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CHAPTER IINTRODUCTION
I. Definition of Sales
BUYER 2.) Subject Matter a) transfer ownership
SALE 1.) Meeting of the Minds b) delivery
SELLER 3.) Price c) pay
*It may be absolute or conditional.
Note: The condition should only refer to the obligation to pay the price and NOT:
a. The obligation concerning the subject matter (a&b above)which is the essence
of a K of sale. (Gaite)
b. The whole contractin which the case it is K to sell (Villanueva believes that a Kto sell and the K of sale are of the same genus and both covered by Art. 1458.However, recent rulings in the SC hold that they are different.)
Genius of Villanueva: Gaite gave 2 parameters in order for a condition in K of sale to be
valid:
a. The condition must go into the payment of the price, and NOT the subject matter
because you will be put as under the essence of K of sale.
b. The only time it can exist is when it is clearly stipulated.
II. Elements
1. Consent or meeting of the minds (to transfer of ownership in exchange for price)2. Determinate subject matter3. Price certain in money or its equivalent (Coronel)
III. Stages
1. Negotiation
2. Perfection3. Consummation
Note: Technically, only 2 and 3 are the only lives of a K, since in negotiation there is no K
yet.
IV. Nature of the Contract Created
1. Buyer to give
Price
2. Seller to give
Deliver
Transfer ownership
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Note: It is important to know that a sale is the obligation to give because being such, abreach of it can have the remedy of (a) specific performance and (b) rescission. An
obligation to do cannot be subject to specific performance, ONLY rescission. Becausespecific performance in to do may amount to involuntary servitude, which is prohibited in
the Constitution.
V. Characteristics of a K of Sale (it is enough that these characteristics exist at
perfection)
1. Nominate and Principal
Nominate means it has a particular name by law and governed by specific
provision (Title on Sale)
Title given to a K is not significant; rather its the substance which is.
Although a K of sale may be attached to another K, the test of being a
principal is whether it can stand on its own and does not depend on another K
for its validity or existence.2. Consensual
This is a very important characteristic. Every K has two lives, perfection and
consummation. What perfects a K of sale is mere consent or meeting of theminds. Performance (e.g. paying the price or delivering the subject matter)goes into the consummation and is totally irrelevant to perfection.
As distinguished from:
1. Solemn K which requires not only consent, but also a particular
form of the K
2. Real K which requires not only consent, but also delivery
Upon the perfection of a K of sale, only the 3 obligations (2 for buyer and 1
for the seller) begin to exist. It doesnt matter if there is no payment made
yet nor transfer of ownership by delivery, nor ownership itself of the subjectmatter.
Being consensual, he who alleges the existence must prove it by competent
evidence, as well as essential element thereof.3. Bilateral
As distinguished from unilateral, both parties here are obligated. (Seller:
transfer and deliver; Buyer: pay)
The importance of this is that the power to rescind un a K of sale is implied
and need not be stipulated in the K.
4. Onerous
Means that the consideration given is a valuable consideration (as
distinguished from donation where the obligation is gratuitous)
Test of being onerous: It is objective. Any consideration in the normal
commercial transaction, supports and transaction. In other words, valuable
consideration is one which, from the objective point of view, on its own has
rent values.5. Commutative
As distinguished from aleatory, it means that equal value is exchanged for
equal value.
It refers to consideration as compared to the subject matter, in contrast to
onerous which refers only to consideration.
Commutativeness is a subjective test. But it must not go into absurdity,
otherwise even if you feel that it is commutative, the substance of the K maysay otherwise. Inadequacy of the price may show vice in consent, in which
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the said sale may be annulled, but such annulment is not for inadequacy ofprice, but rather for vitiated consent. Art. 14.
6. Title and Mode
Title legal basis by which to affect dominion or ownership
Mode legal means by which dominion or ownership is created, transferred,destroyed, or modified.
Sale, by its creation, is just a title. It does not even touch dominion. Sale only
provides the legal justification in the future on the part of the buyer to be able
to claim ownership.
Sale by itself does not transfer or affect ownership; the most a sale does is to
create the obligation to transfer ownership. It is tradition or delivery, as aconsequence of sale that actually transfers ownership.
VI. As Distinguished From
1. Donation
Sale Donation
Consideration Onerousconsideration is price
which is valuable
Gratuitousconsideration is
liberality
Type Consensualperfected by mereconsent
Solemnmust comply with theformalities by law for perfection
2. Barter
One of the parties binds himself to give one thing in consideration of the
others promise to give another thing.
Rules to determine whether its a K of sale or a barter:
i. It is a barter where the value of the thing given as part of
consideration exceeds the amount of money given or its equivalent.
ii. It is a sale, where the value of the thing given as part of theconsideration equals or is less than the amount of the money given.
For practical legal purposes, the distinction between a sale or barter are
practically academic since aside from the two separate rules applicable tobarter (Arts. 1639-1640), as to all matter specifically provided for, barter
shall be governed by the provision on sales.
Instance when knowing the differences is important:
i. Statute of Frauds does not apply to barterii. Right to legal redemption to an adjoining owner covers only resale
iii. Tax purpose
3. Contract for Piece of Work (POW)
Sale POW
Parties Buyer and seller Principal client and contractor
Subject Matter Service
Obligations a) to pay (buyer)
b) to deliver possession (seller)c) to transfer ownership (seller)
a) to pay (principal)
b) to perform service(contractor)
Kind of Obligation To give To do
Breach Can be subject to specific Cannot be subject to specific
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performance performance
How will you differentiate a sale from a K of POW? (Here you will see the genius of
Villanueva, makes you proud to be a brotherEXCELLENCE)
i. Art. 1467 gives us two sets of distinction:
Habituality test manufacturing in ordinary course ofbusiness makes it a sale. When the manufacturer engages in
the same activity in the ordinary course of business and doesnot need to apply extra ordinary skills and equipment that
would classify the underlying transaction as a K of sale.
Timing test manufacturing upon special order of customersmakes it a K of POW.
ii. In Celestino, the habituality test was upheld. BUT the SC interpreted thatthe test in 1467 is not one of timing or habit but a nature of work to be
performed test. It must be of the nature that the products are notordinary products of the manufacturer, and they would require the use of
extraordinary skills or equipment to make it a K of POW.
iii. In EEL, the SC held that the habituality test is not controlling. The business
of EEI was a staple undertaking, one that was considered ordinary andusual in their operations, and yet what they did was a POW. Then they heldthat the timing test in 1467 is actually a nature of the object test,
meaning could the company manufacture the product in mass, would it
make business sense to do so.iv. In CIR, Tolentino talked about the intent test (more important test). If the
parties intend that an object will be delivered without considering the workor labor of the part bound, it is a sale. But if the basis is the work that will
be employed, it is a POW.v. With all the tests enumerated, what should be used?
vi. The habituality and timing tests seem to have been abandoned. What iscontrolling then is the nature of the object test and the intent test. Both
must be applied.vii. HOWEVER, what if a seller offers 10,000 inclined erasers to a buyer who
buys them because of the sellers reputation, and upon agreement, theseller reaches under the table and offer the erasers, would that be a sale or
a POW? (The tests seems to answer that it is the POW, because it does notmake business sense to manufacture 10,000 erasers and obviously the
intent here is for the sellers skills.)
viii. Genius: The answer is a Sale. Why? Because a breach of a K of POW looks
at the service, obviously, you cannot pay for service which has already beendone as in this case. So that means that we are back to the timing test in
1467 (only if it is manufactured upon special order, will it become a POW).We have come into a full circle.
4. Agency to Sell
Sale Agency to Sell
Buyer himself pays for the objects price. The agent is not obliged to pay the price,merely to deliver the price received from the
buyer.
Seller warrants No personal liability as long as acting within
his authority and the name of the principal(however, an agent may bind himself to the
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Not unilaterally irrevocable.
warranties of the seller).
Essentially revocable even in the presence of
an irrevocability clause.
Profits belong to the seller. Any profit received must pertain to the
principal, the agent disqualified fromreceiving personal profits.
Must comply with the Statute of Frauds to beenforceable.
Valid and enforceable in whatever from itmay be entered into.
Nothing that is not written within the 4
corners of the K can bind the parties or can
be the basis for damages.
Agent must always follow the principal.
Essence: Transfer of title, and such transfer
puts the transferee in the attitude or positionof an owner and makes him liable to the
transferor as debtor for the agreed price.
Essence: delivery into an agent is not as his
property, but as property of the principalwho remains the owner and has the right to
control the sale and the proceeds.
Characteristics of an Agency
1. Prepatory meaning it is entered into in order to achieve other ends and otherrelationships
a. Types of Prepatory Ks
1. Agency to sell and agency to buy give rise to a K of sale
2. Distributorship agreement or an agreement to enter into a series of
Ks of sale in this case, there is no price yet so it is NOT a K of sale2. Involves a personal obligation therefore, it is not subject to specific
performance (like distributorship agreement)
3. Fiduciary based on confidence and trust, so it is not transmissible. (Deathextinguishes the K, except in agency coupled with an interest.)
4. Revocable because of its fiduciary nature. Any attempt to make it irrevocable is
void. Except in an agency coupled with an interest (when an agency is constituted as
part of the mechanism for mortgage).
Principal in a K of Agency
These are essential clauses contemplated by law, such as if these are present the
name of the K is not controlling. The acts of the agent bind the principal, the agent acts beyond his commission.
Agent has no legal basis to receive anything on his own. Everything an agent
receives must be accounted for and returned to the principal. Agent is never liable
for the price. An agent cannot two principals, for this would violate the agency relationship.
Genius: To determine whether it is a sale or one of agency, look at 2 things: delivery
and transfer of ownership. If these are made to be assumed in whole or in part by
the agent, meaning if he bears the risk with regard to it, he cannot be an agent. An
agent is never liable in whole or in part of the subject matter. The price of any stipulation makes the price the liability of the supposed agent or
makes him exposed to the risk of the price (e.g. an increase), then he could nothave been an agent since an agent is not liable for any portion of the price.
5. Dacion en Pago
A genus of sale and is governed by the law on sales.
Shows us that a sale is both perfected and consummated. Dacion en pago
represents a perfected and consummated contract of sale.
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Differences
Sale Dacion en pago
Principal Accessory
Consensual Real
Title Mode
6. Lease
Sale Lease
Dominion is absolutely disposed by the sellerin favor of the buyer upon the payment of
the price.
Temporary disposition in favor of the lesseewith the payment of rentals, but after the
period of lease, the things revert back to theowner.
CHAPTER II
PARTIES TO A CONTRACT OF SALE
General Rule: Any person who is authorized under the law to oblige himself, may enter
into a contract of sale.
Exceptions:
1. Minors and incapacitated persons
They do not have capacity to obligate themselves
Effect of sale: Voidable
Consequences:
o Capacitated person cannot seek annulment on the basis of the other
partys incapacityo The incapacitated person, when properly represented is one who has
legal standing to annul the contract.
Remedies for a voidable contract:
o Specific performance
o Ratification
o Rescission can be availed of by both parties; but minors need only to
restitute up to the extent he has been benefited
Exceptions: necessaries (everything that is indispensable for sustenance and
refers only to things)
To be a valid contract, it is required that:
o The K was perfected
o There was delivery of the necessaries
o
The minor must be the buyero Social standing must be considered
2. Sale by Married Couple
Sale to third party
Void if done without the consent of the other spouse.
Sale between spouses
o Void (this applies even in legal redemption, compromises and
renunciation)
o Exception
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When a separation of property was agreed upon in marriagesettlement
When there has been a judicial separation of property agreed
upon between them
o Rational
To prevent defraudation of creditors by transferring property toanother spouse.
So dominant spouse wont take advantage of the weaker spouse.
Avoid an indirect violation of the prohibition against donationbetween spouse.
Note: This also applies between common law spouses.
3. Relative incapacity mandated by law. (This applies even to sale on legal
redemption, compromises and renunciation because what you cant do directly, youcannot do directly.)
Applies to:
o Guardian with respect to the property of the ward
o Agents with respect to the property under his administration (unless
consented)
o Administrator and executor with respect to the property of the estate
o Public officer or employees with respect to the property of the state
o Public officer or employees with respect to property rights under
litigation
o Lawyers with respect to the property of his client who is the subject of
litigation
Effect of sale: Void because it is against against public policy (Rubias)
The first 3 cases are ratifiable and the ;last 3 are non-ratifiable
o Ratifiable by entering into a new K after relationship is ended;
allowed because after the relationship is ended, the remaining evil is a
private one.
o Non-ratifiable even if prohibited relationship is not there, they
cannot be allowed to agree into a new K because there is still publicinterest involving the sale reflecting the public institution itself.
Philtrust doctrine:
o When a property is sold to a third person and it goes back to the
person prohibited, that transaction is presumed void. But you canshow proof that there was no collusion, making the sale valid. (Lapse
of time is material but not conclusive.)
o Even if the courts allow the sale which is prohibited, it is still void.
o Even if the sale is beneficial to the other party, it is still void because
what is considered is merely the relationship in the K not the existence
of fraud or advantage.
Naval doctrine: Hereditary rights are vested entirely in the heirs upon the
death of the decedent. They are not among those covered under theprohibition since with regard to administrators and executors, the propertymust be property of the estate.
o Genius rebuttal of the Naval doctrine:
o Although they are vested directly on the heirs and not under the
estate, the value of these rights are inextricably necessary to the value
of the estate under the administration of the administrator. Thereforeif he squanders or destroys the value of the estate, he actually
destroys the value of the rights.
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o Hereditary rights are never within the estate being administered
because these are right pertaining directly to the heir. But even if youare buying just the right, its like buying the property already. You
must not be allowed to do indirectly, what you cant do directly. TheSC based its decision that a hereditary right is technically not property
itself. With regard to lawyer-client relationship, the requisites are:
o Lawyer-client relationship
o Object is property under litigation
o Any kind of litigation whether adversarial or not
o Does not necessarily mean actual litigation
o During the pendency of the case
o This also applies to the case of judges
o The period is from the filing of the complaint until there is absolutely
no judicial proceeding of whatever nature pending with respect to the
property. Even if it is final, executory and unappealable but there issomething pending before the courts even a motion for execution, the
period has not ended. Note: Contingency fee arrangements (always subject to the supervision of the
courts):
o Payment based on a certain percentage of the property in litigation
valid. No property is being assigned here.
o Payment is a portion of the value of the propertiesvalid. Held to be
so by the SC because the greater good it advances is greater than thepublic policy sought to be protected by Art. 1491. This contingency
arrangement is in the nature of a dacion en pago, and is thereforeunder the law on sales.
CHAPTER III
SUBJECT MATTER OF THE SALE
Requisites (these must exist at the time of PERFECTION):
1. It must be existing, or it may be future or even contingenta. Requisites:
i. Must be existing; or
Present object
Emptio speisale of a mere hope or expectancy (BUT the sale
of a vain hope or expectancy is void.)
Present object subject to a resolutory conditionupon the
happening of the condition, the parties shall return to eachother what they have received
ii. Must come to existence (TEST: must be of such that it can come aboutunder the present technological and scientific conditions of man)
Future thing having a potential of existence
Emptio rei speretaefuture thing subject to a suspsensive
condition (but if thing does NOT come into existence, the K is
extinguished)b. The absence of this requisite makes the K void under Art. 1409 (3).
Remember that said provision talks about the QUALITY of the object, whetherit has the capability to exist, and not necessarily that it is existing.
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2. It must be licit.
a. Licitlegal, when it is not outside the commerce of man and includes all
rights which are not intransmissible.
b. Absence of this requisite makes the K void under Art. 1409 (1).
3. It must be determinate or at least determinable
a. Determinatespecific or that which has been:i. physically segregated
ii. Particularly designatedb. Determinablea generic thing which has:
i. The capacity of being made determinateii. Without need of further/new agreement between the parties
In accordance with the principle of the obligatory force of Ks,
that it is free from the whims and caprices, imagination or lackof it on the part of the parties
When both parties can imagine the same type of SM in their
minds, almost the same in all other descriptions even as to a 3 rd
party, then it satisfies this requirement.
Quantity is NOT important, ONLY when it is still possible to determine the quantitywithout the need of a new K between the parties (National Grains which was fuckedup by Johannes Schuback)
Seller may NOT be the owner of the thing at the time of perfection. It is only at the
time of delivery that it is essential that the owner owns the thing.
If a seller is NOT the owner of the thing he sold, the buyer cannot ask for specific
performance because obviously, the seller here cannot perform. The only remedy leftis rescission. BUT when at the time of perfection, the seller sells a subject matter
over which he is not the owner, the subsequent acquisition of title by a seller
validates the sale and title passes to the buyer by operation of law, provided therehas been previous delivery of the subject matter by the seller to the buyer.
Yu Tek doctrine: Justice Trent ruled that there was no K of sale, even though the thingwas obviously determinable. BUT he was speaking in the point of view of the SM (Tounderstand this, imagine yourself to be a SM, and not one of the parties in the sale). Such
that there can be no K of sale as to any genus of the thing until it is physically segregatedfrom the rest. In short, there was no sale as to the SM, but there was a sale between the
parties.
Legality of Sale:1. As to subject matter:
a. Various special laws declare certain sales of things illegal and therefore VOID(e.g. drugs)
2. Simulation of SM makes the K of sale VOID (when there is no intention whatsoeverto give or receive the SM)
When motive nullifies the sale: Consideration is, as a rule, different from the motive of
the parties, and when the primary motive is illegal, such as when the sale was executedover a parcel of land to illegally frustrate a persons right to inheritance and to avoid
payment of estate tax, the sale is void because illegal motive predetermines the purpose ofthe K. (Olegario)
CHAPTER IV
PRICE
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1. Consideration in a K of sale which plays a secondary role to the SM.
2. Seller cannot unilaterally increase previously agreed purchase price.
Requisites:a. It must be real
a. When at the time the minds of the parties met, the seller expectedand intended to receive the price and the buyer intended to pay for
itb. Must be with valuable consideration (NOT NOMINAL)
If this is not present, it might be another K (e.g. donation)
There is a presumption that every K of sale entered into is with
valuable consideration. BUT if the party whos saying there s notrue consideration, the burden of proof SHIFTS. (Ong and
Bagnas)
When price is simulated/fictitious, or there is the absence of
an expectation to receive payment by the seller and anintention to pay on the buyer, the K of sale is VOID, but it
might be another kind of K.
When there is a false price, or there is a price but it is not theone agreed to by the parties but another price, the K of sale isVALID, but subject to reformation.
b. Must be in money or its equivalenta. or its equivalent must mean having the same characteristics as
moneyb. If not in money, its a VOID K of sale, but it may be another K like
barter or dacion, which is still governed by the law on sales, so it isas if there is a valid K of sale (this shows that price merely plays a
secondary role).c. In Republic vs. Phil. Resources Development, the buyer was allowed
to pay in GI sheets. Did the SC do away with requirement no. 2? NO.
The payment of the thing other than money was done at theconsummation of the K of sale. At the time of perfection, it was onlyin money.
c. Must be certain or ascertainable
a. Certainwhen the amount is designated in pesos and centavos
b. Ascertainableto be ascertainable, the price must be:
i. Fixed in reference to other things.
ii. Can be mathematically computed using a formula.
iii. Must have been designated to be fixed by a 3 rd party (this is a
suspensive condition, so if the 3rd party refuses to fix the price,
the K is inefficacious).
a. If the 3rd person:
i. Acted in bad faith
ii. Acted by mistake.the courts can fix the price (this is the only time the
courts can fix the price).
Note: Absence of 1 & 2 makes the K a no contract situation and the absence of 3makes it inefficacious or it cannot be given effect, unless the party mutually agree on
a new price. But if the other party has already sued the other party, the court cannotcompel the parties to agree to a price.
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Note: Also, even if the price has NOT been agreed upon, but the SM has alreadybeen delivered and appropriated, the buyer has to pay a reasonable price, depending
on the circumstances of each case.
d. Manner of payment
a. Applies only when it is clearly implied in perfection that the money isNOT present value. The general rule is that it is presumed that the
manner of payment is the present value.b. Because if you do not agree upon the terms of payment, your minds
have not met because you have not agreed upon the same value.
Inadequacy of price (Erenote vs. Bezone)1. Does not make the K void, EXCEPT:
a. Gross inadequacy to the point of being nominal (there is therefore no realprice).
b. Judicial salesi. Requisites:
Inadequacy must be so gross to the point of being
unconscionable There must be proof that had the thing been resold, there
would be a better price.
ii. Exception: when there is a right of redemption.
2. In sales a retro, gross inadequacy of price raises a presumption of equitablemortgage.
CHAPTER VFORMATION OF CONTRACT OF SALE
I. Policitacion of Preparatory Stage
Heirarchy of species in policitacion
1. Invitations
An advertisement is an invitation to make an offer unless it appears
otherwise, which would make it an offer.
2. Offer/Acceptance
It creates no relationship until it is accepted.
Kinds:
a. General an offer to sell or an offer to buy direct ed toeverybody
b. Specific an offer made to a particular person and cannot betaken advantage of or availed of by any other person other
than the offeree
Characteristics (it is important to remember this shit!)
a. It is within complete control of the offerorb. It cannot exist indefinitely
c. An offer with a period expires after the periodd. An offer with a condition ceases to exist when the condition
happense. An offer can ONLY be accepted absolutely and is indivisible
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f. A modification is a counter-offer and destroys the first offer
3. Right of First Refusala. Under Ang Yu:
A transaction covering a specific property wherein a lessee is
given an option to purchase the leased property in the eventthe lessor should desire to sell the same
It is similar to an option contract because it has a SM and
consent. But different because it lacks price and separate
consideration. Furthermore, in an option contract, theprospective buyer has the option. In right of first refusal, the
person who has the right cannot exercise it at will. He mustwait for the future sale.
It is always conditional. The condition being sale of the property
in the future.
It is not even a contract, therefore not subject to specific
performance and a breach of the right may only amount to
recovery of damages under Art 19.
b. Under Equatorial and Paranaque: However, if the right of the first refusal is embedded to a
contract of lease, they become enforceable and therefore,
subject to specific performance.
Even though there is no price, upon breach of the right (when it
is sold to a 3rd person), the price will be based on the price itwas sold.
The lessee will have the right to specific performance and ask
for rescission of the sale. Provided there is a ground for
rescission which is bad faith on the part of the buyer (if thebuyer was in good faith, he will be protected)
NOTE: Paranaque further held that a buyer cannot be in good faith whenthere is a right of first refusal in a property because everybody who buys theproperty must examine it first.
4. Option Contracts
A unilateral promise that grants to the optionee the privilege or right
to purchase the SM at a certain price within a period, for a separate
consideration.
An option is not a Contract to Sell. It is only half a K to sell because it
is either a unilateral obligation to sell or a unilateral obligation to
purchase.
The consideration in an option contract must be separate and distinct
from the purchase price. It can be anything of value. Nietes Doctrine: An option contract is exercised by mere notice3 to the
seller. Tender and consignation by the optionee is not needed.
2 Kinds of Option Contracts (the SM and price must have all the
requisites):
a. Valid option contracti. Supported by a consideration separate and distinct from
the price
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ii. If it is accepted prior to the time it was withdrawn, it willgive rise to a valid K of sale
b. Void option contract
i. There is lack of separate consideration
ii. Although it is void as an option contract, it is valid as an
offer (Sanchez doctrine)NOTE: However, in Montilla and Diamante, the SC held that an option
contract without a separate consideration creates no contract.
Principle of Double Acceptance in order that a void option contract will
give rise to a sale:
1st acceptance this is needed to give rise to a void contract
while it is valid as an offer
2nd acceptance giving rise to the contract of sale since the offer
was accepted
Pre-Ang Yu doctrine: When an option K is supported by a separate
consideration, and is accepted as an option, the moment the option is
exercised within the period, it gives rise to a K of sale. If the offeror
withdraws the offer within the period, it will give rise to damages for
breach of K. Post-Ang Yu doctrine (plus the stupid cases of Equitable, Paranaque
Kings): An offeror can withdraw the offer anytime within the option period
regardless of the fact if there is a separate consideration or not. If it iswith consideration it will give rise to damages under breach of K. If there
is no consideration, it will give rise to tort under Art. 19 because there was
no valid option K.
Therefore, Ang Yu actually reduces the option K to mean nothing because
a valid option contract and a void option contract ahs been placed in the
same category which can be destroyed at the will of the offeror.
NOTE: Although Ang Yu fucked up option contracts, its all obiter.
5. Mutual promise to buy and sell
This is a Contract to Sell
II. Perfection :Offer and Acceptance
Perfection of a K of Sale
Upon the meeting of the minds as to a valid SM and price which has all the requisites
The offer must be certain and the acceptance absolute:
1. Certain offer Price and SM with all the requisites
2. Absolute acceptance:
a. Absolute absolute offer is accepted without any qualification orcounter-offers
b. Non-absolute (Villonco doctrine):i. Do minimis the change in acceptance is so insignificant that
there is substantial absolute acceptance (e.g. Offer is pay in2,000 days but acceptance is 1,999 days); or
ii. Nature of change - the change does NOT go into the SM orconsideration (e.g. Offer is that payment should be done with
the buyer in long pants but the acceptance is that buyer willpay in shorts)
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NOTE: However, if the offer was pay and then cut your hair, and the acceptance did not
include cutting the fair, this already goes into consideration and constitutes a counter-offer
When there is a suspensive condition, there is no perfected K of sale until the
condition is fulfilled, In Romero, the SC held that an injured party can waive thecondition and ask for specific performance or sue for rescission and refuse to
proceed if the condition is imposed on the performance of an obligation.
In sale by auction, only when the auctioneer announces by the fall of the hammer
or in customary manner is the sale perfected.
Earnest Money
1. Part if the purchase price which is proof of the perfection of the contract
2. However, in Spouses Doromal, the SC held that the proof is rebuttable and evidencecan be shown that the parties intended to treat earnest money differently.
Genius Villanueva: This is because under Roman Law, earnest money served as liquidated
damages such that withdrawing from the sale means forfeiture of the earnest money now is
still acceptable. This is why Doromal provides that earnest money is not a conclusive proofof the perfection of the contract, because the parties might intend it to be earnest money
under the concept of Roman Law.
Differences between earnest money and option money:
Earnest Money Option Money
Part of the purchase price Given as a distinct consideration
Given already while there is a sale (but takenote of Spouses Doromal)
Applies to a sale not yet perfected
When given, buyer is bound to pay the balance When given, buyer is not required to buy
III. Form of Sales
General Rule: Form is not important for the validity of sale.
Exceptions:
1. Power to sell a piece of land or interest therein must be in writing, otherwise the salethereof by the agent (even if the sale itself is written) is void
2. Sale of large cattle must be in writing
3. Sale of land by non-Christians is void if not approved by the Provincial governor
Statute of Frauds
General Rule: Form is important for enforceability
Coverage:
1. A sale agreement which by its terms is not to be performed within a year from themaking thereof
2. An agreement for the sale of foods, chattels, or things in action, at a price not lessthan P500
3. The sale of real property or of an interest therein
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Exceptions to the Coverage
1. Note or memorandum (it may be contained in 2 or more documents)
Requisites for a note or memorandum
a. In writing
b. Must contain the signature of the contracting party against whom the
contract is sought to be enforcedc. Must describe the SM and Price which has all requisites
NOTE: In an auction sale, even if the 2nd requisite is not met, if the auctioneerenters the sale in the entry book, the sale is taken out of the provisions of the
Statute of Frauds
2. Partial performance
The partial performance must either go to the SM or the price (not the
consideration!!!)
Tender of payment is not considered partial performance because there is no
involvement of the party against whom the sale is to be enforced (this is an
important element for partial performance to be valid)
However, tender of payment, accompanied by other acts such as building of
improvements, possession and payment of taxes, may be considered partial
performance (Ortega doctrine) Claudel Doctrine: If the rights of the 3rd parties are involved, partial execution
is not good enough for the sale to be taken out of the Statute of Frauds.
There must be a memorandum. Why? Because there is no complicity on thepart of 3rd parties who were not involved in the original transaction.
NOTE: Claudel applies only to movables where possession is presumed
ownership unlike in immovables where title is the basis.
3. Waiver
This refers exclusively to the failure of the party to object to oral testimony
presented in court.
The cross-examination on the contract is deemed a waiver
NOTE: In case the transaction falls under the exceptions, parol or oral evidence may
be introduced to prove the existence of the contract.
CHAPTER VI
PERFORMANCE OR CONSUMMATION OF THE CONTRACT OF SALE
I. Obligations of the Buyer and the Seller
Consummation: the state where either parties begin to perform their respective
obligations. On the part of the seller, to deliver the thing and transfer ownership. On the
part of the buyer, to pay the price.
NOTE: Always remember that in this stage, it is necessary that there is already a VALIDcontract of sale. In other words, if you have not mustered what constitutes a valid contract
of sale, youll get lost.
A. Obligations of the Seller
1. To take care of the SM with proper diligence of a good father of the family
Unless another standard of care is required
Applied only when the SM is determinate
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2. To deliver the fruits and accessories
But until actual delivery, the buyer only has a personal right to the fruits
(meaning the seller can sell the fruits and the one buying the fruits has a
better right)
Applied only when the SM is determinate
3. Deliver the SM (Tradicion) Twin effects of tradition:
a. transfer of ownershipb. seller is deemed to have fulfilled his obligations
Note: tradicion is a mode only when there is an underlying valid K of sale
Two Types of Delivery
a. actual or physical - thing sold is placed in the control and possession of the buyerb. constructive - seller transfers ownership without transferring physical possession
(achieved by mere consent of the parties)i. execution of public instrument
ii. symbolic delivery - delivery of a thing which is a representation of the SM
(both parties must agree that the thing is a representation of the SM)iii. constitutum possesorium - when at the time of perfection, the seller had
possession of the SM in the concept of an owner and pursuant to the sale,
hold physical possession thereof no longer in the concept of an owner
iv. tradition brevi manu - before the K of sale, the would-be buyer was already in
the possession of the would be SM, and pursuant to the sale, he would nothold possession in the concept of an owner
v. tradition longa manu delivery by agreement such as when the seller pointsthe property
vi. delivery by negotiable documents of title
vii.seller allows buyer to exercise rights on the property
Requisites of a valid constructive delivery (specially in public instruments)a. there must be no stipulation that the execution of a public instrument will not
produce the effect of delivery
b. at the time of the execution of the public instrument, the SM was subject to the
control of the seller (Addison doctrine)
c. such capacity, although existing at the time of the execution, must continue within areasonable time (Villablanca doctrine)
Exception to the Addison and Villablanca doctrines:
When the public instrument was executed and there was no actual physical
possession, constructive delivery would still be ineffective if from the nature of the
contract, the buyer knew that there were adverse claims/occupants in the property
eh accepted the responsibility to set them out (Power doctrine)
Delivery through Carrier1. FAS Free Alongside Ship
Seller pays all charges and is subject to risk until the goods are placed
alongside the vessel
2. FOB Free on Boarda. shipping point delivery of the goods to the carrier, inside the vessel, is
equivalent to delivery of the buyer
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b. destination only when vessel has arrived at the points of destination andactual signals to the buyer that the goods are there that there is deemed to
be delivery to the buyer
3. CIF Cost, Insurance Freight
The amount quoted by the seller and agreed to by the buyer covers not only
the cost of the merchandise but also insurance and freighta. majority school of thought the carrier is an agent of the buyer (like FOB
shipping point)b. minority school of thought the seller covers all the insurance and freight
making the carrier his agent (like FOB destination)
NOTE: These classifications are bullshit. Let me explain. They provide for very weak
presumptions. The moment there is anything to the contrary to indicate the real intention ofthe parties, be it oral or written, then that intention governs regardless of the classification
they placed on the transaction (General Foods Doctrine)
Types of Tradicion Concepts When it Comes to Immovables:
REMEMBER: In every sale of an automobile, it is essential for validity that there be a
description (metes and bounds of the area must be given)
1. Sale per unit of measure sale of real estate made with a statement of its area,
at the rate of a certain price for a unit measure (e.g. P3000 per square meter)a. Effect: If it turns out that the area delivered is less, there is substantial
breach. Remedies would be specific performance or rescission (But lack ofarea must not be less than 1/10 or else it would be considered substantial
compliance2. Lump sum sale not at a rate of a certain sum for a unit of measure (e.g. P20M for
that lot)
a. Effect: If it turns out that the area is less, there is not a ground for rescission
since the only obligation is to delivery everything within the boundary
Sta. Ana Doctrine: Just because a statement of the measurement of the area is given,with the corresponding price, does NOT mean that it is a sale per unit of measure. The
default rule is that it is a lump sum sale ONLY when it is expressly provided that the sale isat a certain price per unit of measure is it such kind of a sale.
Two Special Species of Sale in Movables
1. Sale on Return
There is already a sale but it is subject to a resolutory condition
This is an exception to the general rule that once tradicion is effected,
ownership is transferred
2. Sale on Approval
This is an exception to the general rule that once tradicion is effected,
ownership is transferredNOTE: To be construed as a sale on return or sale on approval, there must be a clear
agreement to such effect. It must be in writing and cannot be proved by parole evidence(Industrial Doctrine).
B. Obligations of the Buyer
1. Pay the price
2. Accept delivery of the thing sold
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If the buyer refuses to accept delivery, the seller only has to place the SM at
the disposition of the buyer. Even if the latter has no possession and control,tradition is completed and the risk of loss is on the buyer. Acceptance by the
buyer is NOT an integral part of delivery.
II. Double Sales
A. Movables
Ownership shall be confirmed to the person who takes 1 st possession in good
faith
B. Immovables
Ownership shall be confirmed in accordance with the following hierarchy:
1. to the person who 1st registered under PD 1529 (Torrens System)
2. To the person who is 1st in time and has priority in right provide the followingrequisites concur (Radiowealth and Carumba):
3. In accordance with Art. 1544 of the NCC:
4. 1st in time, priority in right
NOTE: The rules on Double Sales do not apply if one of the contracts is a contract to sell. In
a contract to sell, the condition goes into the essence of the contract, such that if it doesnthappen, the contract is extinguished. In a contract of conditional sale, to which the rule on
double sales apply, the condition attaches to the obligations, and the non-happening ofwhich constitutes a breach which may be a ground for recession.
Genius of Villanueva: Theoretically, recession is the only remedy in case there is a breach
of the conditions of a conditional contract of sale. This is because specific performancecannot be availed of since the obligation has been extinguished. However, if the non-
happening of the condition is due to the sellers fault, then the condition is deemed fulfilled
and specific performance can be a remedy.
CHAPTER VII
DOCUMENTS OF TITLE
Documents of Title: includes any bill of lading, dock warrant, quedan or warehousereceipt or order for the delivery of goods, or any other document used in the ordinary
course of business in the sale of transfer of goods, as proof of the possession or control ofthe goods, or authorizing or purporting to authorize the possessor of the document to
transfer or receive, either b endorsement or by delivery, goods represented by suchdocument.
A type of constructive delivery
It must always be in writing
The SM is always fungible
Two Functionsa. the document itself is a representation of possession and description which are
covered thereby
b. it is the medium by which the goods described therein are delivered
Two Types
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1. Negotiable containing the words of negotiability and written words like non-negotiable does not destroy its being negotiable
2. Non-negotiableBasic Rule: Protect the purchaser in good faith for value. Even if the negotiation is a
violation of the ownership of the principal owner, a purchaser in good faith is always
protected.
Effects of Negotiation of a Negotiable DTa. acquisition of such title to the goods as the person negotiating the document to him,
had or had ability to convey a purchaser in good faith for valueb. acquisition of such title to the goods as a person to whose order the goods were to
be delivered by the terms of the document had or had ability to convey to apurchaser in good faith and for value
c. acquisition of the direct obligation of the bailee issuing the document to holdpossession of the goods for him according to terms of the document as fully as if
such bailee had contracted with him
Effects of transfer or assignment of a non-negotiable DT
The assignee acquires thereby as against he transferor:
a. title to the goods, subject to the terms of any agreement with the transferor
b. the right to notify the bailee who issued the document of the transfer thereof, andthereby to acquire the direct obligation of such bailee to hold possession of the goods
for him according to the terms of the document
Warranties on negotiation or assignment:a. referring to the DT itself
i. DT is genuine
ii. Right to negotiate or transfer the DT
iii. That there is knowledge of any defect which would impair the validity or
worth of the document
b. referring to the goodsi. the goods exist
ii. they are of merchantable qualityNote: Other than the breach of these warranties, there is NO cause of action to recover
on the seller.
Rules on Levy/Garnishment of Goods Covered by DT
NEGOTIABLE NON-NEGOTIABLE
Judgment creditors of the original
owner cannot actually levy or executeupon the goods since ownership and
possession of the document itself isequivalent to the holder having actual
ownership and possession.
Judgment creditors of the original owner can levy or
execute upon the goods since possession andownership of the DT does NOT necessarily bring title
over the goods. It is the notification of the bailee ofthe assignment that it is the operative act that will
transfer the goods, not allowing the levy.
CHAPTER VIII
SALE BY A NON-OWNER OR BY OEN HAVING A VOIDABLE TITLE
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WARNING: In the following discussion, note the difference between the time ofperfection(where the seller may not be the owner) and consummation.
General Rule: 1505, which states that where the goods are sold by a person who is not the
owner thereof, the buyer acquires no better title to the goods than the seller had. In other
words, NO title, NO transfer. (The SC even held that a transfer by someone who does notown the SM is void.
Exceptions:
1. When the owner is estopped by his conduct from denying the sellers authority tosell.
2. When the contrary is provided for in recording laws (PD 1529)
This applies only to registered lands
Chain of Title Theory: there must be 2 links in order for this exception to
apply. The 1st link is the 1st sale, where the buyer still has the opportunity to
look behind the title of the seller. The 2 nd link is the 2nd sale, where no amountof looking behind the title will a defect be seen since the name of the title
corresponds to the person selling.
3. 1434: When the person who is not the owner of a thing sells or alienates or deliversit, and later the seller or grantor acquires title thereto, such title passes by the
operation of law to the buyer or grantee
4. When the sale is made under statutory power of sale or under the order of a court of
competent jurisdiction
Because the seller in these cases is NOT the owner.
5. When the sale is made in a merchants store
Requisites to be a merchant store:
a. there must be goods stored therein and in display
b. the store is actually engaged in buying and selling6. 1506: Requirements in order that the sale is valid as to the buyer
a. seller must have voidable title at the time of execution
b. title has not been avoidedc. buyer in good faith and for value
d. there must have been tradition
7. Special right of resale
Even when the title to the goods has already been transferred to the buyer,
the unpaid seller can enter into another sale and deliver the goods to a 3 rd
person even if the former already lost ownership
This will be elaborated under remedies
Article 559: Possession of movable property acquired in good faith is equivalent to title.But one who has lost or been unlawfully deprived of a movable may recover it from the
person in possession of the same.
This rule is in accordance with the general rule in 1505 that when there is no title,
there is no title.
But if the possessor acquired the movable in a public sale, the owner cannot obtain
its return without reimbursing the price.
If the buyer acquired the movable from a merchants store, the owner cannot
recover anymore even if he was unlawfully deprived or it was lost.
Unlawfully deprived does NOT apply if the owner voluntarily participates in a sale
and was the victim of fraud (EDCA Doctrine). What it means is the taking without the
owners consent or participation (e.g. theft and robbery)
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Rules on Sale by a Co-OwnerGeneral Rule:
If he sells the entire the sale is void, but valid as to his spiritual share
If he sells a definite portion the sale is void, but valid as to his spiritual share (if
indeed the buyer would have still bought such share had he known that the definiteportion sold would not be acquired by him
Exceptions:1. it does not apply when the SM is indivisible by nature or intent (Mindanao Doctrine)
2. when the sale of a particular portion of a thing owned in common is with the consentof the co-owners (Pamplona Doctrine)
3. A co-owner who sells one of the 2 lands owned in common with another and howdoes not turn of the proceeds of the sale to the other co-owner, the latter may by
law and equity lay exclusive claim to the remaining parcel of land (Imperial Doctrine)
CHAPTER IX
LOSS, DETERIORATION, FRUITS AND OTHER BENEFITS
Application1. applies only when the SM is determinate
2. applies to both movables and immovables
History
Civil Law Common Law
Ownership is transferred by tradicion Ownership is transferred by the perfection of
the contract
Risk of loss is borne by the buyer upon
perfection
Res perit domino the owner bears the loss
The Bocobo Commission adopted the Res Perit Domino rule and at the same time, retainedthe civil law concept that ownership is transferred by tradition. The result is a fuck-up.
Effects
1. before perfection risk of loss shall be borne by the would-be seller since he ownsthe thing
2. at the time of perfection if the thing is lost, the contract shall be without anyeffect and therefore the seller bears the risk of loss
3. after perfection but before delivery a. Loss
Tolentino and Baviera Paras and Padilla
Loss is with the seller because his estate has
become less due to the loss. Buyer does not have to
pay because a sale is reciprocal by nature and theseller cannot comply with his obligation anymore.
The contract has become inefficacious.
Loss is with the buyer since even
though the SM is lost, he is still
obliged to pay the price. His obligationto pay was not extinguished.
Villanueva: The Tolentino & Baviera stance is more logical.
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b. Deterioration, fruits & improvements risk of deterioration and benefitsof fruits and improvements shall be borne by the buyer. Although the seller
has ownership, the benefits and improvements are for the benefit of thebuyer. (So, in effect, the res perit domino rule applies only in loss and not in
deterioration, fruits and improvements._
NOTE: Just remember this simple formula by the Genius Villanueva: the risk of loss,
deterioration and improvement shall always be for the account of the person who has bothtitle and beneficial interest over the SM. When the title and beneficial interest do not merge
in the same party, the risk of loss, deterioration and improvement will be for the account ofthe person who has beneficial interest.
4. after delivery risk is borne by the buyer who owns the thing
Except:a. when the delivery of the goods has been made to the buyer and the
ownership has been retained by the seller merely to secure the performanceby the buyer of his obligations in the contract (even if the buyer does not own
the thing, the risk of loss is still hers)
b. actual delivery had been delayed through either partys fault (risk of loss iswith the party at fault)
CHAPTER X
REMEDIES OF PARTIES FOR BREACH OF CONTRACT OF SALE
I. In case of Movables
A. Remedies of the Seller
1. Specific performance and rescission
2. Special remedies of an unpaid seller
Definition of an Unpaid Seller
a. When the whole of the rice has not been paid or tenderedb. When a bill of exchange or other negotiable instrument has been received as
conditional payment, and the condition on which it was received has beenreceived has been broken by reason of dishonor of the instrument, the
insolvency of the buyer or otherwise.Note: This includes an agent of the seller.
Rights of the Unpaid Seller
a. applies even if the seller has lost ownership (there has been constructive delivery)
b. applies even if the buyer has entered into a 2 nd salec. the first 2 remedies must be first availed of before the next 2 remedies can apply:
i. possessory lien
Requisites:
1. where the goods have been sold without any stipulation as to
credit2. where the goods have been sold on credit, but the term of
credit has expired
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3. where the buyer has become insolvent
Instances when unpaid loses his possessory lien
1. he delivers the goods to a carrier or other bailee for the
purpose of transmission to the buyer without reserving theownership in the goods or the right to the possession thereof
2. the buyer or his agent lawfully obtains possession of the goods3. by waiver thereof
Note: there is no need to notify the buyer and the right may beexercised even if the unpaid seller is an agent or bailee
ii. stoppage in transitu allowed only if the buyer becomes insolvent whichmust be proved (insolvent - buyer is unable to pay his debts as they fall due)
When are goods in transit?
1. from the time they are delivered to a carrier or other bailee forthe purpose of transmission to the buyer, until the buyer or his
agent in that behalf, takes delivery of them from such carrier orbailee
2. if the goods are rejected by the buyer, the carrier or other
bailee continues in possession of them, even if the seller hasrefused to receive them back
When are goods not in transit?
1. if the buyer or his agent obtains delivery of the goods beforetheir arrival at the destination
2. if after arrival of the goods, the carrier or other baileeacknowledges to the buyer or his agent that he holds the goods
on his behalf and continues in possession of them as bailee ofthe 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 of other bailee wrongfully refuses to deliver the
goods to the buyer or his agent
How is the right exercised?1. by obtaining actual possession of the goods
2. by giving notice of his claim to the carrier or other bailee in
whose possession the goods are:
a. at the point of notice, the carrier has no choice but to
hold the goods for the disposition of the seller
b. if the notice was given to the carriers principal, enough
time must be given for the principal to inform the carrier
When are the rights inapplicable?
1. when the goods are NOT in transit2. when there is a waiver of the right
iii. special right to resell
Requisites for the right to apply1. the goods are of perishable nature
2. where the seller expressly reserves the right of resale in casethe buyer should make default
3. where the buyer has been in default in the payment of the pricefor an unreasonable time
Effects
1. destruction of ownership of the 1st buyer even without court
intervention
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2. even an innocent 3rd person will not be protected if the 1st buyersells the goods to such 3rd person
3. the unpaid seller can sell the goods to another even if he is notthe owner of the goods
4. any deficiency in the 2nd sale will be paid by the 1st buyer
Unpaid seller cannot directly or indirectly buy the goods (1533)Note: Giving of notice is not essential for the validity of the resale. It is
relevant only in an issue involving the question of whether the buyer hadbeen in default for an unreasonable time before the resale was made.
iv. special right to rescind
Requisites for application
1. it was expressly reserved in case the buyer should make
default, or
2. the buyer has been in default in the payment for an
unreasonable time
Effects
1. destruction of ownership of the 1st buyer even without court
intervention2. even an innocent 3rd person will not be protected if the 1st buyer
sells the goods to such 3rd person
3. seller may recover from the buyer any loss caused by thebreached contract
Difference between ordinary rescission and special right to
rescind: Generally, ordinary rescission needs court intervention. The
special right to rescind does NOT need court intervention.Note: Giving of notice is not essential for the validity of the resale. It is
relevant only in an issue involving the question of whether the buyer hadbeen in default for an unreasonable time before the resale was made.
(However, in view of the UP case, notice must be given every time there is
rescission.)
B. Remedies of the Buyer
1. Specific performance and rescission
2. Furthermore, the buyer may suspend payments in anticipation of breach unless theseller gives security for the return of the price in a proper case
C. Recto Law and Art. 1484
1. Rationale: to remedy the abuses committed in connection with the foreclosure ofchattel mortgages and was meant to prevent mortgagees from seizing the
mortgaged property, buying it at a foreclosure sale for a low price, and then brining
suit against the mortgagor for a deficiency judgment2. Coverage
a. sale of personal property payable on installmentsb. levy doctrine: to be under Art. 1484, there must be 2 or more installments
c. The SC in Zayas applied the Recto Law in financing. However, the peculiarcircumstances in Zayas was that there was an original sale contract and the
credit was merely assigned to the financing company. In other words,financing per se is not covered by the Recto Law. There must be an
underlying contract of sale.
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3. RemediesNote: The vertical barring effect states that once a remedy is chosen among the
3 enumerated here and it takes effect, the seller cannot choose another remedy
a. Specific performance
When deemed chosen: Filing of an action for specific performance incourt
Horizontal barring effect: NONE. You can recover the whole unpaid
balance. (This is true even if the action instituted has the same effect
as foreclosure, as wherein a mortgage property has been attached andsold, since it is NOT technically a foreclosure.)
Choosing specific performance vertically bars the other remedies
EXCEPT if after choosing specific performance the same has become
impossible, rescission may be availed of.
b. Rescission
When deemed chosen
1. filing an action for rescission in court
2. taking actual possession or filing replevin coupled with amanifest intention of rescission.
Horizontal barring effect
1. Seller cannot seek further action on the purchase price (sincehe already has possession of the SM and rescission by its
nature involves mutual restitution returning any amount
previously paid, unless there is a stipulation that theinstallments paid shall not be returned which is valid insofar as
it is not unconscionable under the circumstances.
2. Furthermore, damages may be awarded to the extent of theloss
c. Foreclosure
When deemed chosen: upon actual sale; before that, the seller canstill collect the installments due (specific performance)
Horizontal barring effect: once foreclosure is chosen, the seller
cannot anymore recover any unpaid balance of the price (that is theessence of the Recto Law)
Unpaid balance of the price: is all encompassing and includes not
only the purchase price but stipulations in the contract for damages,
interests and attorneys fees (Eustaquio Doctrine)
Eustaquio Doctrine: does not apply to a perverse buyer-mortgagor
or one who refuses to surrender the chattel to the seller to allow the
latter to foreclose. In such a case, the seller is allowed to recover
expenses and attorneys fees incurred in trying to obtain possession.(Ridad Doctrine).
Cruz Doctrine: It is not true that after foreclosure, Art. 1484
prohibits further action only against the purchaser. It applies also
against recovering the deficiency (e.g. by foreclosing on the other
mortgages made by the buyer) from 3rd parties.
Borbon Doctrine: This is a situation which is the reverse in Cruz. To
circumvent Cruz, what if foreclosing on the other mortgages is
instituted? This CANNOT be done. The reason is not because of thebarring effect in 1484, but because of the principal in credit
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transactions that seeking specific performance is deemed a wavier ofthe foreclosure of the chattel mortgage.
II. In case of Immovables
A. Remedies of the Seller
1. Specific performance and rescission2. An anticipatory breach entitles him to rescission
3. Failure of the buyer to pay the purchase price entitles the seller to rescind thecontract of sale upon judicial or notarial demand (1529). But the SC in some cases
refused to allow rescission even if proper on equity grounds.
B. Remedies of the Buyer
1. Specific performance and rescission2. Suspension of payment because of disturbance or reasonable grounds to fear such
disturbance
3. In case of subdivision and condominium projects, the developer may not forfeitprevious payments if the buyer desists from paying installments due to the failure ofthe developer to develop the subdivision or condominium. The notice of demand for
refund and notice of intent not to remit further payments can be made at the sametime.
C. Maceda Law
1. Rationale: protects buyer of real estate on installment payments against onerous
and oppressive conditions
2. Coverage: (both contracts of sale and contracts to sell)
a. Residential real estate
b. Residential condominium units
Note: By express provision of law, the Maceda Law not only covers rates but alsofinancing. Also, the meaning of installments in the Levy doctrine applies also here.
3. Items not covered:a. Commercial real estate
b. Industrial real estatec. Non-residential condominium units
d. Agricultural landsNote: Art. 1529, 1191 and the law on suspensive conditions govern the first 3. CARP
governs the last.
Rights under the Maceda Law
At least 2 years Installment Period Less than 2 Years Installment PeriodStatutory Grace Period:
To pay without additional interest, the
unpaid installments with a grace period
of 30 days for every 1 year ofinstallment paid.
Right to make use of the grace period
can only be exercised every 5 years of
the contracts life and its extension.
Statutory Grace Period:
To pay without additional interest, the
unpaid installments with a grace period
of 60 days from the date of theinstallment became due.
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Jurisprudential Grace Period:
The seller could cancel the contract only
after 30 days after receipt of the notarial
notice of cancellation or rescission by thebuyer. Within the 30 days, buyer may
still pay. (But in this case, interest andpenalties may be included unlike in the
statutory grace period.)
Jurisprudential Grace Period:
The seller could cancel the contract only
after 30 days after receipt of the
notarial notice of cancellation orrescission by the buyer. Within the 30
days, buyer may still pay. (But in thiscase, interest and penalties may be
included unlike in the statutory graceperiod.)
If the contract is cancelled, seller shallrefund 50% of the total payments made
after 5 years of installment, an additional5% every year but not to exceed 90% of
total payments.
Note: It is only after the refund is thecancellation or rescission complete. Unlike
when it is less than 2 years where the
cancellation or rescission is complete uponthe lapse of the jurisprudential 30-day graceperiod.
Any stipulation contrary to the Maceda Law is null and void.
The notice of rescission or cancellation may be by notarial act, meaning it need not
be judicial. (However, note that the McLaughlin implies that the notarial act is not
needed if it is a notice of cancellation).
In determining whether it is more or less than 2 years, the number of years is not
controlling. What determines the period is the application of payments, whether theycover 2 years or not.
CHAPTER XIRESCISSION: CONTRACT OF SALE VS. CONTRACT TO SELL
WARNING: The following discussion is a poor attempt to synthesize the sales on rescission.
Proceed at your own risk.
Rescission
A remedy by the party in reciprocal obligations where there is a breach on the part of
the other party
This does not cover the rescission which pertains to rescissible contracts where lesion
is the main consideration
The breach of contract which falls under rescission must be substantial breachbecause of the doctrine that substantial compliance is deemed to be full compliance
The effect of rescission is mutual restitution (but stipulations which say that
installments paid shall not be returned is valid insofar as they may not beunconscionable under the circumstances)
Only the injured party (which may be a 3rd person) may demand for rescission
Distinction between a contract of sale and a contract to sell
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Contract of Sale Contract to Sell
Perfection gives rise to reciprocaldemandable obligations
Perfection only give rise to reciprocal suspensiveconditional obligations (non-demandable until
the condition happens). Consequently, the non-happening of the condition extinguishes the
obligation.Delivery transfers ownership. Even after the happening of the suspensive
condition (which is full payment of the price)ownership is still not transferred, until a contract
of sale is entered into and there is delivery.
Non-payment of the price by the buyer
or the non-delivery of the SM by theseller would constitute resolutory
conditions and may be a basis forrescission.
Non-happening of the suspensive condition,
which is payment of the price, prevents theobligation to sell n the part of the seller from
materializing at all.
Rescission can be availed of only in case
of substantial breach.
Principle of substantial breach has no application
since the non-happening of the condition,substantial or not, ipso jure prevents the
obligation from arising.
NOTE: Remember this concept, it will be
relevant in the following discussion.
Provision granting a party a right to
rescind will be superfluous since by law,it is inherent in this contract.
Rescission is irrelevant. Non-happening of the
condition of full payment prevents the sale frommaterializing, so there is nothing to rescind.
Under the law and jurisprudence, a contract which contains a stipulation that
ownership is reserved in the seller and not to pass to the buyer until full payment ofthe purchase price is a contract to sell.
Also, the SC in Dignos, held that in a contract to sell, there must be a right granted
to the seller to extra-judicially rescind or cancel the contract in case of default.Absence of such a stipulation makes the contract one of sale.
Note: However, in some cases, the SC held that the contract is a contract to sell even in theabsence of such stipulation.
Rules on rescission and what law governs
1. 1191 is the general rule in rescission2. 1191 does NOT apply to contracts to sell. No positive action is required in a contract
to sell because the non-happening of the condition destroys the contract. Therefore,there is nothing to rescind.
3. Also the following are NOT under 1191:a. movables under the Recto Law since such law governs
b. immovables4. Immovables are governed generally by 1529 which states that in the sale of
immovable properties, even though it may have been stipulated that upon failure topay 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 nodemand for rescission of the contract has been made upon him either judicially or by
notarial act. After the demand, the court may not grant him a new term.
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5. However, those immovables covered under the Maceda Law are governed by suchlaws. Furthermore, the Maceda Law also covers Contract to Sell and allows rescission
to such contracts (which is a complete turn-around of the general rules in 1-4 above)
Rules on rescission and substantial breach
1. The general rule is that rescission is proper when there is substantial breach2. Since 1191 and 1529 does NOT apply to a contract to sell, even if there is substantial
breach in a contract to sell, rescission is not proper because the non-happening ofthe condition of full-payment prevents the sale from materializing. There is no
contract to rescind at all.3. However, the SC in cases falling under the Maceda Law (where being a contract of
sale and a contract to sell fall under the same law), applied substantial complianceprinciples to contracts to sell. This is because the Maceda Law promotes a higher
value. (So take not of the coverage of the Maceda Law.)4. We can conclude therefore that only those contracts to sell which fall under the
Maceda Law may be rescinded and where substantial compliance principles areapplicable.
Rules on rescission and when it takes effect1. it is generally judicial and requires court action except when it is extra-judicial (the
contract contains the stipulation: in case of default by 1 party, the other party may
rescind by mere written notice (without need of going to court)
2. those under 1529 (take note of this provisions coverage above) require that there
be a demand for rescission either by judicial or notarial act)
3. since rescission is not applicable to contracts to sell, logically, notice need not be
given when the contract is a contract to sell
4. under the Maceda Law, for rescission to take place, there need only be the expiration
of the 30-day grace period after notarial notice of rescission or cancellation has been
given to the buyer (but take note that the case value refund must be paid forrescission to take effect when installments have been paid for more than 2 years)
5. Furthermore, since under the Maceda Law, contracts to sell may be rescinded (which
is against rule number 3), the SC in UP and Palay held that even in contracts to sell,a minimum requirement for rescission is notice to the buyer (this refers to situations
where rescission is allowed in contracts to sell like those under the Maceda Law)
Note: The rationale why notice is required even in contracts to sell may be seen in 1545,since the law grants the seller the option to waive the breach, and still accept payments,
then notice must be given to the buyer that the seller is not waiving.
Note: What complicated matters is that the SC used the principles of justice and equity tomake rescission applicable to contracts to sell, even though by their nature, rescission is not
a remedy in those types of contracts. Also, the Maceda Law was made applicable to bothcontracts of sale and to sell, which produced a number of mix-up principles.
CHAPTER XII
CONDITIONS AND WARRANTIES
Reason: Why they are lumped together:
1. to provide how each behaves differently in sales
2. to distinguish it from warranties
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Distinguish:
Conditions Warranties
When a condition is imposed in theperfection of the contracts, failure to comply
means a failure of the contract tomaterialize. When the condition is imposed
on the performance of the contract, theinjured party may either refuse to proceed
with the sale or waive the condition. Non-happening of the condition is not a breach,
so there can be no damages.
Non-fulfillment of a warranty constitutes abreach and damages may be awarded
Applies to a buyer and seller Applies only to the seller because it pertains
to the SM
Goes into the root of the existence of the
obligation
Goes into the performance of the obligation
Must be stipulated May form part of the contract by expressprovision of the law
Applicable to other contracts Applies only to sales contracts
The only time a condition amounts to a breach is when there is an express promise
that the condition will happen. The condition becomes a warranty and damages maybe awarded in case of breach.
It is important to discuss warranties because rescission on the part of the buyer can
ONLY happen if there is a breach of the sellers warranties.
Kinds of Warranties
1. EXPRESS (it is essential to look at the wordings to determine the extent of the
warranty)
a. It must be an affirmation of fact or any promise by the seller relating to the
thing, SM of the saleb. The natural tendency of such affirmation or promise is to induce the buyer to
purchase the same; and
c. The buyer purchases the thing relying thereonNote: A statement of opinion (sellers talk) is not a warranty, UNLESS The seller is an
expert and such was relied upon by the buyer.
2. IMPLIED
Every contract has these warranties and the 3 requisites in express
warranties need not be present
By express stipulation, an agent of the seller may bind himself to such
warranties
a. Warranty that the seller has a right to sell and transfer ownership
Applies only in the consummation stage
It is an essential warranty and CANNOT be waived
It goes into the obligation to transfer ownership
b. Warranty against eviction
Goes into the obligation to deliver possession
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Warrants that the buyer shall enjoy legal and peaceful possession of
the SM
Requisites to say that there is a breach of the warranty:
i. buyer is dispossessed of the property in whole or in partii. by final judgment
iii. based on a cause of action prior to the sale or an act imputableto the seller
iv. seller must be made either a co-defendant or a 3rd partydefendant
Note: However, even if all the requisites are present, but there isacquisitive prescription prior to the sale and is completed after the
transfer, the seller shall not be liable for eviction. This is because thebuyer did not do anything to prevent the prescription.
Waiver of the warranty:
i. Seller in bad faith (aware of the claims) any waiver is VOID
ii. Seller in good faith (no knowledge of the risk)- General: seller shall ONLY pay the value of the thing sold at
eviction (NO DAMAGES)
- Specific: if buyer knew of the specific risk, the seller will notbe liable, but only as to that specific risk
Genius of Villanueva: In effect therefore, there is no such thing as
waiver of this warranty. A general waiver is no waiver at all becausethe seller still has to pay. In a specific waiver, there is nothing to
waive because when you know that a problem exists and you still buy,theres nothing to waive.
This warranty applies to judicial sales
c. Warranty against non-apparent servitudes
Applies only:
i. with the servient estate
ii. the immovable sold is encumbered with any non-apparentburden or servitude not mentioned in the agreement
iii. the nature of the servitude is such that it must be presumed
that the buyer would not have acquired it had he been awarethereof
When not applicable: 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
Prescriptive Period (depends on the ground):
i. action for rescission or sue for damages 1 year fromexecution of the deed
ii. action for damages 1 year from the knowledge of burden orservitude
d. Warranty against hidden defects
Applies only when:
i. the thing is new
ii. it is an intangible
iii. the defect is hidden
iv. the defect should go to the utility of the thing or it will renderthe SM unfit for the purpose it was purchased
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v. had the buyer been aware of the defect, he would not havepurchased
Effect: Buyer may elect between withdrawing from the contract and
demanding a proportionate reduction of the price with damages ineither case
Loss of the thingi. if due to the defect
- seller was aware: seller shall bear the loss, return the price,refund expenses for the contract and damages
- seller was not aware: same liability except NO damagesii. if NOT due to the defect
- seller was aware: buyer may demand the price he paid lessthe value which the thing had when it was lost plus
damages- seller was not aware: same liability except no damages
waiver of the warranty
i. seller is in bad faith still liable, the waiver is void
ii. seller is in good faith loss will not make the seller liable
Prescriptive period: 6 months from the delivery of the thing sold This applies only to judicial sales
e. Redhibitory defects on animals
Applies only to movables
Redhibitory defect of such nature that expert knowledge is not
sufficient to discover it
General Rule: defect in one animal does not affect the other even if
they were bought as a team UNLESS it appears that the buyer wouldnot have bought if there was a defective one
This warranty does NOT apply to animals sold at fairs or public actions