an agent of the seller to
whom the bill of lading has been indorsed, or a consignor or agent who
has himself paid, or is directly responsible for the price, or any other
person who is in the position of a seller. (n)
• Unpaid seller- one who has not been paid or tendered the whole price or
who has received a bill of exchange or other negotiable instrument as
conditional payment and the condition on which it was received has been
broken by reason of the dishonor of the instrument.
• Where whole of price has not been paid
o Tender of payment by buyer- tender destroys the seller’s lien.
Accordingly, so far as concerns his rights against the goods, he is
not an unpaid seller after the tender of the price.
o Payments of part of price- payment of a part only of the price
DOES NOT destroy a seller’s lien. The seller remains an unpaid
seller if title has passed to the buyer.
o Payment by negotiable instrument- NCC Article 1249 (2): “The
delivery of promissory notes payable to order, or bills of exchange
or other mercantile documents shall produce the effect of payment
only when they have been cased or when through the fault of the
creditor they have been impaired.”
Art. 1526. Subject to the provisions of this Title, notwithstanding that the
ownership in the goods may have passed to the buyer, the unpaid seller
of goods, as such, has:
(1) A lien on the goods or right to retain them for the price while he is in
possession of them;
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(2) In case of the insolvency of the buyer, a right of stopping the goods in
transitu after he has parted with the possession of them;
(3) A right of resale as limited by this Title;
(4) A right to rescind the sale as likewise limited by this Title.
Where the ownership in the goods has not passed to the buyer, the
unpaid seller has, in addition to his other remedies a right of withholding
delivery similar to and coextensive with his rights of lien and stoppage in
transitu where the ownership has passed to the buyer. (n)
• Rights of an unpaid seller:
o Possessory lien
o Right of stopping the goods in transit in case of insolvency of
buyer
o Right of resale
o Right to rescind the sale
• Nature of unpaid seller’s possessory lien on the goods
o lien- a charge upon property fro the payment or discharge of a
debt or duty.
o Generally: the existence of a seller’s lien presupposes that title to
the goods has passed to the buyer
o Article 1526 (ownership in the goods has not passed to the buyer),
the unpaid seller has a right of withholding delivery similar to an
co-extensive with the right of stoppage in transitu where ownership
has passed to the buyer.
o The right given by article 1526 is in truth greater than a lien.
o Seller’s position: nearly that of a pledgee (with power to sell at
private sale in case of default, and the power survives until payment
of the price).
• Unpaid seller's lien on the price
o Possessory lien- entitles the seller to retain possession of the goods
as security for the purchase [rice.
o Upon delivery, the seller’s possessory lien on the goods is lost, but
his lien on the price remains
• Basis of rights of unpaid seller
o The inherent injustice of depriving him of goods with which he has
not finally parted where it is evident that he has not been or will
not be paid the price for then when it is due.
Ina Cojuangco Guingona | Dana Beatrice Lopez
Art. 1527. Subject to the provisions of this Title, the unpaid seller of goods
who is in possession of them is entitled to retain possession of them until
payment or tender of the price in the following cases, namely:
(1) Where the goods have been sold without any stipulation as to credit;
(2) Where the goods have been sold on credit, but the term of credit has
expired;
(3) Where the buyer becomes insolvent.
The seller may exercise his right of lien notwithstanding that he is in
possession of the goods as agent or bailee for the buyer. (n)
• When unpaid seller's possessory lien may be exercised
o Sale without stipulation as to credit- the seller is entitled to the
payment of the price at the same time that he transfers the
possession of the goods.
o The seller has always a lien upon the goods, which he sells until
payment or tender of the entire price.
o Expiration of term of credit- by nature of a credit sale, the buyer is
entitled to possession of the goods without paying the price BUT if
he fails to exercise his right until the term of credit has expired and
the price becomes due, he loses the right, which he originally had.
o Insolvency of the buyer
§ Note: insolvency does not dissolve the bargain; it merely
revives the seller’s lien
o Insolvency is one of the grounds for the loss of the right to make
use of the period fixed in an obligation
• Unpaid seller as bailee for the buyer
o For the ownership having passed, the seller is necessarily holding
the buyer’s goods and therefore acting as bailee for him. And
though he has charged the buyer for storage for the goods, the lien
may still be asserted.
Art. 1528. Where an unpaid seller has made part delivery of the goods, he
may exercise his right of lien on the remainder, unless such part delivery
has been made under such circumstances as to show an intent to waive
the lien or right of retention. (n)
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• Lien generally not lost by part delivery
o When parts of the goods are delivered, the unpaid seller has a lien
upon the remainder for the proportion of the price, which is due
on account of the goods so retained.
o Lien may be waived.
Art. 1529. The unpaid seller of goods loses his lien thereon:
(1) When he delivers the goods to a carrier or other bailee for the purpose
of transmission to the buyer without reserving the ownership in the
goods or the right to the possession thereof;
(2) When the buyer or his agent lawfully obtains possession of the goods;
(3) By waiver thereof.
The unpaid seller of goods, having a lien thereon, does not lose his lien
by reason only that he has obtained judgment or decree for the price of
the goods. (n)
• When unpaid seller loses possessory lien
o Delivery to agent or bailee of buyer
o Possession by buyer or his agent
o Waiver of the lien
o Note: mere judgment by a court obtained by the unpaid seller for
the price of the goods is not a ground for the loss of his lien.
• Revival of lien after delivery
o If the buyer refuses to receive the goods after they have been
delivered to a carrier or other bailee on his behalf, though the seller
has parted with both ownership and possession, he may reclaim the
goods and revest himself with his lien.
o If the buyer returns the goods in wrongful repudiation of the sale,
the lien on the unpaid purchase price is revived.
o The return of the goods by the buyer to the seller (not in
repudiation of the sale, but for some special purpose i.e. to have
repairs/alterations by seller), DOES NOT revive the lien of the
seller.
• Agreement for continuance of lien
Ina Cojuangco Guingona | Dana Beatrice Lopez
o the parties may agree that the seller shall retain a lien even though
the goods have been delivered to the buyer.
Art. 1530. Subject to the provisions of this Title, when the buyer of goods
is or becomes insolvent, the unpaid seller who has parted with the
possession of the goods has the right of stopping them in transitu, that is
to say, he may resume possession of the goods at any time while they are
in transit, and he will then become entitled to the same rights in regard to
the goods as he would have had if he had never parted with the
possession. (n)
• Right of seller to stop goods in transit
o Available to the unpaid seller:
§ If he has parted with the possession of the goods;
§ AND if the buyer becomes insolvent
o The right of stoppage in transitu- continues while the goods are in
the hands of the carrier and terminates when the consignee or his
bona fide transferee obtains lawful possession of the goods
shipped.
o Prerequisite to the right of stoppage in transitu: the goods are at
the time in the possession of a middleman between the seller, who
has delivered the goods for transmission to the buyer, and the
buyer, who has not acquired possession.
• Requisites exercise of right of stoppage in transit
o Seller must unpaid
o Buyer must be insolvent
o Goods must be in transit
o The seller must either actually take possession of the goods sold or
give notice of his claim to the carrier or other person in possession
o Seller must surrender the negotiable document of title issued by the
carrier or bailee
o The seller must bear the expenses of delivery of the goods after the
exercise of the right
• Sale or credit- the fact that the goods are sold on definite credit terms does
not affect the seller’s right of stoppage
• Title to goods in buyer
o Generally: the right applies where the title/s of the goods in transit
have vested in an insolvent buyer, who has not paid the entire
purchase price.
• Basis and nature of right of stoppage in transit
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o The injustice of allowing the buyer to acquire ownership and
possession of the goods when he has not paid and owing to his
insolvency cannot pay the price, which was to be given in return
for the goods.
o “One man’s property should not be applied in payment of another
man’s debts”.
• Insolvency of the buyer
o Requirements of insolvency:
§ The following circumstances do not justify the exercise of
the right of stoppage in transit
• The buyer was in default in the performance of his
obligations
• Death of the buyer (unless his estate is insolvent);
• The fact that the goods have been levied on by
attaching creditors of the buyer (if the buyer was
not insolvent)
§ Note: does not require the buyer to be absolutely bankrupt
or adjudged as bankrupt. It is sufficient that the buyer is
unable to pay his just debts in the ordinary course of
business.
§ Time of insolvency- before he has taken possession of the
goods.
• Effect of exercise of right by seller
o Right to same position as before sale- the seller has the same
rights with regard to it and those rights may be enforced in the
same way, but subject to the lien of the carrier for freight charges.
o Right to recover possession- if the carrier makes delivery to the
buyer notwithstanding proper notice from the seller, it is
ineffectual to defeat the seller’s rights and the seller may generally
recover possession from the buyer or from a third person claiming
under him.
o Right to recover agreed price
Art. 1531. Goods are in transit within the meaning of the preceding
article:
(1) From the time when they are delivered to a carrier by land, water, or
air, or other bailee for the purpose of transmission to the buyer, until the
buyer, or his agent in that behalf, takes delivery of them from such carrier
or other bailee;
Ina Cojuangco Guingona | Dana Beatrice Lopez
(2) If the goods are rejected by the buyer, and the carrier or other bailee
continues in possession of them, even if the seller has refused to receive
them back.
Goods are no longer in transit within the meaning of the preceding
article:
(1) If the buyer, or his agent in that behalf, obtains delivery of the goods
before their arrival at the appointed destination;
(2) If, after the arrival of the goods at the appointed destination, the
carrier or other bailee acknowledges to the buyer or his agent that he
holds the goods on his behalf and continues in possession of them as
bailee for the buyer or his agent; and it is immaterial that further
destination for the goods may have been indicated by the buyer;
(3) If the carrier or other bailee wrongfully refuses to deliver the goods to
the buyer or his agent in that behalf.
If the goods are delivered to a ship, freight train, truck, or airplane
chartered by the buyer, it is a question depending on the circumstances
of the particular case, whether they are in the possession of the carrier as
such or as agent of the buyer.
If part delivery of the goods has been made to the buyer, or his agent in
that behalf, the remainder of the goods may be stopped in transitu,
unless such part delivery has been under such circumstances as to show
an agreement with the buyer to give up possession of the whole of the
goods. (n)
• When goods are in transit
o The goods are in transit
§ After delivery to a carrier or other bailee and before the
buyer or his agent takes delivery of them
§ if the goods are rejected by the buyer, and the carrier or
other bailee continues in possession of them
o Mere arrival of the goods at or on the premises of the carrier at the
point of destination does not terminate the transportation and the
right of stoppage in transitu. Transit includes not only the carriage
of the goods to destination but delivery according to the terms of
the contract.
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o When goods considered no longer in transit
§ After delivery to the buyer or his agent in that behalf;
§ If the buyer or his agent obtains possession of the goods at
a point before the destination originally fixed;
§ If the carrier or bailee acknowledges to hold the goods on
behalf of the buyer
§ If the carrier or bailee wrongfully refuses to deliver the
goods to the buyer
• Attornment by the bailee
o Right to stop the goods may be terminated not simply by delivery
to the buyer but by attornment of the bailee to the buyer.
• Effect of refusal of carrier to attorn or deliver the goods
o Will not terminate the right to stop
• Delivery to a ship, etc., chartered or owned by buyer
o Chartered by the buyer- whether delivery to a carrier chartered by
the buyer means possession by the carrier as such or possession by
the carrier as agent of the buyer, in which case, the goods are no
longer in transit, is a question depending on the circumstances of
the particular case
o Owned by the buyer- delivery to an agent is a delivery to a
principal; delivery to the buyer’s servant who is under a general
duty to obey his mater’s order is necessarily a delivery to the buyer
• Effect of partial delivery
o The mere fact that part of the goods has been delivered does not
deprive the seller of the right to stop with respect to the remainder
just as the seller may still exercise his right of lien on the remainder
after part of the goods had been delivered.
Art. 1532. The unpaid seller may exercise his right of stoppage in transitu
either by obtaining actual possession of the goods or by giving notice of
his claim to the carrier or other bailee in whose possession the goods are.
Such notice may be given either to the person in actual possession of the
goods or to his principal. In the latter case the notice, to be effectual,
must be given at such time and under such circumstances that the
principal, by the exercise of reasonable diligence, may prevent a delivery
to the buyer.
When notice of stoppage in transitu is given by the seller to the carrier, or
other bailee in possession of the goods, he must redeliver the goods to, or
according to the directions of, the seller. The expenses of such delivery
Ina Cojuangco Guingona | Dana Beatrice Lopez
must be borne by the seller. If, however, a negotiable document of title
representing the goods has been issued by the carrier or other bailee, he
shall not obliged to deliver or justified in delivering the goods to the seller
unless such document is first surrendered for cancellation. (n)
• Ways of exercising the right to stop
o By taking actual possession of the goods
o By giving notice of his claim to the carrier or bailee
• The exercise of the right of stoppage in transitu by repossession of goods is
optional with the seller; the right is ineffectual unless actually exercised.
• Duties and liabilities of carrier
o The carrier or bailee in possession of the goods must deliver the
goods to or according to the directions of the seller. The carrier’s
refusal to redeliver possession to the seller after proper notice of
the exercise of the right of stoppage and the tender of freight
charges and the like will render the carrier liable to the seller.
• Effect of outstanding bill of lading
o After the seller stops the goods, the buyer being in possession of a
bill of lading negotiable in form, may negotiate it subsequently for
value to an innocent purchaser.
Art. 1533. Where the goods are of perishable nature, or where the seller
expressly reserves the right of resale in case the buyer should make
default, or where the buyer has been in default in the payment of the
price for an unreasonable time, an unpaid seller having a right of lien or
having stopped the goods in transitu may resell the goods. He shall not
thereafter be liable to the original buyer upon the contract of sale or for
any profit made by such resale, but may recover from the buyer damages
for any loss occasioned by the breach of the contract of sale.
Where a resale is made, as authorized in this article, the buyer acquires a
good title as against the original buyer.
It is not essential to the validity of resale that notice of an intention to
resell the goods be given by the seller to the original buyer. But where the
right to resell is not based on the perishable nature of the goods or upon
an express provision of the contract of sale, the giving or failure to give
such notice shall be relevant in any issue involving the question whether
the buyer had been in default for an unreasonable time before the resale
was made.
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It is not essential to the validity of a resale that notice of the time and
place of such resale should be given by the seller to the original buyer.
The seller is bound to exercise reasonable care and judgment in making
a resale, and subject to this requirement may make a resale either by
public or private sale. He cannot, however, directly or indirectly buy the
goods. (n)
• An unpaid seller can exercise the right to resell only when he has either a
right of lien or has exercised the right to stop the goods in transitu and
under any of the three following cases:
o Where the goods are perishable in nature
o Where the right to resell is expressly reserved in case the buyer should
make a default.
o Where the buyer delays in the payment of the price for an
unreasonable time.
• Effect of resale: the seller is not liable for any profit made by such resale;
but if he sells for less than the price, he has a right to sue for the balance.
o *the new buyer acquires a good title to the goods as against the
original buyer
• Notice of resale not essential
Art. 1534. An unpaid seller having the right of lien or having stopped the
goods in transitu, may rescind the transfer of title and resume the
ownership in the goods, where he expressly reserved the right to do so in
case the buyer should make default, or where the buyer has been in
default in the payment of the price for an unreasonable time. The seller
shall not thereafter be liable to the buyer upon the contract of sale, but
may recover from the buyer damages for any loss occasioned by the
breach of the contract.
The transfer of title shall not be held to have been rescinded by an unpaid
seller until he has manifested by notice to the buyer or by some other
overt act an intention to rescind. It is not necessary that such overt act
should be communicated to the buyer, but the giving or failure to give
notice to the buyer of the intention to rescind shall be relevant in any
issue involving the question whether the buyer had been in default for an
unreasonable time before the right of rescission was asserted. (n)
Ina Cojuangco Guingona | Dana Beatrice Lopez
• Unpaid seller's right of rescission
o Only if he has a right of lien OR
o Has exercised the right to stop the goods in transitu and under any
of the two situations:
§ Where the right to rescind is expressly reserved in case the
buyer should make a default; or
§ Where the buyer delays in the payment of the price for an
unreasonable time.
o Effect of rescission: seller resumes ownership of goods.
o Manner of rescission: may be manifested by notice to the buyer or
by some other over act showing an intention to rescind.
Art. 1535. Subject to the provisions of this Title, the unpaid seller's right
of lien or stoppage in transitu is not affected by any sale, or other
disposition of the goods which the buyer may have made, unless the
seller has assented thereto.
If, however, a negotiable document of title has been issued for goods, no
seller's lien or right of stoppage in transitu shall defeat the right of any
purchaser for value in good faith to whom such document has been
negotiated, whether such negotiation be prior or subsequent to the
notification to the carrier, or other bailee who issued such document, of
the seller's claim to a lien or right of stoppage in transitu. (n)
• Effect of sale of goods subject to lien or stoppage in transit
o Where goods are not covered by negotiable document of title:
when goods are subject to a legal lien, a purchaser from the original
buyer can acquire only such right as the buyer then had.
o Where goods covered by negotiable document of title: the seller’s
lien cannot prevail against the rights of a purchaser for value in
good faith to whom the document has been indorsed.
§ *purchaser includes: mortgagee and pledgee
~~~MIDTERMS~~~
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Art. 1536. The vendor is not bound to deliver the thing sold in case the
vendee should lose the right to make use of the terms as provided in
Article 1198. (1467a)
Right of vendor to withhold delivery in sale on credit
• GR: Vendor is not bound to make delivery if the vendee has not paid
him the price
• EX: If a period has been fixed for payment
• Exception to the Exception: In case vendee should lose the right to
make use of the term as provided in Article 1198 of the Civil code:
o When after the obligation has been contracted, he becomes
insolvent, unless he gives a guaranty or security for the debt
o When he does not furnish the vendor the guaranties or
securities which he has promised
o By his own acts he has impaired said guaranties or
securities after their establishment, and when through a
fortuitous event they disappear, unless he immediately gives
new ones equally satisfactory
o When the vendee violates any undertaking, in consideration
of which the creditor agreed to the period
o When the vendee attempts to abscond
Art. 1537. The vendor is bound to deliver the thing sold and its accessions
and accessories in the condition in which they were upon the perfection
of the contract.
All the fruits shall pertain to the vendee from the day on which the
contract was perfected. (1468a)
Condition of the thing to be delivered
• The vendor is obliged to preserve the thing pending delivery because
the thing sold and its accessions and the accessories must be in the
condition that they were in upon the perfection of the contract.
• It is the seller’s duty to deliver the thing sold in a condition suitable for
its enjoyment by the buyer for the purposes contemplated.
Right of the vendee to the fruits
• When vendee entitled: Vendee has a right to the fruits from the time
the obligation to deliver arises. (Upon perfection of the contract of
sale)
• When vendee NOT entitled:
Ina Cojuangco Guingona | Dana Beatrice Lopez
o When Art 1537 (par 2) is modified by agreement of the parties
o If the vendee rescinds the contract of sale, he is entitled only to
damages. He cannot claim the fruits of the thing sold
o In a contract of promise to sell
Art. 1538. In case of loss, deterioration or improvement of the thing
before its delivery, the rules in Article 1189 shall be observed, the vendor
being considered the debtor. (n)
Rules in case of loss, deterioration, or improvement of thing before delivery
• According to Art 1189: The following rules shall be observed in case of
the improvement, loss or deterioration of the thing during the
pendency of the condition:
o If the thing is lost without the fault of the debtor, the
obligation shall be extinguished
o If the thing is lost through the fault of the debtor, he is obliged
to pay damages
o When the thing deteriorates without the fault of the debtor, the
creditor may choose between rescission and its fulfillment,
with damages in either case
o IF the thing is improved by its nature, or by time, the
improvement shall inure to the benefit of the creditor
o If it is improved at the expense of the debtor, he shall have no
other right than that granted to the usufructuary
Art. 1539. The obligation to deliver the thing sold includes that of placing
in the control of the vendee all that is mentioned in the contract, in
conformity with the following rules:
If the sale of real estate should be made with a statement of its area, at
the rate of a certain price for a unit of measure or number, the vendor
shall be obliged to deliver to the vendee, if the latter should demand it, all
that may have been stated in the contract; but, should this be not
possible, the vendee may choose between a proportional reduction of the
price and the rescission of the contract, provided that, in the latter case,
the lack in the area be not less than one-tenth of that stated.
The same shall be done, even when the area is the same, if any part of the
immovable is not of the quality specified in the contract.
The rescission, in this case, shall only take place at the will of the vendee,
when the inferior value of the thing sold exceeds one-tenth of the price
agreed upon.
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Nevertheless, if the vendee would not have bought the immovable had he
known of its smaller area of inferior quality, he may rescind the sale.
(1469a)
Sale of real property by unit of measure or number
• GR: If the sale of real estate should be made with a statement of its
area, at the rate of certain price per unit of measure or number, the
cause of the contract with respect to the vendee is the number of such
units
• The vendor must deliver the entire property agreed upon
• Example: If 500 sq. m is stated in the contract at 1k per square meter,
vendor must deliver the entire area stated
• Remedy when entire area cannot be delivered:
o Rescission
o Enforce contract with corresponding decrease in price (only
applicable if there is a deficiency in area or number)
• When vendee entitled to rescission:
o Quantity: Lack in area is at least 1/10th than that stated or
stipulated (based on the area stipulated in the contract)
o Quality: Deficiency in the quality exceeds 1/10th of the price
agreed upon
o If the vendee would not have bought the immovable had he
known of its smaller area of inferior quality irrespective of
the extent of the lack in area or quality
Art. 1540. If, in the case of the preceding article, there is a greater area or
number in the immovable than that stated in the contract, the vendee
may accept the area included in the contract and reject the rest. If he
accepts the whole area, he must pay for the same at the contract rate.
(1470a)
Where immovable of a greater area or number
• Vendee’s options if the area or number in the immovable is greater
than that stipulated:
o Accept the area included in the contract and reject the rest; or
o Accept the whole, making him liable for the price of the same
at the contract rate.
• He may NOT withdraw from the contract
Ina Cojuangco Guingona | Dana Beatrice Lopez
Art. 1541. The provisions of the two preceding articles shall apply to
judicial sales. (n)
Application of 1539 and 1540 to JUDICIAL SALES
• 1539 and 1540 are applicable to voluntary and judicial sales
• Reason: The rules they contain are derived from the very nature of the
contract of sale
Art. 1542. In the sale of real estate, made for a lump sum and not at the
rate of a certain sum for a unit of measure or number, there shall be no
increase or decrease of the price, although there be a greater or less area
or number than that stated in the contract.
The same rule shall be applied when two or more immovables as sold for
a single price; but if, besides mentioning the boundaries, which is
indispensable in every conveyance of real estate, its area or number
should be designated in the contract, the vendor shall be bound to deliver
all that is included within said boundaries, even when it exceeds the area
or number specified in the contract; and, should he not be able to do so,
he shall suffer a reduction in the price, in proportion to what is lacking in
the area or number, unless the contract is rescinded because the vendee
does not accede to the failure to deliver what has been stipulated. (1471)
Sales involving real estate made for a lump sum
• In sales involving real estate, parties may choose between:
o UNIT PRICE CONTRACT: purchase price is determined by
way of reference to a stated rate per unit
o LUMP SUM CONTRACT: states a full purchase price for an
immovable, the area of which may be declared based on an
estimate or where both the area and boundaries are stated
• In sales made for lump sum, the cause of the contract is the thing sold
independent and irrespective of its number or measure
• Its greater or lesser area cannot influence the increase or decrease of
the price agreed upon
• The vendor is obligated to deliver all the land included within the
boundaries, regardless of whether the real area should be greater or
smaller than that recited in the deed.
• Remedies if the vendor cannot deliver to the vendee all that is included
in the boundaries:
o Reduce the price in proportion to the deficiency
o Set aside the contract
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Atty. Carlo Busmente Sales and Lease Finals Reviewer
• Area included within stipulated boundaries vs. What title to property
shows: Area included within stipulated boundaries prevail
• Boundaries vs. Area in square meters: It is the boundaries indicated in
the deed of sale and not the area in square meters that controls in the
determination of which portion of the land the vendee acquires. But
where the boundaries cannot be determined, the area shall prevail.
• Where the identity of the disputed property has been clearly established
by both parties’ pleadings, mistake in designating the property in the
deed of sale does not vitiate consent of the parties or affect the validity
and binding effect of the contract.
• Reason: One buys the property as he sees it in its actual setting and by
its physical metes and bounds and not by mere lot number assigned in
the TCT.
• The rule in measuring distances:
o Words of qualification (ex: 50 ft., more or less) should be
disregarded and the exact distance adopted.
o Words of qualification only cover reasonable excess or
deficiency (meaning if the excess is reasonable, still included in
sale)
Art. 1543. The actions arising from Articles 1539 and 1542 shall prescribe
in six months, counted from the day of delivery. (1472a)
^Self-explanatory.
Art. 1544. If the same thing should have been sold to different vendees,
the ownership shall be transferred to the person who may have first taken
possession thereof in good faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the
person acquiring it who in good faith first recorded it in the Registry of
Property.
Should there be no inscription, the ownership shall pertain to the person
who in good faith was first in the possession; and, in the absence thereof,
to the person who presents the oldest title, provided there is good faith.
(1473)
When Art. 1544 Applicable:
• 2 or more valid sales transactions
• Must pertain to the same subject matter
Ina Cojuangco Guingona | Dana Beatrice Lopez
• 2 or more buyers at odds over the rightful ownership of the subject
matter must each represent conflicting interests
• 2 or more buyers bought from the very same seller
Rules as to the preference of ownership in case of a double sale: (applies
only to purchasers in good faith and disqualifies any purchaser in bad
faith)
• Movable property: Ownership shall be acquired by the vendee who
takes first possession in good faith
• Immovable property:
o Vendee who resisters the sale in good faith in the Registry of
Property (Registry of Deeds)
o Absence of registration, the first who takes possession in good
faith
o Absence of both, the one who presents oldest title in good
faith
Other instances where the rule on double sale is applicable:
• 1544 applicable to DONATION since it is in the same footing as a
deed of sale in the form of a public instrument (but both transactions
must be donations!)
• Also applicable to conditional sales
When the rule on double sale does not apply:
• Where the subject property was not transferred to several purchasers by
a single vendor
• Only one valid sale (example: contract of sale first registered is fictitious
or forged)
• Contracts to sell
• One transaction donation, one transaction sale
• One transaction sale, one mere promise to assign or an actual
assignment of right to repurchase
• Unregistered land or land that does not fall under Torrens system
• Where 2nd buyer acquires the unregistered land at an execution sale
Possession of property sold under Art 1544:
• Possession: both actual physical delivery (placed under control and
possession) and constructive delivery (made through public instrument)
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Registration of immovable sold:
• GR: More credit is given to registration than to actual possession
• Registration: Any entry made in the books of the Registry of Property
which records solemnly and permanently the right of ownership and
other real rights.
• Under PD 1529:The act of registration is the operative act that conveys
or affects the land insofar as third persons are concerned
• Purpose: to give notice to third persons
• GR: Sale of a registered land that was not registered with the Register
of Deeds will not prevail over a subsequent sale that was registered in
good faith by the second buyer.
• EX: If there was bad faith on the part of the second buyer or where
good faith ceased at the time of purchase/registration
• To be entitled to the above-mentioned priority, the second purchaser
must have acted in good faith – without knowledge of the previous
alienation. Good faith must be present up to the time of registration
• The defense of indefeasibility of Torrens Title does not extend to a
transferee who takes the certificate of title in bad faith with notice of its
flaw
• Issuance of 2 TCT’s: Trace the original certificates from which the
certificates of title in dispute were derived. Should there be only 1
common and original certificate of title, the transfer certificate issued
on an earlier date must prevail, absent any anomaly or irregularity
tainting the process of registration,
Requirement of good faith:
• Presumption: transferee of registered land is not aware of any defect on
the title of the property he purchased
• GR: Prius tempore, patior jure (First in time, stronger in right).
Knowledge by the 1st buyer of the 2nd sale cannot defeat his right
except when the 2nd buyer registers first in good faith.
• Good faith of 2nd buyer:
o must show that he acted in good faith from the time of
acquisition until the title is transferred to him or his contract
ripens into full ownership through prior registration provided
by law.
o Failure of prospective buyer to take such precautionary steps
would mean negligence on his part and would thereby preclude
Ina Cojuangco Guingona | Dana Beatrice Lopez
him from claiming or invoking the rights of purchaser in good
faith.
o Where there are circumstances which would put a party on
guard and prompt him to investigate or inspect the property
being sold, it is expected from the purchaser to inquire first
into the status or nature of possession of the occupants (ocular
inspection)
• Burden of proof: One who alleges bad faith since there is a
presumption of good faith
• Point of determination of good faith: moment parties entered into
contract of sale.
• When mirror doctrine doesn’t apply:
o Seller isn’t registered owner
o Banking institutions
o Financing institutions
o Realty corporations
Sale involving unregistered land:
• GR: Act No. 3344 applies to unregistered lands
• Registration of documents affecting unregistered land is without
prejudice to a party who has a better right
• Mere registration of sale does not give him any right over the land if the
vendor was not anymore the owner of the land, having previously sold
the same to somebody else, even if the earlier sale was unrecorded.
(Radiowealth doctrine)
• In the above-mentioned, the first buyer would have a better right in
view of the fact that his claim is based on a prior sale coupled with
public, exclusive, and continuous possession as owner.
• Unregistered land subsequently registered: 1st sale: unregistered, 2nd sale:
registered: the 2nd buyer prevails if the 2nd buyer recorded the sale in
good faith with the Register of Deeds, notwithstanding the fact that the
1st buyer registered the sale under Act 3344.
• Levy on execution duly registered takes preference over a prior
unregistered sale. Preference created by levy does not diminish even by
subsequent registration of prior sale
• Unrecorded prior sale preferred to a recorded mortgage
Execution
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Atty. Carlo Busmente Sales and Lease Finals Reviewer Ina Cojuangco Guingona | Dana Beatrice Lopez

• If the seller sells his rights to 1st buyer, seller is no longer owner at the Meaning of warranty
time of levy. Consequently, subsequent levy made on the property is • Warranty: statement or representation made by the seller having
VOID and of no effect (Dagupan vs. Macam) 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
SECTION 3. - CONDITIONS AND WARRANTIES he represents them
• Necessity of contact of sale: warranty is an incident of sale
Art. 1545. Where the obligation of either party to a contract of sale is • No particular form of words necessary
subject to any condition which is not performed, such party may refuse to • Kinds:
proceed with the contract or he may waive performance of the condition. o Express warranty: imposed by the parties through an
If the other party has promised that the condition should happen or be agreement. It is an affirmation of fact or any promise by the
performed, such first mentioned party may also treat the nonperformance seller relating to the thing, the natural tendency of which is to
of the condition as a breach of warranty. induce the buyer to purchase the thing and the buyer thus
Where the ownership in the thing has not passed, the buyer may treat the induced, does purchase the same.
fulfillment by the seller of his obligation to deliver the same as described o Implied warranty: imposed by law
and as warranted expressly or by implication in the contract of sale as a Express Warranty
condition of the obligation of the buyer to perform his promise to accept
• Types of express warranties:
and pay for the thing. (n) o Relating to the contract or transaction
o Relating to the object of the contract
Meaning of condition o Relating to the party to the contract
• Condition: uncertain event or contingency on the happening of which • Effect of express warranty:
the obligation of the contract depends o It follows the principal wherever it goes
o Intent is immaterial, Immaterial whether or not seller knew
Effect of non-fulfillment of condition that the warranty was true or false
• Either party may: • Time of warranty:
o Refuse to proceed with the contract o must be made before the contract of sale is perfected
o Proceed with the contract, waiving the performance of the o If made after: warranty must generally be accompanied by a
condition new and separate consideration
o If the condition is in the nature of a promise that it should
• Form of warranty:
happen, the non-performance of which may be treated as a
o Need not be in writing, may be made orally
breach of warranty (damages)
o If in writing, parol evidence rule precludes proof of oral
warranty
Art. 1546. Any affirmation of fact or any promise by the seller relating to
the thing is an express warranty if the natural tendency of such • Caveat emptor doesn’t apply to maters included in express warranty
affirmation or promise is to induce the buyer to purchase the same, and if • Buyer may waive breach of warranty:
the buyer purchase the thing relying thereon. No affirmation of the value o By agreement
of the thing, nor any statement purporting to be a statement of the o By conduct inconsistent with an assertion of the breach
seller's opinion only, shall be construed as a warranty, unless the seller o By an acknowledgement of satisfaction
made such affirmation or statement as an expert and it was relied upon • Effect of express opinion:
by the buyer. (n) o GR: A statement purporting to be a statement only of the
seller’s opinion will NOT generally be construed as a warranty
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o EX: If the seller made such affirmation or statement as an
expert and it was relied upon by the buyer
Art. 1547. In a contract of sale, unless a contrary intention appears, there
is:
(1) An implied warranty on the part of the seller that he has a
right to sell the thing at the time when the ownership is to pass,
and that the buyer shall from that time have and enjoy the legal
and peaceful possession of the thing;
(2) An implied warranty that the thing shall be free from any
hidden faults or defects, or any charge or encumbrance not
declared or known to the buyer.
This Article shall not, however, be held to render liable a sheriff,
auctioneer, mortgagee, pledgee, or other person professing to sell by
virtue of authority in fact or law, for the sale of a thing in which a third
person has a legal or equitable interest. (n)
Meaning of implied warranty:
• Implied warranty: That which the law derives by implication or
inference from the nature of the transaction or the relative situation or
circumstances of the parties
• It’s never in writing
Implied warranty
• Kinds:
o As to seller’s title
o Against hidden defects or unknown encumbrance
o As fitness or merchantable quality
o Right to transfer title at the time of delivery
• Nature:
o natural element of a contract because it is presumed to exist
even though nothing has been said in the contract on the
subject
o Exception to the rule of caveat emptor
o May be waived or modified by express stipulation
• When implied warranty not applicable:
o “As is where is” sale: This means that the vendor makes no
warranty as to the quality or workable condition of the goods.
It does not prevent fraudulent representations relied on by the
buyer from constituting fraud which makes the contract
voidable or is a ground for damages
Ina Cojuangco Guingona | Dana Beatrice Lopez
o Sale of second-hand articles. Except if a certification is issued
by the vendor, equivalent to an express warranty, making it
binding on the vendor.
o Sale by virtue of authority in fact or law: Implied warranties
don’t apply to the following: sheriff, auctioneer, mortgagee,
pledge, or other person who sells by virtue of authority in fact
or law. Risk of defective title is on the purchaser. Caveat
emptor applies.
SUBSECTION 1. - WARRANTY IN CASE OF EVICTION
Art. 1548. Eviction shall take place whenever by a final judgment based
on a right prior to the sale or an act imputable to the vendor, the vendee
is deprived of the whole or of a part of the thing purchased.
The vendor shall answer for the eviction even though nothing has been
said in the contract on the subject.
The contracting parties, however, may increase, diminish, or suppress
this legal obligation of the vendor. (1475a)
Meaning of eviction
• Eviction: the judicial process whereby the vendee is deprived of the
whole or part of the thing purchased by virtue of a final judgment
based on a right prior to the sale or an act imputable to the vendor
Warranty in case of eviction
• The vendors guarantees the vendee’s peaceful possession of the thing
sold and must generally defend against attacks of third persons
• Essential elements of warranty against eviction:
o The vendee is deprived in whole or in part of the thing
purchased
o By virtue of final judgment
o Judgment is based on a right prior to the sale or an act
imputable to the vendor
o Vendor was summoned in the suit for eviction and made a co-
defendant at the instance of the vendee
o No waiver on the part of the vendee
• Types of eviction
o Total: deprived of the whole thing
o Partial:
§ Deprived in part of the thing purchased
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§ Deprived of some items that were jointly sold with
other items
§ Immovable sold should be encumbered with any non-
apparent burden or servitude not mentioned in the
agreement of such nature that it must be presumed
that the vendee would not have acquired it had he
been aware thereof
• When warranty against eviction is not applicable:
o Article 1630, sale of an inheritance. Seller only liable as heir not
owner
o Article 1631, sale for lump sum. Vendor not obliged to warrant
each of the various parts of which it may be composed. Except
eviction from the whole or the part of greater value of the
things sold
o Trespass. What the law contemplates is disturbance in law.
• Vendor’s liability is waivable (may be increased, diminished, or
suppressed) as long as it is made in GOOD FAITH and it is not
contrary to law, public order, public policy, morals, or good customs,
or prejudicial to a third person with a right recognized by law. If not,
VOID.
•
Art. 1549. The vendee need not appeal from the decision in order that the
vendor may become liable for eviction. (n)
Vendee need not appeal from judgment. The requirement of the law is deemed
satisfied upon the judgment becoming final.
Art. 1550. When adverse possession had been commenced before the sale
but the prescriptive period is completed after the transfer, the vendor
shall not be liable for eviction. (n)
Effect of prescription
• By prescription, one acquires ownership and other real rights through
the lapse of time in the manner and under conditions prescribed by law.
• Completed before sale: Vendee may lose thing purchased to a third
person that has acquired title by prescription. Remedy: Enforce
warranty against eviction.
• Completed after sale: vendor not liable for eviction. Vendee could
easily interrupt running of prescription by bringing the necessary action.
Ina Cojuangco Guingona | Dana Beatrice Lopez
• 1550 not applicable to land registered under Torrens title. Under the
Torrens system, ownership of land is imprescriptible.
Art. 1551. If the property is sold for nonpayment of taxes due and not
made known to the vendee before the sale, the vendor is liable for
eviction. (n)
^self-explanatory. Act attributable to the vendor prior to the sale.
Art. 1552. The judgment debtor is also responsible for eviction in judicial
sales, unless it is otherwise decreed in the judgment. (n)
Liability of the judgment debtor
• If the purchaser of real property sold on execution were evicted
because the judgment debtor had no right to the property sold, the
purchaser is entitled to recover the price paid with interest from the
judgment debtor.
Art. 1553. Any stipulation exempting the vendor from the obligation to
answer for eviction shall be void, if he acted in bad faith. (1476)
Stipulation waiving warranty
• Requisite: Both vendor and vendee must not be guilty of bad faith
• Bad faith: knowing beforehand at the time of the sale. Of the presence
of the fact giving rise to eviction
• Effect of bad faith:
o Vendor: liable for warranty against eviction
o Vendee: Not entitled to warranty against eviction
Art. 1554. If the vendee has renounced the right to warranty in case of
eviction, and eviction should take place, the vendor shall only pay the
value which the thing sold had at the time of the eviction. Should the
vendee have made the waiver with knowledge of the risks of eviction and
assumed its consequences, the vendor shall not be liable. (1477)
Kinds of waiver of eviction
• Consciente
o waiver voluntarily made without the knowledge and
assumption of risk of eviction
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o Effect: vendor shall pay only the value which the thing sold
had at the time of eviction (Solution Indebiti)
• Intencionada
o Waiver made with knowledge of the risks of eviction and
assumption of its consequences
o Effect: vendor is exempted from the obligation to answer for
eviction, provided he did not act in bad faith
• Presumption: Consciente (less onerous)
Art. 1555. When the warranty has been agreed upon or nothing has been
stipulated on this point, in case eviction occurs, the vendee shall have the
right to demand of the vendor:
(1) The return of the value which the thing sold had at the time of
the eviction, be it greater or less than the price of the sale;
(2) The income or fruits, if he has been ordered to deliver them to
the party who won the suit against him;
(3) The costs of the suit which caused the eviction, and, in a
proper case, those of the suit brought against the vendor for the
warranty;
(4) The expenses of the contract, if the vendee has paid them;
(5) The damages and interests, and ornamental expenses, if the
sale was made in bad faith. (1478)
Rights and liabilities in case eviction occurs
• Return of value
• If at the time of eviction, the property is really more or less than its
value at the time of sale, the vendor should pay the excess or not suffer
the damage
• Income or fruits of the thing
• Vendee is liable to the party who won the suit against him for
income/fruits received ONLY if decreed by the court
• Costs of suit
• Vendee entitled to recover expense of litigation including costs of the
action brought against the vendor to enforce his warranty
• Doesn’t apply where judgment is in favor if the vendor. The obligation
to reimburse will only arise if the vendor acted with fault or negligence.
• Expenses of the contract (borne by the vendor. If vendee paid, right to
reimbursement)
• Damages and Interests: only if the sale is made in bad faith
Ina Cojuangco Guingona | Dana Beatrice Lopez
• Interests do not cover interests on the purchase price, it covers
interests on costs other than purchase price such as costs of suit
Art. 1556. Should the vendee lose, by reason of the eviction, a part of the
thing sold of such importance, in relation to the whole, that he would not
have bought it without said part, he may demand the rescission of the
contract; but with the obligation to return the thing without other
encumbrances that those which it had when he acquired it.
He may exercise this right of action, instead of enforcing the vendor's
liability for eviction.
The same rule shall be observed when two or more things have been
jointly sold for a lump sum, or for a separate price for each of them, if it
should clearly appear that the vendee would not have purchased one
without the other. (1479a)
Alternative rights of vendee in case of partial eviction
• Enforce vendor’s liability for eviction
• Demand rescission
• Not available in total eviction
• Obligation to return purchase price and object, impossible if totally
evicted
The above rule is applicable when:
• The vendee is deprived of part of the thing sold, if such part is of such
importance to the whole that he would not have bought the thing
without the said part
• 2 or more things jointly sold, and the vendee wouldn’t have purchased
one without the other.
Art. 1557. The warranty cannot be enforced until a final judgment has
been rendered, whereby the vendee loses the thing acquired or a part
thereof. (1480)
Final judgment of eviction essential
• 2 essential elements for the enforcement of warranty in case of
eviction:
o Deprivation of the whole or part of the thing sold
o Existence of final judgment
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§May take place by virtue of final judgment of an
administrative office/board or a court as long as it was
rendered by competent authority
Art. 1558. The vendor shall not be obliged to make good the proper
warranty, unless he is summoned in the suit for eviction at the instance of
the vendee. (1481a)
Formal summons to vendor essential
• The vendor should be made a party to the suit either by way of asking
that the vendor be made a co-defendant or by the filing of a third-party
complaint against said vendor
• Object of the law: give the vendor the opportunity to intervene and
defend the title that he has transferred, for, after all he alone would
know the circumstances or reasons behind the claim of the plaintiff and
be in a position to defend the validity of his title
• In the absence of such opportunity, the vendor is not bound to his
warranty.
Art. 1559. The defendant vendee shall ask, within the time fixed in the
Rules of Court for answering the complaint, that the vendor be made a
co-defendant. (1482a)
Vendor to be made co-defendant
• Vendor and vendee’s answer to the complaint must be made in
accordance with Rule 11, section 1 Rules of court
• Section 1.Answer to the complaint. — The defendant shall file his answer
to the complaint within fifteen (15) days after service of summons,
unless the court fixes a different period. (la)
Art. 1560. If the immovable sold should be encumbered with any non-
apparent burden or servitude, not mentioned in the agreement, of such a
nature that it must be presumed that the vendee would not have acquired
it had he been aware thereof, he may ask for the rescission of the contract,
unless he should prefer the appropriate indemnity. Neither right can be
exercised if the non-apparent burden or servitude is recorded in the
Registry of Property, unless there is an express warranty that the thing is
free from all burdens and encumbrances.
Within one year, to be computed from the execution of the deed, the
vendee may bring the action for rescission, or sue for damages.
Ina Cojuangco Guingona | Dana Beatrice Lopez
One year having elapsed, he may only bring an action for damages within
an equal period, to be counted from the date on which he discovered the
burden or servitude. (1483a)
Where immovable sold encumbered with non-apparent burden
• Right of the vendee:
o Rescind the contract; or
o Ask for indemnity
• Lack of knowledge on the part of the vendor is not a defense.
• Servitude: encumbrance upon an immovable for the benefit of another
immovable belonging to a different owner. Example: right of way
o When right cannot be exercised:
o Burden or servitude is apparent
o Non-apparent burden or servitude is registered (constructive
notice)
o Vendee had knowledge of the encumbrance, whether
registered or not
• Action must be brought within 1 year from date of discovery of the
non-apparent burden or servitude
SUBSECTION 2. - WARRANTY AGAINST HIDDEN DEFECTS
OF OR ENCUMBRANCES UPON THE THING SOLD
Art. 1561. The vendor shall be responsible for warranty against the hidden
defects which the thing sold may have, should they render it unfit for the
use for which it is intended, or should they diminish its fitness for such
use to such an extent that, had the vendee been aware thereof, he would
not have acquired it or would have given a lower price for it; but said
vendor shall not be answerable for patent defects or those which may be
visible, or for those which are not visible if the vendee is an expert who,
by reason of his trade or profession, should have known them. (1484a)
Definition of terms:
• Redhibition: avoidance of a sale on account of some vice or defect in
the thing sold, which renders its use impossible, or so inconvenient and
imperfect that it must be supposed that the buyer would not have
purchased it had he known of the vice
• Redhibitory action: an action instituted to avoid the sale on account of
some vice or defect in the thing sold which renders its use impossible,
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or so inconvenient and imperfect that it must be supposed that the
buyer would not have purchased it had he known of the vice. The
object is rescission of the contract.
• Accion Quanti Minoris: Object is to procure the return of a part of the
purchase price paid by the vendee in case of Redhibition
• Redhibitory defect: defect in the article sold against which defect the
seller is bound to warrant. Defect must be of certain importance
Requisites for warranty against hidden defects
• Defect must be important or serious
• It must be hidden
• It must exist at the time of the sale
• Vendee must give notice of the defect to the vendor within reasonable
time
• Action for rescission or reduction of the price must be brought within
6 months from delivery of thing sold and 40 days in case of animals
• There must be no waiver of warranty
When defect important
• It renders the thing sold unfit for the use which it is intended
• It diminishes its fitness for such use to such extent that the vendee
would not have acquired it had he been aware thereof or would have
given a lower price of it
• Use contemplated: that which is stipulated. In the absence of such
stipulation, that which is adopted to the nature of the thing and to the
business of the purchaser
When defect hidden
• If it was not known and could not have been known to the vendee
• Cannot be discovered by ordinarily careful examination
• GR: vendor liable for breach of warranty against hidden defects
• EX: if the vendee is an expert who, by reason of his trade or profession,
should have known it.
When defect patent or made known
• Warranty does not cover defects which the buyer must have observed
• GR: no implied warranty against hidden defects in sale of second-hand
goods
Ina Cojuangco Guingona | Dana Beatrice Lopez
• EX: seller made misrepresentation or acted in bad faith
Defect at the time of sale
• GR: vendor not liable for defects suffered after perfection of sale
• Burden of proof on vendee to prove that defect existed at the time of
sale
Art. 1562. In a sale of goods, there is an implied warranty or condition as
to the quality or fitness of the goods, as follows:
(1) Where the buyer, expressly or by implication, makes known to
the seller the particular purpose for which the goods are acquired,
and it appears that the buyer relies on the seller's skill or
judgment (whether he be the grower or manufacturer or not),
there is an implied warranty that the goods shall be reasonably fit
for such purpose;
(2) Where the goods are brought by description from a seller who
deals in goods of that description (whether he be the grower or
manufacturer or not), there is an implied warranty that the goods
shall be of merchantable quality. (n)
Implied warranties of quality
• Quality of goods includes their state or condition
• Purpose: Promote high standard in business
There’s implied warranty of fitness where:
• Buyer expressly or by implication makes known to the seller the
particular purpose for which the goods are required (wants and needs
of buyer must be disclosed)
• Buyer relies upon seller’s skill or judgment
• Presumed superior knowledge of seller
• Test: Whether the buyer justifiably relied upon the seller’s judgment
that the goods furnished would fulfill the desired purpose, or whether
relying on his own judgment, the buyer ordered or bought what is
frequently called “a known, described, definite, article.”
Implied warranty of merchantability where:
• Goods are bought by description
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• Merchantable quality: goods comply with the description in the
contract so that to a buyer buying goods of that description, the goods
would be good tender
• Causes of un-merchantability: infringement of trademarks, use of the
item would be dangerous or injurious not to be expected from goods of
the kind
Warranty of merchantability Warranty of fitness
Warranty that goods are Warranty that the goods are
reasonably fit for the GENERAL suitable for the SPECIAL
PURPOSE for which they are sold PURPOSE of the buyer which
will be satisfied by mere fitness
for general purpose
Art. 1563. In the case of contract of sale of a specified article under its
patent or other trade name, there is no warranty as to its fitness for any
particular purpose, unless there is a stipulation to the contrary. (n)
Sale under patent or trade name
• GR: No implied warranty of fitness for any particular purpose where
article sold is under patent or trade name
• By exactly defining what he wants, the buyer has exercised his own
judgment instead of relying upon the seller
• Description must be buyer’s choice
• EX: in case of stipulation to the contrary
Art. 1564. An implied warranty or condition as to the quality or fitness for
a particular purpose may be annexed by the usage of trade. (n)
Effect of usage of trade
• Warranty as to quality or fitness may be attached by usage to a contract
containing no express provision in regard to warranty
• Usage is relied on for the purpose of showing the intention of the
parties
• A usage in order to bind both parties must be known to both or, if
unknown to one, the other must be justified in assuming knowledge on
the part of the person with whom he is dealing.
• Presumption: parties are aware
Ina Cojuangco Guingona | Dana Beatrice Lopez
Art. 1565. In the case of a contract of sale by sample, if the seller is a
dealer in goods of that kind, there is an implied warranty that the goods
shall be free from any defect rendering them unmerchantable which
would not be apparent on reasonable examination of the sample. (n)
Absence of defect rendering the goods un-merchantable
• In case of contract for sale by sample, it has been held that it is not
enough that the goods are substantially like the sample as to kind,
quality and value to be merchantable; the goods must also be free from
defects
Merchantability of goods sold by sample
• When not merchantable:
• GR: all that the buyer is entitled to is that the goods be like the sample,
so he has no right to have the goods merchantable if the sample which
he has expected is not.
• EX: where the defect in the goods is of such character that inspection
will not reveal it, so in the case of sale by sample, the sample is subject
to a latent defect, and the buyer reasonably relies on the seller’s
judgment, the buyer is entitled to goods like those which the sample
seems to represent, that is merchantable goods of that kind and
character
• Under 1481, contract may be rescinded where the bulk of the goods
delivered do not correspond with the sample
Art. 1566. The vendor is responsible to the vendee for any hidden faults or
defects in the thing sold, even though he was not aware thereof.
This provision shall not apply if the contrary has been stipulated, and the
vendor was not aware of the hidden faults or defects in the thing sold.
(1485)
Responsibility of vendor for hidden defects
• GR: Ignorance of the vendor of does not relieve him from liability to
the vendee for any hidden faults or defects in the thing sold
• EX: When the parties provided otherwise in their contract, provided
vendor acted in good faith (unaware of existence of hidden defect)
• Where vendee is aware of the hidden defect, he cannot later complain
Caveat venditor and Caveat emptor
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• Caveat venditor:
o the vendor is liable for any hidden faults or defects in the thing
sold, even though he was not aware thereof
o A seller cannot be liable for any damage allegedly caused by the
product in the absence of any proof that the product was
defective
o Defect must be present upon delivery or manufacturer
o Old Civil Code follows this one
• Caveat emptor:
o requires purchaser to be aware of the supposed title of the
vendor and one who buys without checking the vendor’s title
takes all the risks and losses consequent to such failure.
o Buyer is obliged to investigate when there are circumstances
that would put him on guard
o Applicable in sheriff’s sales
Art. 1567. In the cases of Articles 1561, 1562, 1564, 1565 and 1566, the
vendee may elect between withdrawing from the contract and demanding
a proportionate reduction of the price, with damages in either case.
(1486a)
Alternative remedies of the buyer to enforce warranty
• Withdraw from the contract (Accion redhibitoria)
• Demand proportionate reduction of the price (Accion Quanti Minoris)
• Right to damages in either case
Art. 1568. If the thing sold should be lost in consequence of the hidden
faults, and the vendor was aware of them, he shall bear the loss, and shall
be obliged to return the price and refund the expenses of the contract,
with damages. If he was not aware of them, he shall only return the price
and interest thereon, and reimburse the expenses of the contract which
the vendee might have paid. (1487a)
Effect of loss of thing sold on account of hidden defects
• Vendor aware of hidden defects:
o Vendee has the right to recover
§ Price paid
§ Expenses of the contract
§ Damages
Ina Cojuangco Guingona | Dana Beatrice Lopez
• Vendor not aware of hidden defects:
o He shall be obliged to return:
§ Price paid
§ Interest
§ Expenses of contract paid by vendee
Art. 1569. If the thing sold had any hidden fault at the time of the sale,
and should thereafter be lost by a fortuitous event or through the fault of
the vendee, the latter may demand of the vendor the price which he paid,
less the value which the thing had when it was lost.
If the vendor acted in bad faith, he shall pay damages to the vendee.
(1488a)
Effect of loss of defective thing sold
• GR: if the thing sold had no hidden defects, its loss through the fault of
the vendee is to be borne by the vendee
• EX: if there are hidden defects, the vendor is obliged to return the price
paid less the value of the thing at the time of its loss
• If the vendor acted in bad faith, he shall also be liable for damages
Art. 1570. The preceding articles of this Subsection shall be applicable to
judicial sales, except that the judgment debtor shall not be liable for
damages. (1489a)
Warranty in judicial sales
• As to judgment debtor:
o provisions regarding warranty are also applicable in judicial
sales
o Since the judgment debtor is forced to sell, there can be no
liability for damages. The seller does not take active part in the
sale and in the determination of the price precludes existence
of bad faith on his part.
• As to the government:
o Caveat emptor applies: puts purchaser upon inquiry as to
debtor’s title, buys at own peril
o Purchaser acquires no better right than that of the judgment
debtor
Right of purchaser in judicial sales:
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• The purchaser of property on sale under execution and levy takes as
assignee only. At a sheriff’s sale, what is sold is not the property but the
interest therein.
• When judicial sale is set aside or voided without fault of purchaser, he
is entitled to reimbursement subject to set-off for the benefits enjoyed
while he had possession of the property
• GR: judicial sale can only be set aside upon return to the buyer of
purchase price with simple interest and other expenses incurred by him.
Art. 1571. Actions arising from the provisions of the preceding ten articles
shall be barred after six months, from the delivery of the thing sold.
(1490)
Prescription
• Action of rescission or reduction of purchase price (breach of warranty
against hidden defects) : 6 months from date of delivery to vendee
• Action is for quasi-delict: 4 years
• Rescission (breach of express warranty): 4 years
Art. 1572. If two or more animals are sold together, whether for a lump
sum or for a separate price for each of them, the Redhibitory defect of
one shall only give rise to its Redhibition, and not that of the others;
unless it should appear that the vendee would not have purchased the
sound animal or animals without the defective one.
The latter case shall be presumed when a team, yoke pair, or set is
bought, even if a separate price has been fixed for each one of the
animals composing the same. (1491)
Sale of two or more animals together
• GR: When Redhibitory defect is in one or some of them but not all,
Redhibition will not affect others without it.
• EX: When it can be shown that the vendee would not have purchased
the sound ones without those which are defective.
Art. 1573. The provisions of the preceding article with respect to the sale
of animals shall in like manner be applicable to the sale of other things.
(1492)
Ina Cojuangco Guingona | Dana Beatrice Lopez
Preceding provision applies also to sale of 2 or more things together where only
one or some but not all have hidden defects
Art. 1574. There is no warranty against hidden defects of animals sold at
fairs or at public auctions, or of live stock sold as condemned. (1493a)
Sale of animals at fairs or at public auctions or as condemned
• Based on the assumption that defects must have been clearly known to
buyer
• Public auction may mean judicial or extrajudicial
Art. 1575. The sale of animals suffering from contagious diseases shall be
void.
A contract of sale of animals shall also be void if the use or service for
which they are acquired has been stated in the contract, and they are
found to be unfit therefor. (1494a)
When sale of animals void
• Class of animals which cannot be the object of commerce:
• Animals suffering from contagious diseases
o Void since it is against public interest
o Action for declaration of inexistence of contract does not
prescribe
• Those found unfit for use or service stated
Art. 1576. If the hidden defect of animals, even in case a professional
inspection has been made, should be of such a nature that expert
knowledge is not sufficient to discover it, the defect shall be considered
as redhibitory.
But if the veterinarian, through ignorance or bad faith should fail to
discover or disclose it, he shall be liable for damages. (1495)
What constitutes Redhibitory defect against animals:
• Hidden defect is of such nature that, even in case a professional
inspection has been made, it is of such nature that expert knowledge is
not sufficient to discover
• Fault and defects which are determined by law or by local customs as
Redhibitory
• Defect in the animal must be unknown to or hidden from the seller
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Exemption from hidden defects (When the vendor may be exempt from
liability for Redhibitory defects):
• Vendee has knowledge of Redhibitory defects
• Vendee is an expert who should have known them
• Stipulation that vendor won’t be liable and the vendor was not aware of
such hidden defect
• Animals were sold at fairs or public auctions
• Livestock sold was condemned
Art. 1577. The Redhibitory action, based on the faults or defects of
animals, must be brought within forty days from the date of their delivery
to the vendee.
This action can only be exercised with respect to faults and defects which
are determined by law or by local customs. (1496a)
Limitation of action in sale of animals
• Action must be brought within 40 days from date of delivery
• Redhibitory defects must be determined by law or local customs
(determined by local veterinary professors)
• If the defects are patent, there is no warranty against such defects
although there exists a Redhibitory vice.
Art. 1578. If the animal should die within three days after its purchase, the
vendor shall be liable if the disease which cause the death existed at the
time of the contract. (1497a)
Responsibility of vendor where animal dies
• GR: If the animal should die within 3 days after its purchase, the
vendor shall be liable if the disease which caused the death existed at
the time of the contract. Claim of vendee must be based on finding of
an expert that the disease that caused the death existed at the time of
the contract
• EX: If death occurs after 3 days OR the defect is patent and visible
Art. 1579. If the sale be rescinded, the animal shall be returned in the
condition in which it was sold and delivered, the vendee being
answerable for any injury due to his negligence, and not arising from the
Redhibitory fault or defect. (1498)
Ina Cojuangco Guingona | Dana Beatrice Lopez
Liability of the buyer in case sale of animal rescinded
• Vendee must return the animal in the condition in which it was sold
and delivered
• In case of injury due to hid negligence, vendee shall be responsible
• Animal died as a result of Redhibitory defect existing at time of delivery,
vendee should be able to file the Redhibitory action even if the vendee
is not able to return the animal in the condition it was sold and
delivered
Art. 1580. In the sale of animals with Redhibitory defects, the vendee shall
also enjoy the right mentioned in article 1567; but he must make use
thereof within the same period which has been fixed for the exercise of
the Redhibitory action. (1499)
Alternative remedies of vendee in sale of animals: Either Redhibitory action or
Accion Quanti Minoris, brought within 40 days from date of delivery
Art. 1581. The form of sale of large cattle shall be governed by special
laws. (n)
Form of sale of large cattle
• Special law governing: Act No. 4117 providing for the registration,
branding, conveyance, and slaughter of large cattle
• PD 553 (Anti- Cattle Rustling Law) no person, partnership, association,
corporation, or entity shall engage in the business of buy and sell of
large cattle without first securing a permit for said purpose from the
Provincial commander of the province where business will be
conducted
• Must appear in public document
CHAPTER 5
OBLIGATIONS OF THE VENDEE
Art. 1582. The vendee is bound to accept delivery and to pay the price of
the thing sold at the time and place stipulated in the contract.
If the time and place should not have been stipulated, the payment must
be made at the time and place of the delivery of the thing sold. (1500a)
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• Principal obligations of vendee
o To accept delivery of the thing sold
o To pay the price of the thing sold at the time and place stipulated
in the contract
o To bear the expenses for the execution and registration of the sale
and putting the goods in a deliverable state, if such is the
stipulation
• Grace period extending time of payment
o General rule: To be valid, an agreement to extend the time of
payment must be for a definite time
§ Sufficient that the time can be readily determined
o The grace period is a right, not an obligation
• Pertinent rules
o The vendor is not required to deliver the thing sold until the price
is paid
o The vendee is not required to pay the price before the thing is
delivered in the absence of an agreement to the contrary
o If stipulated, the vendee is bound to accept delivery and to pay the
price at the time and place designated
o No stipulation – vendee is bound to pay at the time and place of
delivery
o No stipulation as to the place – delivery made to wherever the
thing may be at the moment the contract was perfected
o Only time for delivery is stipulated – the vendee is required to pay
before delivery
o If only the time for payment is stipulated – vendee is entitled to
delivery even before the price is paid by him
• Liability of vendee for obligations of company bought out
o Buyer assumes obligations when said are not of considerable
amount or value
o If of considerable value depends on whether the company was
bought to stop operations (competitors)
o Principle of absorption – a bona fide buyer or transferee of all or
substantially all the properties of the seller or transferor is not
obliged to absorb the latter’s employees
o The most they can do is to give preference of reemployment
Art. 1583. Unless otherwise agreed, the buyer of goods is not bound to
accept delivery thereof by installments.
Ina Cojuangco Guingona | Dana Beatrice Lopez
Where there is a contract of sale of goods to be delivered by stated
installments, which are to be separately paid for, and the seller makes
defective deliveries in respect of one or more installments, or the buyer
neglects or refuses without just cause to take delivery of or pay for one
more installments, it depends in each case on the terms of the contract
and the circumstances of the case, whether the breach of contract is so
material as to justify the injured party in refusing to proceed further and
suing for damages for breach of the entire contract, or whether the
breach is severable, giving rise to a claim for compensation but not to a
right to treat the whole contract as broken. (n)
• Rules governing delivery in installments
o General rule: In an ordinary contract for the sale of goods, the
buyer is not bound to receive delivery of the goods in installments
§ EXCEPTION: If the parties make an agreement that the
goods or price may be deliverable/payable in installments
o Remedy when a separate price has been fixed for each installment
it depends on the terms of the contract to determine if there is a
breach
§ If the breach affects the whole contract, the injured party
may sue for damages for breach of the entire contract
§ If the breach is severable it will only give rise to a claim for
compensation for the breach
o Remedy if there is no price fixed for each installment
§ Civil code is silent
§ Buyer should be able to choose between fulfillment and
rescission with the payment of damages in either case
• Not available if slight or casual breaches only
Art. 1584. Where goods are delivered to the buyer, which he has not
previously examined, he is not deemed to have accepted them unless and
until he has had a reasonable opportunity of examining them for the
purpose of ascertaining whether they are in conformity with the contract
if there is no stipulation to the contrary.
Unless otherwise agreed, when the seller tenders delivery of goods to the
buyer, he is bound, on request, to afford the buyer a reasonable
opportunity of examining the goods for the purpose of ascertaining
whether they are in conformity with the contract.
Where goods are delivered to a carrier by the seller, in accordance with an
order from or agreement with the buyer, upon the terms that the goods
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shall not be delivered by the carrier to the buyer until he has paid the
price, whether such terms are indicated by marking the goods with the
words "collect on delivery," or otherwise, the buyer is not entitled to
examine the goods before the payment of the price, in the absence of
agreement or usage of trade permitting such examination. (n)
• Acceptance – assent to become owner of the specific goods when delivery
of them is offered to the buyer
• Buyer’s right to examine the goods
o Right of inspection given to the buyer, if it does not correspond to
the kind, quality, condition or amount to which he contracted for,
he may reject it
o There must be actual delivery
o Par. 1 – the right of examination or inspection is a condition
precedent to the transfer of ownership unless there is a contrary
stipulation
o Par. 2 – buyer has the right to inspect when the seller tenders
delivery of the goods to the buyer unless otherwise agreed upon
o Goods delivered collect on delivery (COD) and not COD
§ Seller is authorized or required to send the goods to the
buyer, delivery of the goods to a carrier for the purpose of
transmission to the buyer is deemed to be delivery to the
buyer
§ The buyer has the right to examine the goods as a
condition precedent to paying the price after ownership
has passed
• Not available when the goods are sent COD
• Exception: In a COD sale, the buyer is allowed to
examine the goods before payment of the price if
it is agreed upon or if it is permitted by usage
o Right of examination of the buyer is not absolute – only on request
§ If the seller refuses, the buyer may rescind and recover any
or all of the price paid
o Must be exercised within a reasonable time
§ Unless there is a time agreed upon
§ Failure to do so within a reasonable time – treated as
having assented to take or keep title to the goods
o The right to inspect may be waived, may be implied
o The parties may agree on the place of inspection
§ If not agreed upon, intention of the parties will govern
Ina Cojuangco Guingona | Dana Beatrice Lopez
§ Absence of stipulation – place of delivery is the place of
inspection
§ Continues until final destination when transported to a
distant point
§ Carrier is not the buyer’s agent to pass upon the character,
kind and quality of the articles – but the carrier may be the
buyer’s agent to receive and transport the goods
o The buyer must exercise the right of inspection in the manner
provided in the contract
§ Customary manner
§ Carries with it the right to do things without which it
cannot be reasonably and efficiently be accomplished
o If the goods are unsuitable or fail to conform to the contract, he
may refuse to accept them
§ He is not bound to return them to the seller and it is
sufficient if he notifies the seller that he refuses to accept
them
§ Must be exercised and give notice of rejection given to the
seller within a reasonable time unless a definite period is
fixed
Art. 1585. The buyer is deemed to have accepted the goods when he
intimates to the seller that he has accepted them, or when the goods have
been delivered to him, and he does any act in relation to them which is
inconsistent with the ownership of the seller, or when, after the lapse of a
reasonable time, he retains the goods without intimating to the seller that
he has rejected them. (n)
• What constitutes acceptance
o Acceptance of quality – There may be an acceptance of quality
before delivery, as where goods are selected by the buyer, with
delivery and transfer of title postponed until a later time
o Acceptance of possession – if the buyer expressly refuses to accept
title of the goods tendered, his permission to place the goods inside
his premises for the mutual convenience of the parties cannot be
considered an acceptance of title
• Modes of manifesting acceptance
o Express – intimates to the seller, verbally or in writing
o Implied
§ Any act inconsistent with the seller’s ownership
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§ Buyer retains the goods without intimating his rejection
• Use of property
o General rule: The use of the goods by the buyer is generally
considered an act inconsistent with the seller’s ownership and
prevents the buyer from claiming that he has not accepted the
goods
o Exception: A single act of use which does not affect the condition
or value of the property
• Acts inconsistent with seller’s ownership
o Retention of a motor vehicle for more than 5 months and driving it
for 3000 miles
o Resale or mortgage
o Alteration
o Conduct after rejection
• Delivery and acceptance, as separate acts
o Acceptance cannot be regarded as a condition to complete delivery
o Acceptance is generally necessary to complete actual delivery
o Acceptance of the buyer may precede actual delivery (receipts)
Art. 1586. In the absence of express or implied agreement of the parties,
acceptance of the goods by the buyer shall not discharge the seller from
liability in damages or other legal remedy for breach of any promise or
warranty in the contract of sale. But, if, after acceptance of the goods, the
buyer fails to give notice to the seller of the breach in any promise of
warranty within a reasonable time after the buyer knows, or ought to
know of such breach, the seller shall not be liable therefor. (n)
• Acceptance, not a bar to action for damages
o Acceptance – assent to receive delivery as transferring possession
and ownership in the goods
o Acceptance does not carry with it the additional agreement that the
property in the goods shall be taken in full satisfaction of all
obligations
§ BASICALLY - Unless otherwise agreed upon, acceptance
does not discharge the seller from liability in damages or
other legal remedies that may arise from the contract
• Notice to seller of breach of promise or warranty
o Must be given within a reasonable time
o To protect the seller against belated claims
Ina Cojuangco Guingona | Dana Beatrice Lopez
o No particular form
o Burden of proof on the one claiming the breach of warranty
o Grounds:
§ Defects in quality
§ Breach of any promise or warranty
Art. 1587. Unless otherwise agreed, where goods are delivered to the
buyer, and he refuses to accept them, having the right so to do, he is not
bound to return them to the seller, but it is sufficient if he notifies the
seller that he refuses to accept them. If he voluntarily constitutes himself
a depositary thereof, he shall be liable as such. (n)
• Where buyer’s refusal to accept justified
o Duty of the buyer to take care of the goods without obligation to
return
o After notice that the goods have not been and will not be accepted,
the seller must take delivery of the goods
o Even if the goods remain with the buyer, they are at the seller’s risk
§ The buyer is not a depositary unless he constitutes himself
as such
o The buyer might just prefer to resell the goods at once
§ In the case of resale – the buyer is entitled to a lien not
only for a portion of the price paid but for any reasonable
expenses incurred in keeping and caring for the goods and
in reselling them
Art. 1588. If there is no stipulation as specified in the first paragraph of
article 1523, when the buyer's refusal to accept the goods is without just
cause, the title thereto passes to him from the moment they are placed at
his disposal. (n)
• As compared to 1587
o 1587 – refusal with a right to do so
o 1588 – refusal with a right to do so
• Where buyer’s refusal to accept wrongful
o The delivery of the goods to a carrier is deemed to be a delivery of
the goods to the buyer
o Risk is borne by the buyer from the moment they are placed at his
disposal
o If there is a right of inspection – ownership passes after inspection
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Art. 1589. The vendee shall owe interest for the period between the
delivery of the thing and the payment of the price, in the following three
cases:
(1) Should it have been so stipulated;
(2) Should the thing sold and delivered produce fruits or income;
(3) Should he be in default, from the time of judicial or
extrajudicial demand for the payment of the price. (1501a)
• Situation: delivery and full payment of the price were not made
simultaneously
• Liability of vendee for interest where payment is made after delivery
o The rate of interest expressly stipulated governs
§ If they fail to fix the rate, the legal rate of interest
o Fruits or income received by vendee from thing sold (Par. 2) – two
conditions must exist
§ That the thing sold has been delivered
§ That it produces fruits or income
§ Vendee is still bound to pay interest even if a term has
been fixed for the payment of the price
o If the vendee is guilty of default, the interest is due from the time
of judicial or extrajudicial demand by the vendor
• Applies to a situation where there is partial payment of the purchase price
o Payment to pay the balance of the price will not obligate the buyer
to pay interest in none of the three instances mentioned apply
• For Par. 3 to apply – the seller must demand the payment of the purchase
price, not an action to nullify the sale
Art. 1590. Should the vendee be disturbed in the possession or ownership
of the thing acquired, or should he have reasonable grounds to fear such
disturbance, by a vindicatory action or a foreclosure of mortgage, he may
suspend the payment of the price until the vendor has caused the
disturbance or danger to cease, unless the latter gives security for the
return of the price in a proper case, or it has been stipulated that,
notwithstanding any such contingency, the vendee shall be bound to
make the payment. A mere act of trespass shall not authorize the
suspension of the payment of the price. (1502a)
• Right of vendee to suspend payment of price
Ina Cojuangco Guingona | Dana Beatrice Lopez
o Two cases:
§ If he is disturbed in the possession or ownership of the
thing bought; or,
§ If he has a well-grounded fear that his possession or
ownership would be disturbed by a vindicatory action1 or
foreclosure of mortgage
• Not necessary that an action be brought against
the vendee
o Vendee is only entitled to retain the price that has not been paid
o When the vendee has no right to suspend payment of the price
even if there is disturbance in his possession or ownership of the
thing sold
§ If the vendor gives security for the return of the price
§ If it has been stipulated that notwithstanding any such
contingency, the vendee must make payment
§ If the vendor has caused the disturbance or danger to
cease
§ If the disturbance is a mere act of trespass
§ If the vendee has fully paid the price
§ If the thing sold is in the possession of the vendee and the
price is with the vendor
• The sale is consummated
• Right of vendee to demand rescission
o Vendee has no cause of action before final judgment
Art. 1591. Should the vendor have reasonable grounds to fear the loss of
immovable property sold and its price, he may immediately sue for the
rescission of the sale.
Should such ground not exist, the provisions of Article 1191 shall be
observed. (1503)
• Situation: sale of immovable or real property where the vendor has good
reasons to fear the loss of the property and its price – there has been
delivery but the vendee has not yet paid
• Right of vendor to rescind sale of immovable property
o Applicable to both cash and installment sales
o Remedy: fulfillment or rescission with damages in either case
1
Vindicatory action - remedy available to an owner to reclaim his property from wherever it is
found from whoever is holding it. Aimed at restoring proprietary interest
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§ Rescission only when the breach is substantial and
fundamental to the fulfillment of the obligation
Art. 1592. In the sale of immovable property, even though it may have
been stipulated that upon failure to pay the price at the time agreed upon
the rescission of the contract shall of right take place, the vendee may pay,
even after the expiration of the period, as long as no demand for
rescission of the contract has been made upon him either judicially or by
a notarial act. After the demand, the court may not grant him a new term.
(1504a)
• Rule where automatic rescission of sale immovable property stipulated
o General rule: The vendor may sue for rescission of the contract
should the vendee fail to pay the agreed price
§ Exception is 1592 – the sale of real property is subject to
the stipulations agreed upon by the parties, and 1592
where non-payment of the purchase price is a resolutory
condition
o No ipso facto rescission when there is failure to fulfill the contract
§ The vendee may still pay the price after the expiration of
the period and notwithstanding the stipulation
o A judicial or notarial act is necessary before a valid rescission can
take place
o 1592 is the only provision which provides automatic rescission of
sale of real property for non-payment of purchase price
o Remember: to rescind is to declare a contract void in its inception
and to put an end to it as though it never were
o Rescission is a principal action to seek the resolution or
cancellation of the contract
o Prescriptive period – brought within 10 years from the time the
right of action accrues
• Right of seller to rescind not absolute
o Generally, the seller cannot unilaterally and extrajudicially rescind
where there is no express stipulation
§ EXCEPTION: 1592
o The court may extend the period for payment if the vendee has
substantially performed in good faith
o The right of automatic rescission is subject to waiver
Ina Cojuangco Guingona | Dana Beatrice Lopez
o Indispensable that there is notice at least written sent to the party
in default informing him of the rescission
o RA 6552 – indispensable notice of cancellation or the demand for
rescission must be by notarial act
o The breach must be substantial
• Where Article 1592 not applicable
o Does not apply to sales on installment of real property in which the
parties have stipulated the procedure to be followed if the vendee
fails
o Not applicable to a mere promise to sell
o Cases covered by RA 6552 – contracts to sell on installments
o Contracts to sell (since ownership retained with vendor
jurisprudence: LUZON BROKERAGE vs. MARITIME BLDG
remember! Landmark case)
NOTE: “A judicial demand or a notarial act was still required pursuant to 1592.
Thus, petitioners’ letter informing private respondents of the rescission did not
suffice for it was not notarized.” (Valarao vs. CA and Arellano)
“Clearly, a judicial or notarial act is necessary before a valid rescission can take
place, whether or not automatic rescission has been stipulated. It is to be noted
that the law uses the phrase “even though” emphasizing that when no
stipulation is found on automatic rescission the judicial or notarial requirement
still applies.” (Iringan vs. CA)
Art. 1593. With respect to movable property, the rescission of the sale
shall of right take place in the interest of the vendor, if the vendee, upon
the expiration of the period fixed for the delivery of the thing, should not
have appeared to receive it, or, having appeared, he should not have
tendered the price at the same time, unless a longer period has been
stipulated for its payment. (1505)
• Rule where automatic rescission of sale of movable property stipulated
o Personal property which has not yet been delivered, the vendor can
rescind the contract as a matter of right IF
§ The vendee without any valid cause
• Does not:
o Accept delivery
o Pay the price unless a credit period for its
payment has been stipulated
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o Necessary that the vendor takes affirmative action indicating his
intention to rescind
o Parties may validly enter into an agreement that violation of the
terms would cause cancellation even without judicial intervention
or permission
• Reason for the rule with respect to movable property
o Not capable of maintaining a stable price in the market
CHAPTER 6
ACTIONS FOR BREACH OF CONTRACT OF SALE OF
GOODS
Art. 1594. Actions for breach of the contract of sale of goods shall be
governed particularly by the provisions of this Chapter, and as to matters
not specifically provided for herein, by other applicable provisions of this
Title. (n)
• Goods – all chattels personal but not things in action or money of legal
tender in the Philippines
o Includes growing fruits or crops
• Provisions concerning the sale of immovable property have no application
to the sale of goods
• Actions available
o Action by the seller for payment of the price
o Action by the seller for damages for non-acceptance of the goods
o Action by the seller for rescission of the contract for breach
thereof
o Action by the buyer for specific performance
o Action by the buyer for rescission or damages for breach of
warranty
Art. 1595. Where, under a contract of sale, the ownership of the goods has
passed to the buyer and he wrongfully neglects or refuses to pay for the
goods according to the terms of the contract of sale, the seller may
maintain an action against him for the price of the goods.
Where, under a contract of sale, the price is payable on a certain day,
irrespective of delivery or of transfer of title and the buyer wrongfully
neglects or refuses to pay such price, the seller may maintain an action
for the price although the ownership in the goods has not passed. But it
shall be a defense to such an action that the seller at any time before the
Ina Cojuangco Guingona | Dana Beatrice Lopez
judgment in such action has manifested an inability to perform the
contract of sale on his part or an intention not to perform it.
Although the ownership in the goods has not passed, if they cannot
readily be resold for a reasonable price, and if the provisions of article
1596, fourth paragraph, are not applicable, the seller may offer to deliver
the goods to the buyer, and, if the buyer refuses to receive them, may
notify the buyer that the goods are thereafter held by the seller as bailee
for the buyer. Thereafter the seller may treat the goods as the buyer's and
may maintain an action for the price. (n)
• Seller’s right of action for the price
o When the ownership of the goods has passed to the buyer and he
wrongfully neglects or refuses to pay for the price
o When the price is payable on a certain day and the buyer
wrongfully neglects or refuses to pay such price, irrespective of
delivery or of transfer of title
o When the goods cannot readily be resold for a reasonable price and
the buyer wrongfully refuses to accept them even before the
ownership in the goods has passed (if the provisions of 1596 par. 4
are not applicable)
• Where ownership in goods has not passed
o The presumption is that the payment of the price and the delivery
of the goods were intended to be concurrent acts
o The seller cannot maintain an action for the price if the ownership
in the goods has not passed to the buyer
§ Exceptions
• Unless the price is payable on a certain day
• Unless the goods cannot readily be resold for a
certain price and 1596 par. 4 is not applicable
• Recovery of price payable on a certain day
o The act which is to be performed first is due on that day, and the
other act due on a later day is not due unless the prior performance
as been rendered
o Not common for buyers to give credit for the goods
o If the buyer promises to pay the price before acquiring ownership
or possession – par.2 applied
o Par. 2 however excuses the buyer from his obligation if the seller
before time for payment has manifested an inability to perform the
contract or an intention not to perform it
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Art. 1596. Where the buyer wrongfully neglects or refuses to accept and
pay for the goods, the seller may maintain an action against him for
damages for non-acceptance.
The measure of damages is the estimated loss directly and naturally
resulting in the ordinary course of events from the buyer's breach of
contract.
Where there is an available market for the goods in question, the measure
of damages is, in the absence of special circumstances showing
proximate damage of a different amount, the difference between the
contract price and the market or current price at the time or times when
the goods ought to have been accepted, or, if no time was fixed for
acceptance, then at the time of the refusal to accept.
If, while labor or expense of material amount is necessary on the part of
the seller to enable him to fulfill his obligations under the contract of sale,
the buyer repudiates the contract or notifies the seller to proceed no
further therewith, the buyer shall be liable to the seller for labor
performed or expenses made before receiving notice of the buyer's
repudiation or countermand. The profit the seller would have made if the
contract or the sale had been fully performed shall be considered in
awarding the damages. (n)
• Seller’s right of action for damages
o If the buyer without lawful cause neglects or refuses to accept and
pay for the goods he agreed to buy, the seller may maintain an
action against him for damages for non-acceptance
o In an executory contract, and ownership has not passed – the seller
has no action to recover the price – action is for damages
o If the goods are not yet identified – the seller’s right is confined to
an action for damages
• Measure of damages for non-acceptance
o Estimated loss directly and naturally resulting from the buyer’s
breach of contract
o 𝐶𝑜𝑛𝑡𝑟𝑎𝑐𝑡 𝑝𝑟𝑖𝑐𝑒 − 𝑚𝑎𝑟𝑘𝑒𝑡 𝑜𝑟 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑝𝑟𝑖𝑐𝑒
§ Contract price – amount of the obligation which the buyer
failed to fulfill
§ Market price – value of the goods which the seller has left
upon his hands
o If there is no available market – the seller is entitled to the full
amount of damages he has sustained because of the breach
o Proximate damages in special circumstances
Ina Cojuangco Guingona | Dana Beatrice Lopez
• Inclusion for measure of damages for the seller for repudiation or
countermand by buyer
o Labor performed and expense incurred for materials before
receiving notice of the buyer’s repudiation
o The profit he would have realized if the sale had been fully
performed
Art. 1597. Where the goods have not been delivered to the buyer, and the
buyer has repudiated the contract of sale, or has manifested his inability
to perform his obligations thereunder, or has committed a breach thereof,
the seller may totally rescind the contract of sale by giving notice of his
election so to do to the buyer. (n)
• Seller’s right of rescission before delivery
o When the buyer has repudiated the contract of sale
o When the buyer has manifested his inability to perform his
obligations thereunder
o When the buyer has committed a breach of the contract of sale
• 1595 – if the goods have been delivered, the seller may recover the value of
what he has given
• Giving of notice required
o Seller is required to give notice of his election to seek rescission
o Does not need to be formal notice
• Seller’s right of rescission for breach of contract
o Not absolute
§ Subordinate to rights of third persons in legal possession
of the object in good faith
§ Must be for substantial breaches only
§ Seller cannot unilaterally and extrajudicially rescind the
contract
Art. 1598. Where the seller has broken a contract to deliver specific or
ascertained goods, a court may, on the application of the buyer, direct
that the contract shall be performed specifically, without giving the seller
the option of retaining the goods on payment of damages. The judgment
or decree may be unconditional, or upon such terms and conditions as to
damages, payment of the price and otherwise, as the court may deem just.
(n)
• Buyer’s right to specific performance
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o Applied only where the goods to be delivered are specific or
ascertained
o The buyer (as a matter of right) has the remedy of specific
performance in case the seller violates his obligation to make
delivery
o Seller cannot retain the goods on payment of damages
Art. 1599. Where there is a breach of warranty by the seller, the buyer may,
at his election:
(1) Accept or keep the goods and set up against the seller, the
breach of warranty by way of recoupment in diminution or
extinction of the price;
(2) Accept or keep the goods and maintain an action against the
seller for damages for the breach of warranty;
(3) Refuse to accept the goods, and maintain an action against
the seller for damages for the breach of warranty;
(4) Rescind the contract of sale and refuse to receive the goods or
if the goods have already been received, return them or offer to
return them to the seller and recover the price or any part thereof
which has been paid.
When the buyer has claimed and been granted a remedy in anyone of
these ways, no other remedy can thereafter be granted, without prejudice
to the provisions of the second paragraph of Article 1191. Where the
goods have been delivered to the buyer, he cannot rescind the sale if he
knew of the breach of warranty when he accepted the goods without
protest, or if he fails to notify the seller within a reasonable time of the
election to rescind, or if he fails to return or to offer to return the goods to
the seller in substantially as good condition as they were in at the time
the ownership was transferred to the buyer. But if deterioration or injury
of the goods is due to the breach or warranty, such deterioration or injury
shall not prevent the buyer from returning or offering to return the goods
to the seller and rescinding the sale. Where the buyer is entitled to
rescind the sale and elects to do so, he shall cease to be liable for the
price upon returning or offering to return the goods. If the price or any
part thereof has already been paid, the seller shall be liable to repay so
much thereof as has been paid, concurrently with the return of the goods,
or immediately after an offer to return the goods in exchange for
repayment of the price. Where the buyer is entitled to rescind the sale and
elects to do so, if the seller refuses to accept an offer of the buyer to
Ina Cojuangco Guingona | Dana Beatrice Lopez
return the goods, the buyer shall thereafter be deemed to hold the goods
as bailee for the seller, but subject to a lien to secure payment of any
portion of the price which has been paid, and with the remedies for the
enforcement of such lien allowed to an unpaid seller by Article 1526. (5)
In the case of breach of warranty of quality, such loss, in the absence of
special circumstances showing proximate damage of a greater amount, is
the difference between the value of the goods at the time of delivery to
the buyer and the value they would have had if they had answered to the
warranty. (n)
• Remedies of buyer for breach of warranty by seller
o Accept the goods and set up the seller’s breach to reduce or
extinguish the price
o Accept the goods and maintain an action for damages for breach of
the warranty
o Refuse to accept the goods and maintain an action for damages for
the breach of warranty
o Rescind the contract of sale by returning or offering the return of
the goods, and recover the price or any part thereof which has
been paid
o GROUPED:
§ Recoupment (#1)
§ Action or counterclaim for damages (#3 and #2)
§ Rescission (#4)
• Read Nos. 1 and 2 in connection with 1586
• Does not apply if the contract of sale was not perfected
• Remedies alternative
o Only exception is when after the buyer has chosen fulfillment, it
should become impossible, in which case he may also sue for
rescission
• Recoupment in diminution of the price
o Theory of recoupment – the seller’s damages are cut down to an
amount which will compensate him for the value of what he has
given
§ Synonymous with discount, reduction, deduction
o Reduction or extinction of the price of the same item or unit sold
• Action or counterclaim for damages
o The buyer may refuse to accept the goods and maintain an action
against the seller for damages for the breach of warranty
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§ Fundamental that the breach gives rise to an action for
damages
o If there is acceptance with knowledge of the breach of warranty –
no more rescission but the right to recoupment or damages may
still prosper
• Recoupment and counterclaims, distinguished
o Counterclaim - both sides of the contract are enforced in the same
litigation
§ The buyer seeks to enforce the seller’s obligation and to
deduct it from his liability for the price for breach of the
warranty
• When rescission by the buyer not allowed
o If the buyer accepted the goods knowing of the breach of warranty
without protest
o If he fails to notify the seller within a reasonable time of his
election to rescind
o If he fails to return of offer to return the goods in substantially as
good condition as they were in at the time of the transfer of
ownership to him
§ But where the injury to the goods was caused by the very
defect against which the seller warranted, the buyer may
still rescind the sale
• Rights and obligations of buyer in case of rescission
o Rescission – buyer ceases to be liable for the price
§ Only obligation is to return the goods
o He has paid any or all of the price – to recover it
o The right to hold the goods as bailee should the seller refuse the
return of the goods
o Right of lien on the foods for any portion of the price already paid
§ May be enforced as if he were an unpaid seller
CHAPTER 7
EXTINGUISHMENT OF SALE
Art. 1600. Sales are extinguished by the same causes as all other
obligations, by those stated in the preceding articles of this Title, and by
conventional or legal redemption. (1506)
• Causes of extinguishment of sale
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o Common – causes which are also the means of extinguishing all
other contract
o Special – those causes which are recognized by the law on sales
o Extra-special – those causes which are given special discussion by
the Civil Code (e.g. conventional and legal redemption)
SECTION 1. - CONVENTIONAL REDEMPTION
Art. 1601. Conventional redemption shall take place when the vendor
reserves the right to repurchase the thing sold, with the obligation to
comply with the provisions of Article 1616 and other stipulations which
may have been agreed upon. (1507)
• Conventional redemption – the right which the vendor reserves to
himself, to reacquire the property sold provided he returns to the vendee
the price of the sale, the expenses of the contract, any other legitimate
payments made therefore and the necessary and useful expenses made on
the thing sold, and fulfills other stipulations which may have been agreed
upon
• Subject matter of conventional redemption
o Both real and personal property
o But 1607, 1611, 1612, 1613, 1614, 1617, 1618 are applicable only to
immovables
• Nature of conventional redemption
o Contractual – right created by virtue of an express contract
o Accidental – nullity cannot affect the sale
o Real – when registered, it binds third persons
o Potestative – depends upon the will of the vendor
o Resolutory – when exercised, the right of ownership acquired by
the vendee is extinguished
§ In a pacto de retro sale, the title or ownership of the
property sold is immediately vested in the vendee a retro
• Subject to the resolutory condition of repurchase
by the vendor a retro within the stipulated period
o Power or privilege reserved by the vendor, not an obligation
o Reserved at the moment of the perfection of the contract
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§If it’s (the right to repurchase) agreed upon later, its (6) In any other case where it may be fairly inferred that the real
governed by 14792 intention of the parties is that the transaction shall secure the
o The owner of the property sold is necessarily entitled to exercise payment of a debt or the performance of any other obligation.
the right of redemption In any of the foregoing cases, any money, fruits, or other benefit to be
o Gives rise to reciprocal obligations received by the vendee as rent or otherwise shall be considered as interest
§ 1616 – vendor must return the price of sale and other which shall be subject to the usury laws. (n)
expenses
§ Vendee – delivering the property and executing a deed of • Equitable mortgage– one which lacks the proper formalities form or
sale words or requisites prescribed by law for a mortgage but shows the
• Option to buy and right of repurchase distinguished intention of the parties to make the property subject of the contract
o The right of repurchase must be reserved by stipulation by the denominated as a contract of sale, as security for a debt and contains
vendor in the same instrument nothing impossible or contrary to law
o If done after in a separate instrument, it cannot be a right of • The pacto de retro problem
repurchase, it can be an option to buy o Policy of the law is to discourage pacto de retro sales and prevent
• Right to redeem and right of repurchase distinguished the circumvention of the prohibition against usury and pactum
o Right to redeem is functus officio on the date of its expiry and its commissorium
exercise after the period is a repurchase
o Redemption is by force of law binding the purchaser to accept,
repurchase imposes no such obligation Pacto de retro Mortgage
• The vendor must comply with 1616 and other stipulations agreed upon Ownership is immediately transferred Ownership is not transferred, but the
upon delivery but subject to the property is just subject to a charge or
Art. 1602. The contract shall be presumed to be an equitable mortgage, in condition that the seller might recover lien as security for the compliance of a
any of the following cases: the ownership within a certain period principal obligations
(1) When the price of a sale with right to repurchase is unusually of time
inadequate; If the seller does not repurchase The mortgager does not lose his
(2) When the vendor remains in possession as lessee or within the time agreed upon in the interest upon non payment but merely
otherwise; contract, he loses all interest thereon subjects the property to foreclosure
(3) When upon or after the expiration of the right to repurchase and title vests in the buyer and public sale
another instrument extending the period of redemption or No obligation resting upon the Duty of the mortgagee to foreclose if
granting a new period is executed; purchaser to foreclose he wishes to secure a perfect title
(4) When the purchaser retains for himself a part of the purchase thereto
price; The vendor does not have any right to After maturity of the debt, the
(5) When the vendor binds himself to pay the taxes on the thing redeem the property after maturity of mortgagor has a right to redeem
sold; the debt

• Subsequent sale of property by vendor a retro

2Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally o Transfers legal title to the vendee a retro immediately subject to the
demandable. resolutory condition of repurchase by the vendor a retro within the
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding stipulated period
upon the promisor if the promise is supported by a consideration distinct from the price.
o Sole right of the vendor is that of redemption
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• When contract with right to repurchase presumed an equitable mortgage
o Requisites:
§ That the parties entered into a contract denominated as a
contract of sale with a right of repurchase or purporting to
be an absolute sale
§ Their intention was to secure an existing debt by way of
mortgage
o The presence of any of the 6 circumstances is sufficient to give rise
to the presumption that it is an equitable mortgage
o Parol evidence is admissible to prove that the contract was given as
security for the payment of a loan
o In case of doubt, a contract purporting to be a sale with right to
repurchase shall be construed as an equitable mortgage
• Price of the sale is unusually inadequate
o Refer to its assessed value
o Disproportion cannot alone justify the conclusion that the
transaction is a pure and simple loan
o Inadequacy not sufficient to set aside a sale unless it is grossly
inadequate or purely shocking to the conscience
• Vendor remains in possession
o Where the vendor remains in physical possession of the land sold
as lessee or otherwise, the contract should be treated as an
equitable mortgage
o But mere tolerated possession is not enough to prove that the
transaction was an equitable mortgage
• Evidence to prove true nature of contract
o The terms of the document
o Substance over form
• Circumstance indicative of intention to execute mortgage
o If the terms are ambiguous, a contract should be construed as a
mortgage or loan instead of a pacto de retro sale
o Vendor in urgent need for money
o Automatic appropriation by vendee of property sold is stipulated
§ Pactum commissorium – void
o Vendee given possession of certificate of title
o Vendor borrowed money from vendor to use to buy the property
sold
o Vendor continued t pay interest, and property not transferred to
vendee
o Vendor continued to be indebted
Ina Cojuangco Guingona | Dana Beatrice Lopez
o Vendor mortgaged the property to the bank, paid taxed
• Price in pacto de retro sales usually lower
o Because the vendor expects to reacquire or redeem the property
sold
Art. 1603. In case of doubt, a contract purporting to be a sale with right to
repurchase shall be construed as an equitable mortgage. (n)
Art. 1604. The provisions of Article 1602 shall also apply to a contract
purporting to be an absolute sale. (n)
• Presumption in case of doubt
o Equitable mortgage is favored by law
o Presumed to be an equitable mortgage even if only one of the
circumstances mentioned in 1602 is present
o This presumption is an exception to the general rule that doubts
affecting an onerous contract shall be settled in favor of the
greatest reciprocity of interests
§ An equitable mortgage effects a lesser transmission of
rights and interests than a contract of sale
o Parol evidence is admissible
o If the contract appears to be a genuine sales – the true agreement
will be upheld
o Two requisites must concur:
§ The parties entered into a contract denominated as a
contract of sale
§ Their intention was to secure an existing debt of way of an
equitable mortgage
• Effect where contract held as an equitable mortgage
o Same shall be given effect as if it has complied with the formal
requirements of mortgage
§ The supposed vendee (creditor) has the right to recover
the amount loaned
o Cannot prevail over a subsequent registered mortgage
o Title of property remains in supposed vendor
o Remedy of the creditor/vendee is to foreclose
• Pacto de retro sales not favored – may be overcome by competent and
satisfactory proof to the contrary
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Art. 1605. In the cases referred to in Articles 1602 and 1604, the apparent
vendor may ask for the reformation of the instrument. (n)
• Reformation – that remedy granted by law by means of which a written
instrument is made or construed so as to express or conform to the real
intention of the parties when such intention is not expressed in the
instrument
Art. 1606. The right referred to in Article 1601, in the absence of an
express agreement, shall last four years from the date of the contract.
Should there be an agreement, the period cannot exceed ten years.
However, the vendor may still exercise the right to repurchase within
thirty days from the time final judgment was rendered in a civil action on
the basis that the contract was a true sale with right to repurchase.
(1508a)
• Conventional redemption
• Period for exercise of right of redemption
o Does not apply where the contract is not one of sale with a right to
repurchase
o Vendor should reserve in certain terms in the contract of sale the
right to repurchase the things sold
o If the parties agreed on a definite period of redemption, the right
must be exercised within the period fixed, provided it does not
exceed 10 years
o If the stipulated period exceeds 10 years or there is no period
stipulated, they only have 10 years
o After the courts have decided by final judgment that the contract
was pacto de retro, the vendor may still have the privilege of
repurchasing within 30 days
§ 30 days period is preemptory
• When Article 1606, par. 3, not applicable when:
o The contract is found to be an absolute deed of sale
o Where the sale is admittedly pacto de retro
• Date from which period is reckoned
o Counted from the date of the contract – from the time which the
contract produces its effects
Ina Cojuangco Guingona | Dana Beatrice Lopez
o Par. 3 – the period is reckoned from the time the judgment
becomes final3
• Effect of stipulation extending period of repurchase
o After period of redemption has expired - that which is extinguished
cannot be extended – extension is void nothing to extend
o Before period of redemption has expired – may be extended
provided that it shall not extend beyond 10 years
§ Void as to the excess
• Validity of penal clause providing automatic termination or redemption
period
o Determination of the right of redemption may be made to depend
upon the delinquency of the vendor
Art. 1607. In case of real property, the consolidation of ownership in the
vendee by virtue of the failure of the vendor to comply with the provisions
of article 1616 shall not be recorded in the Registry of Property without a
judicial order, after the vendor has been duly heard. (n)
• Judicial order for recording of consolidation of ownership
o The acquisition of ownership by a vendee a retro is automatic
o The failure of the vendee a retro to consolidate his title under 1607
does not impair such title and ownership
• Action to consolidate ownership – ordinary civil action
o Contentious proceedings wherein the vendor a retro must be
named as respondent
o Land has been sold under pacto de retro, the vendor a retro may
file an application for the original registration of the land
Art. 1608. The vendor may bring his action against every possessor whose
right is derived from the vendee, even if in the second contract no
mention should have been made of the right to repurchase, without
prejudice to the provisions of the Mortgage Law and the Land
Registration Law with respect to third persons. (1510)
• Nature of right to redeem
o A real right – may be exercised against every possessor whose right
is derived from the vendee even if the second contract makes no
mention of the right of repurchase
3
Judgment becomes final after the period to appeal had lapsed without one having been perfected
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o Exception: Mortgage law and Land Registration law with respect to
third persons
§ A vendor a retro cannot exercise hi right of redemption
against a subsequent transferee for value and in good faith
if his right is not properly registered or annotated
o Right to redeem – not an obligation
o Reconveyance is an obligation, obligation ad rem which attaches to
redeemable lands in the hands of the possessor unless the action is
barred
Art. 1609. The vendee is subrogated to the vendor's rights and actions.
(1511)
• Rights acquired by vendee a retro
o Vendee subrogated to the vendor’s rights
§ Vendor must be the actual real owner
o Prior possession by the vendee a retro of the property is not
required for an unlawful detainer action against the vendor a retro
after failure to redeem and the vendee refused to vacate
Art. 1610. The creditors of the vendor cannot make use of the right of
redemption against the vendee, until after they have exhausted the
property of the vendor. (1512)
• Right of vendor’s creditor to redeem
o The right to redeem being property, it is answerable for the debts
of the vendor provided the vendor’s property, it is answerable for
the debts of the vendor provided the vendor’s properties are first
exhausted
o Exhaustion must be established to the satisfaction of the vendee
o Refers to all kinds of creditors except those in whose favor exists a
mortgage or antichresis upon the very property sold recorded prior
to the sale
Art. 1611. In a sale with a right to repurchase, the vendee of a part of an
undivided immovable who acquires the whole thereof in the case of
article 498, may compel the vendor to redeem the whole property, if the
latter wishes to make use of the right of redemption. (1513)
• Purpose – to discourage co-ownership (Art. 494)
Ina Cojuangco Guingona | Dana Beatrice Lopez
• Redemption in sale of part of undivided immovable
o The vendee who acquires the whole of an undivided immovable, a
part of which is subject to a right of repurchase has a right to
demand that the vendor a retro who likes to exercise his right of
redemption, redeem the whole property
Art. 1612. If several persons, jointly and in the same contract, should sell
an undivided immovable with a right of repurchase, none of them may
exercise this right for more than his respective share.
The same rule shall apply if the person who sold an immovable alone has
left several heirs, in which case each of the latter may only redeem the
part which he may have acquired. (1514)
Art. 1613. In the case of the preceding article, the vendee may demand of
all the vendors or co-heirs that they come to an agreement upon the
purchase of the whole thing sold; and should they fail to do so, the
vendee cannot be compelled to consent to a partial redemption. (1515)
• Redemption in joint sale by co-owners/co-heirs of undivided immovable
o Co-owners of an undivided immovable sold by them jointly or
collectively and in the same contract with the right to repurchase
can exercise such right only as regards their respective shares
o The co-heirs of the vendor or an undivided immovable can
exercise the right of redemption only for their inherited portions
o Vendee a retro can refuse partial redemption
§ May require all to redeem the entire property or to agree to
its redemption by any one of them
• Effect of redemption by co-owner of entire property
o Does not vest in the co-owner ownership over it
o Failure of all the co-owners to redeem it entitles the vendor a retro
to retain the property and consolidate title thereto under his name
o It is not a mode for terminating co-ownership
o Registration is not a means of acquiring ownership – it operates as
a mere notice of existing title
Art. 1614. Each one of the co-owners of an undivided immovable who
may have sold his share separately, may independently exercise the right
of repurchase as regards his own share, and the vendee cannot compel
him to redeem the whole property. (1516)
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• Redemption in separate sales by co-owners of undivided immovable
o Allowed because if the rule was otherwise it would be unjust,
deprivation of their rights
Art. 1615. If the vendee should leave several heirs, the action for
redemption cannot be brought against each of them except for his own
share, whether the thing be undivided, or it has been partitioned among
them.
But if the inheritance has been divided, and the thing sold has been
awarded to one of the heirs, the action for redemption may be instituted
against him for the whole. (1517)
• Redemption against heirs of vendee
o Vendor a retro can exercise the right to redeem against the heirs
with respect only to their respective shares
o If by partition the entire property is adjudicated to one of the heirs,
the vendor can exercise the right to redeem against said heir for the
whole
Art. 1616. The vendor cannot avail himself of the right of repurchase
without returning to the vendee the price of the sale, and in addition:
(1) The expenses of the contract, and any other legitimate
payments made by reason of the sale;
(2) The necessary and useful expenses made on the thing sold.
(1518)
• Obligations of vender a retro in case of redemption
o The price is the price of the sale, not the value of the thing
§ Agreement is lawful to agree that the price returned will be
more or less than the original
o Expense of contract and other legitimate expenses
§ For execution and registration
§ They may be paid later when the amounts are known
§ Same rule for necessary and useful expenses
o Necessary and useful expenses
§ Necessary – incurred for the preservation of the thing or
those which seek to prevent the waster, deterioration or
loss of the thing
Ina Cojuangco Guingona | Dana Beatrice Lopez
§ Useful – increase the value of the thing or create
improvements thereon
§ No need to repay ordinary or simple expenses
§ Vendor a retro is given no option to require the vendee a
retro to remove the useful improvements on the land
§ Vendor a retro must pay for the useful improvements
introduced by the vendee a retro, otherwise, the latter may
retain possession until reimbursement is made
• Exception – homesteads, would give rise to the
right of the vendor a retro to build and therefore
require the homesteader to pay an amount beyond
his capacity
§ Taxes may be considered necessary expenses
o 1616 is not exclusive
§ Interest may be included – Solid Homes v CA
• Offer to redeem and tender of payment generally required
o The law requires that the offer must be a bona fide one and
accompanied by an actual and simultaneous tender of payment or
consignation of the full amount agreed upon for repurchase
o Tender of payment is not necessary if the vendee has refused to re-
convey
o Where the vendor a retro had consigned or deposited in court the
redemption price when the action was filed, prior tender could be
excused
o Tender is made after the period of repurchase has expired, its
acceptance would amount only to a promise to sell because the
right of repurchase having expired, there was no more right that
could have been preserved
• Consignation of price generally not required
o Not a legal requisite for the vendor to make a consignation or
judicial deposit of the price if the offer or tender is refused
o If the right of repurchase has been judicially declared, the effect is
to definitely fix the relation of the vendor and vendee a retro
§ Should the vendee refuse to accept the amount of the
redemption price offered, the vendor must deposit it in
court
o In case of the absence of the vendee a retro
§ The vendor can and should exercise his right of
redemption against the vendee by filing a suit against him
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and making a consignation with the court of the amount
due for redemption
Art. 1617. If at the time of the execution of the sale there should be on the
land, visible or growing fruits, there shall be no reimbursement for or
prorating of those existing at the time of redemption, if no indemnity was
paid by the purchaser when the sale was executed.
Should there have been no fruits at the time of the sale and some exist at
the time of redemption, they shall be prorated between the redemptioner
and the vendee, giving the latter the part corresponding to the time he
possessed the land in the last year, counted from the anniversary of the
date of the sale. (1519a)
• Right of parties as to fruits of land
o Applies only when the parties have not provided for any sharing
agreement with respect to the fruits existing at the time of
redemption
o Natural and industrial fruits only
o Civil fruits belong to the vendee in that proportion
o Fruits at the time of the sale and the vendee paid for them, he must
be reimbursed at the time of redemption
o No indemnity was paid – no reimbursement for the fruits existing
at the time of redemption
o No fruits at the time of the sale, and some exist at the time of
redemption – apportioned proportionally between the
redemptioner and the vendee
§ Vendee gets his share in proportion to the time he
possessed the property during the last year
• Counted from the anniversary of the date of the
sale
§ Same rule is applicable if there were fruits at the time of
the sale and the vendee paid for them
Art. 1618. The vendor who recovers the thing sold shall receive it free
from all charges or mortgages constituted by the vendee, but he shall
respect the leases which the latter may have executed in good faith, and
in accordance with the custom of the place where the land is situated.
(1520)
• Right of vendor a retro o recover the thing sold free from charges
Ina Cojuangco Guingona | Dana Beatrice Lopez
o A vendee a retro may… over the thing sold
§ Alienate
§ Encumber
§ Perform other acts of ownership
o Ownership is revocable upon redemption
o All acts done by him are also revocable
o Vendor has the right to receive the property in the same condition
in which it was at the time of the sale
o EXCEPTION: leases entered into by the vendee in good faith
according to the custom where the land is located
SECTION 2. - LEGAL REDEMPTION
Art. 1619. Legal redemption is the right to be subrogated, upon the same
terms and conditions stipulated in the contract, in the place of one who
acquires a thing by purchase or dation in payment, or by any other
transaction whereby ownership is transmitted by onerous title. (1521a)
• Legal redemption defined
o “thing” applies to both immovable and movable property
• Transfer of ownership by onerous title
o Subrogation transfers to the person subrogated the rights
pertaining to another
o Takes place in any transfer of ownership by onerous title
o Except not in barter, by transfer by hereditary title, mortgage, or
lease
• Dation in payment – the transmission of the ownership of a thing by the
debtor to the creditor as the accepted equivalent of the performance of an
obligation
o Debtor offers another thing to the creditor who accepts it as
equivalent of payment of an outstanding debt
• Nature of dation in payment
o Nature of sale, creditor is really buying the thing or property of the
debtor
o Essential elements of sale must be present
• Basis and nature of right of legal redemption
o Proceeds from law (not agreement like conventional redemption)
o May be converted into conventional redemption
o Based on a statutory privilege to be exercised only by the person
named in the statute
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o It is a mere privilege to minimize co-ownership
o Works only in favor of the redemptioner
§ He can compel the purchaser to sell but cannot be
compelled by him to buy
• Instances of legal redemption
o 1620, 1621, 1622, 1634, 1088
Art. 1620. A co-owner of a thing may exercise the right of redemption in
case the shares of all the other co-owners or of any of them, are sold to a
third person. If the price of the alienation is grossly excessive, the
redemptioner shall pay only a reasonable one.
Should two or more co-owners desire to exercise the right of redemption,
they may only do so in proportion to the share they may respectively have
in the thing owned in common. (1522a)
• Purpose of the grant of right to co-owners
o Reduce the number of participants until the community is done
away with
• Requisites for right of legal redemption of co-owner
o There must be co-ownership of a thing
o There must be alienation of the shares of all the other co-owners
or of any one of them
o The sale must be to a third person or stranger
o The sale must be before partition
o The right must be exercised within the period provided in 1623
o The vendee must be reimbursed for the price of the sale
• By whom and against whom right may be exercised
o A co-owner has the legal right to sell, assign, or mortgage his ideal
share in the property held in common
o Co-owners have the right of legal redemption against each other
o If there is sale of hereditary rights to a stranger, any or all of the co-
heirs may be subrogated to the rights of the purchaser by
reimbursing him for the purchase price
§ Must be done within 1 month from notice in writing
o Applies to those who acquire their respective shares while the
community subsists
• When right cannot be invoked
o Applies only if the co-ownership still exists
o Not if the thing owned in common is partitioned
o Not when all the co-owners have sold their shares
Ina Cojuangco Guingona | Dana Beatrice Lopez
o Nor where the thing owned in common was offered by sale by all
co-owners
• Price of redemption
o Redemption price is generally the purchase price paid by the owner
to the selling co-owners
o Required to pay only a reasonable price – to prevent collusion
§ Is not an excuse to not make property tender of the price,
or to force the vendee to accept payment in installments
• No legal redemption in cases of lease
Art. 1621. The owners of adjoining lands shall also have the right of
redemption when a piece of rural land, the area of which does not exceed
one hectare, is alienated, unless the grantee does not own any rural land.
This right is not applicable to adjacent lands which are separated by
brooks, drains, ravines, roads and other apparent servitudes for the
benefit of other estates.
If two or more adjoining owners desire to exercise the right of
redemption at the same time, the owner of the adjoining land of smaller
area shall be preferred; and should both lands have the same area, the
one who first requested the redemption. (1523a)
• Right of legal redemption of adjacent owners of rural lands
o Requisites:
§ Both the land of the one exercising the right of
redemption and the land sought to be redeemed must be
rural
§ The lands must be adjacent
§ There must be an alienation
§ The piece of rural land alienated must not exceed 1 hectare
§ The grantee or vendee must already own any other rural
land
§ The rural land sold must not be separated by brooks,
drains, ravines, roads and other apparent servitudes from
the adjoining lands
• Meaning of rural lands
o Rural – relating to or constituting tenement in land adopted and
used for agricultural or pastoral purposes
o Use of property a determining factor – must be to foster the
development of agricultural areas
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o The use of property for agricultural areas is essential to characterize § Law prefers the one whose intended use of the land
it as rural land appears best justified
• Preference as between two or more adjacent owners of rural lands • Meaning of urban lands
o The law gives preference to the owner of the adjoining land of o The character of the community or vicinity in which it is found
smaller area Urban lands Rural lands
o If both lands are equal in size, then to the one who first requested Belonging to a city or town Pertaining to the country
redemption Determined by the character of the
locality, and the surrounding
Art. 1622. Whenever a piece of urban land which is so small and so properties + market value
situated that a major portion thereof cannot be used for any practical Principally used for residential For agricultural, fishing or timber
purpose within a reasonable time, having been bought merely for purposes or dwelling, industry, or exploitation
speculation, is about to be re-sold, the owner of any adjoining land has a commerce
right of pre-emption at a reasonable price.
If the re-sale has been perfected, the owner of the adjoining land shall
have a right of redemption, also at a reasonable price. • Meaning of “to speculate”
When two or more owners of adjoining lands wish to exercise the right of o To enter into a business transaction or venture from which the
pre-emption or redemption, the owner whose intended use of the land in profits or return are conjectural because the undertaking is outside
question appears best justified shall be preferred. (n) the ordinary course of business
o To purchase or sell with the expectation of profiting by anticipated
• Rights of pre-emption and legal redemption of adjacent owners of urban but conjectural fluctuations in price
lands
o Pre-emption – the act or right of purchasing before others Art. 1623. The right of legal pre-emption or redemption shall not be
§ Exercised before the sale or resale against the would be exercised except within thirty days from the notice in writing by the
vendor prospective vendor, or by the vendor, as the case may be. The deed of
o Redemption – exercised after the sale has been perfected sale shall not be recorded in the Registry of Property, unless
§ Against the vendee accompanied by an affidavit of the vendor that he has given written
§ Results in the rescission of the sale notice thereof to all possible redemptioners.
o Requisites for exercise of both rights The right of redemption of co-owners excludes that of adjoining owners.
§ The piece of land is urban land (1524a)
§ The land is so small that a major portion thereof cannot be
used for any practical purpose within a reasonable time • Exercise of right of pre-emption or redemption
§ It was bought merely for speculation o Need for notice in writing
§ The land is about to be resold or that its resale has been o Limited in duration, subject to strict compliance with legal
perfected requirements
o The adjoining owner must prove that the portion is so small that a § Redemptioner should tender payment of the redemption
major portion cannot be used for any practical purpose within a money within 30 days from written notice of the sale by
reasonable time, having been bought merely for speculation the co-owner
o Price paid – reasonable price o Right of redemption of co-owners is preferred over adjoining
o Preference between two or more adjacent owners owners
• Period for exercise of right
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o Absolute, preemptory and non-extendible by law is only essential to preserve the right of redemption for
o 30 day period is condition precedent to the exercise of the right of future enforcement even beyond such period of redemption
legal redemption
§ If not offer is made within the prescribed period, no action
will be allowed to enforce the right of redemption
• Notice by vendor or prospective vendor
o 30 day period counted from the notice in writing given by the
prospective vendor or by the vendee as the case may be
§ Notice must be given by the vendor
• The seller of an undivided interest is in the best
position to know who are his co-owners that
under the law must be notified of the sale
o Notice must be in writing but the law does not prescribe any
particular form
§ Exception – if depending on the circumstances of the case
there is a need to relax the rule to prevent manifest
injustice
o The notice is for not only the perfected sale but of the actual
execution and delivery of the deed of sale
o Jurisprudence dictates that written notice has been held to be no
longer required if the other co-owners have actual knowledge of
the sale
o “The rule is that a written notice to co-owners is mandatory
notwithstanding actual knowledge of the other co-owners of the
sale. However, in exceptional cases, actual knowledge may be
deemed equivalent to a written notice of sale”
• How right exercised
o Must be accompanied by a valid tender of the redemption price
and that the filing of a judicial action, plus consignation of the
redemption price within the period od redemption is equivalent to
a formal offer to redeem
o The legal redemptioner is only required only to pay a reasonable
price
o A formal offer to redeem accompanied by a bona fide tender of the
redemption price although proper, is not essential when the right
to redeem is exercised thru the filing of a judicial action and the
deposit of the redemption price with the Sherriff within the period
o The formal offer to redeem, accompanied by a bona fide tender of
the redemption price within the period of redemption prescribed

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Atty. Carlo Busmente Sales and Lease Finals Reviewer
CHAPTER 8
ASSIGNMENT OF CREDITS AND OTHER INCORPOREAL
RIGHTS
Art. 1624. An assignment of creditors and other incorporeal rights shall be
perfected in accordance with the provisions of Article 1475. (n)
• Assignment of credit –a contract by which the owner (assignor/creditor) if
a credit and other incorporeal rights transfers, either onerously or
gratuitously to another his rights and actions against a third person
o Process of transferring he right of the assignor to the assignee, who
would then be allowed to proceed against the debtor for the
enforcement or satisfaction of the credit
• Nature of assignment of credit
o Consensual, bilateral, generally onerous, commutative or aleatory
o Where valuable consideration is involved, the assignment partakes
of the nature of a contract of sale or purchase
o Assignment effects the transfer of rights which the assignor has at
that time
o The third party (assignee) steps into the shoes of the original
creditor (assignor) as a subrogee of the latter
o Assignee acquires the credit and the right to endorse it
o It may be done gratuitously or onerously
o Whatever the legal cause, it is really a sale
§ Subject matter – credit or right assigned
§ Consideration – price paid for the credit or right
§ Consent – agreement of the parties to the assignment of
the credit or right at the agreed price
• Perfection of contract for assignment of credit
o Perfected from the moment the parties agreed upon the credit or
right assigned and upon the price
o The assignee will acquire ownership only upon delivery
o Should be applicable only to assignments done onerously
• Consent of debtor not necessary
o Not necessary in order that the assignment may fully produce the
legal effects
o It requires merely notice to him
o Assignment only takes effect from the time he has knowledge
thereof
Ina Cojuangco Guingona | Dana Beatrice Lopez
§ A creditor may validly assign his credit and its accessories
without the debtor’s consent
o Conventional subrogation requires an agreement among the parties
concerned – new contractual relation
• Assignment distinguished from other terms
o Renunciation – abandonment of a right without transfer to another
o Agency – representation, not transmission
o Substitution – change of the previous debtor by a new debtor with
the credit remaining in the same creditor
o Subrogation – change in the person of the creditor with his credit
being transferred to the new creditor
o Dation in payment – alienation of property to the creditor in
satisfaction of a debt in money
Art. 1625. An assignment of a credit, right or action shall produce no
effect as against third person, unless it appears in a public instrument, or
the instrument is recorded in the Registry of Property in case the
assignment involves real property. (1526)
• Binding effect of assignment
o Valid although in a private document, so long as the law does not
require a specific form for its validity
o To affect third persons it must appear in a public instrument
§ Real property – must be recorded in the Registry of
Property
o “No effect as against third persons” – the assignment shall not
adversely affect third persons
o The assignee is subrogated to the rights and obligations of the
seller – he cannot acquire greater rights than those pertaining to the
assignor
o An agreement for the sale of things in action for a price P500 and
above must be in writing unless the buyer has received evidence of
the things in action or paid part of the purchase money
Art. 1626. The debtor who, before having knowledge of the assignment,
pays his creditor shall be released from the obligation. (1527)
• Consent of debtor to assignment not required to produce legal effects
o Duty to pay does not depend on the consent of the debtor
o Notice not consent
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o Purpose is to inform the debtor that from the date of the

assignment he should make payment to the assignee and not to the
original creditor
• Effect of payment by debtor after assignment of credit
o Before notice – the law holds him exonerated
§ The assignee has a right of action against the assignor, the
original creditor
§ Absence of notice – burden of proving knowledge of
assignment is on the assignee
o After notice, or before notice but debtor had knowledge of
assignment
§ Is not valid as against the assignee
§ Even without notice, the debtor will not be released even
if he pays the creditor after having had knowledge of the
assignment of the obligation – he acts in bad faith and can
be made to pay again by the assignee

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Atty. Carlo Busmente Sales and Lease Finals Reviewer Ina Cojuangco Guingona | Dana Beatrice Lopez

REPUBLIC ACT NO. 6552 (MACEDA LAW)
Sec. 1. This Act shall be known as the “Realty Installment Buyer Act.”
Sec. 2. It is hereby declared a public policy to protect buyers of real estate on
installment payments against onerous and oppressive conditions.
Sec. 3. In all transactions or contracts involving the sale or financing of real
estate on installment payments, including residential condominium apartments
but excluding industrial lots, commercial buildings and sales to tenants under
Republic Act Numbered Thirty-eight hundred forty-four, as amended by
Republic Act Numbered Sixty-three hundred eighty-nine, where the buyer has
paid at least two years of installments, the buyer is entitled to the following
rights in case he defaults in the payment of succeeding installments:
(a) To pay, without additional interest, the unpaid installments due within the
total grace period earned by him which is hereby fixed at the rate of one month
grace period for every one year of installment payments made: Provided, That
this right shall be exercised by the buyer only once in every five years of the life
of the contract and its extensions, if any.
buyer of the notice of cancellation or the demand for rescission of the contract
by a notarial act.
Sec. 5. Under Section 3 and 4, the buyer shall have the right to sell his rights or
assign the same to another person or to reinstate the contract by updating the
account during the grace period and before actual cancellation of the contract.
The deed of sale or assignment shall be done by notarial act.
Sec. 6. The buyer shall have the right to pay in advance any installment or the
full unpaid balance of the purchase price any time without interest and to have
such full payment of the purchase price annotated in the certificate of title
covering the property.
Sec. 7. Any stipulation in any contract hereafter entered into contrary to the
provisions of Sections 3, 4, 5 and 6, shall be null and void.
Sec. 8. If any provision of this Act is held invalid or unconstitutional, no other
provision shall be affected thereby.
Sec. 9. This Act shall take effect upon its approval.

(b) If the contract is cancelled, the seller shall refund to the buyer the cash Approved: August 26, 1972
surrender value of the payments on the property equivalent to fifty per cent of
the total payments made, and, after five years of installments, an additional five
per cent every year but not to exceed ninety per cent of the total payments
made: Provided, That the actual cancellation of the contract shall take place
after thirty days from receipt by the buyer of the notice of cancellation or the
demand for rescission of the contract by a notarial act and upon full payment of
the cash surrender value to the buyer.

Down payments, deposits or options on the contract shall be included in the

computation of the total number of installment payments made.

Sec. 4. In case where less than two years of installments were paid, the seller
shall give the buyer a grace period of not less than sixty days from the date the
installment became due.

If the buyer fails to pay the installments due at the expiration of the grace
period, the seller may cancel the contract after thirty days from receipt by the

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Atty. Carlo Busmente Sales and Lease Finals Reviewer
THE CONSUMER ACT OF THE PHILIPPINES
Article 97. Liability for the Defective Products. – Any Filipino or foreign
manufacturer, producer, and any importer, shall be liable for redress,
independently of fault, for damages caused to consumers by defects resulting
from design, manufacture, construction, assembly and erection, formulas and
handling and making up, presentation or packing of their products, as well as
for the insufficient or inadequate information on the use and hazards thereof.
A product is defective when it does not offer the safety rightfully expected of it,
taking relevant circumstances into consideration, including but not limited to:
a) presentation of product;
b) use and hazards reasonably expected of it;
c) the time it was put into circulation.
A product is not considered defective because another better quality product
has been placed in the market.
The manufacturer, builder, producer or importer shall not be held liable when it
evidences:
a) that it did not place the product on the market;
b) that although it did place the product on the market such product has no
defect;
c) that the consumer or a third party is solely at fault.
Article 98. Liability of Tradesman or Seller. – The tradesman/seller is
likewise liable, pursuant to the preceding article when;
a) it is not possible to identify the manufacturer, builder, producer or importer.
b) the product is supplied, without clear identification of the manufacturer,
producer, builder or importer;
c) he does not adequately preserve perishable goods. The party making payment
to the damaged party may exercise the right to recover a part of the whole of
the payment made against the other responsible parties, in accordance with their
part or responsibility in the cause of the damage effected.
Article 99. Liability for Defective Services. – The service supplier is liable for
redress, independently of fault, for damages caused to consumers by defects
Ina Cojuangco Guingona | Dana Beatrice Lopez
relating to the rendering of the services, as well as for insufficient or inadequate
information on the fruition and hazards thereof.
The service is defective when it does not provide the safety the consumer may
rightfully expect of it, taking the relevant circumstances into consideration,
including but not limited to:
a) the manner in which it is provided;
b) the result of hazards which may reasonably be expected of it;
c) the time when it was provided.
A service is not considered defective because of the use or introduction of new
techniques.
The supplier of the services shall not be held liable when it is proven:
a) that there is no defect in the service rendered;
b) that the consumer or third party is solely at fault.
Article 100. Liability for Product and Service Imperfection. – The suppliers
of durable or nondurable consumer products are jointly liable for imperfections
in quality that render the products unfit or inadequate for consumption for
which they are designed or decrease their value, and for those resulting from
inconsistency with the information provided on the container, packaging, labels
or publicity messages/advertisement, with due regard to the variations resulting
from their nature, the consumer being able to demand replacement to the
imperfect parts.
If the imperfection is not corrected within thirty (30) days, the consumer may
alternatively demand at his option:
a) the replacement of the product by another of the same kind, in a perfect state
of use;
b) the immediate reimbursement of the amount paid, with monetary updating,
without prejudice to any losses and damages;
c) a proportionate price reduction.
The parties may agree to reduce or increase the term specified in the
immediately preceding paragraph; but such shall not be less than seven (7) nor
more than one hundred and eighty (180) days.
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The consumer may make immediate use of the alternatives under the second
paragraph of this Article when by virtue of the extent of the imperfection, the
replacement of the imperfect parts may jeopardize the product quality or
characteristics, thus decreasing its value.
If the consumer opts for the alternative under sub-paragraph (a) of the second
paragraph of this Article, and replacement of the product is not possible, it may
be replaced by another of a different kind, mark or model: Provided, That any
difference in price may result thereof shall be supplemented or reimbursed by
the party which caused the damage, without prejudice to the provisions of the
second, third and fourth paragraphs of this Article.
Article 101. Liability for Product Quantity Imperfection. – Suppliers are
jointly liable for imperfections in the quantity of the product when, in due
regard for variations inherent thereto, their net content is less than that
indicated on the container, packaging, labeling or advertisement, the consumer
having powers to demand, alternatively, at his own option:
a) the proportionate price
b) the supplementing of weight or measure differential;
c) the replacement of the product by another of the same kind, mark or model,
without said imperfections;
d) the immediate reimbursement of the amount paid, with monetary updating
without prejudice to losses and damages if any.
The provisions of the fifth paragraph of Article 99 shall apply to this Article.
The immediate supplier shall be liable if the instrument used for weighing or
measuring is not gauged in accordance with official standards.
Article 102. Liability for Service Quality Imperfection. – The service supplier
is liable for any quality imperfections that render the services improper for
consumption or decrease their value, and for those resulting from inconsistency
with the information contained in the offer or advertisement, the consumer
being entitled to demand alternatively at his option:
a) the performance of the services, without any additional cost and when
applicable;
Ina Cojuangco Guingona | Dana Beatrice Lopez
b) the immediate reimbursement of the amount paid, with monetary updating
without prejudice to losses and damages, if any;
c) a proportionate price reduction.
Reperformance of services may be entrusted to duly qualified third parties, at
the supplier's risk and cost.
Improper services are those which prove to be inadequate for purposes
reasonably expected of them and those that fail to meet the provisions of this
Act regulating service rendering.
Article 103. Repair Service Obligation. – When services are provided for the
repair of any product, the supplier shall be considered implicitly bound to use
adequate, new, original replacement parts, or those that maintain the
manufacturer's technical specifications unless, otherwise authorized, as regards
to the latter by the consumer.
Article 104. Ignorance of Quality Imperfection. – The supplier's ignorance of
the quality imperfections due to inadequacy of the products and services does
not exempt him from any liability.
Article 105. Legal Guarantee of Adequacy. – The legal guarantee of product
or service adequacy does not require an express instrument or contractual
exoneration of the supplier being forbidden.
Article 106. Prohibition in Contractual Stipulation. – The stipulation in a
contract of a clause preventing, exonerating or reducing the obligation to
indemnify for damages effected, as provided for in this and in the preceding
Articles, is hereby prohibited, if there is more than one person responsible for
the cause of the damage, they shall be jointly liable for the redress established in
the pertinent provisions of this Act. However, if the damage is caused by a
component or part incorporated in the product or service, its manufacturer,
builder or importer and the person who incorporated the component or part are
jointly liable.
Article 107. Penalties. – Any person who shall violate any provision of this
Chapter or its implementing rules and regulations with respect to any consumer
product which is not food, cosmetic, or hazardous substance shall upon
conviction, be subject to a fine of not less than Five thousand pesos (P5,000.00)
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and by imprisonment of not more than one (1) year or both upon the discretion
of the court.

In case of juridical persons, the penalty shall be imposed upon its president,
manager or head. If the offender is an alien, he shall, after payment of fine and
service of sentence, be deported without further deportation proceedings.

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