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133

WHENMOTIVENULLIFIESSALE

In a contract of sale, consideration is, as a rule, different

PRICE AND OTHER CONSIDERATION LAW ON SALES134

of the capital gains tax liability should not be confused with theconsideration. Although illegal, the motives neither determine nortake the place of the consideration 130


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from the motive of the parties, and when the primary motive is

illegal, such as when the sale was executed over a parcel of landto illegally frustrate a persons right to inheritance and to avoidpayment of estate tax, the sale is void because illegal motivepredetermined the purpose of the contract.125

Uy v. Court of Appeals,126 distinguished cause which isthe essential reason which moves the contracting parties toenter into it, and is the immediate, direct and proximate reasonwhich justifies the creation of an obligation through the will of the

contracting parties, from motive, which is the particular reasonof a contracting party which does not affect the other party.

In Uy, which covered a contract of sale of a piece of land,the Court obseved that the causeof the vendor in entering intothe contract is to obtain the price, while that for the vendee isthe acquisition of the land. The motive of the vendor (NHA), onthe other hand, is to use said lands for housing. The Court ruled:Ordinarily, a partys motive for entering into the contract do not

affect the contract. However, when the motive predeterminesthe cause, the motive may be regarded as the cause.127 x x xThe realization of the mistake as regards the quality of the landresulted in the negation of the motive/cause thus renderingthe contract inexistent,128under Article 1318 of the Civil Codedefining the essential requisite of contracts.

In Heirs of Spouses Balite v. Lim,129 where the parties toa sale agreed to a consideration, but the amount reflected inthe final Deed of Sale was lower, their motivation being to paylower taxes on the transaction, the Court ruled that the contractof sale remained valid and enforceable upon the terms of the realconsideration, thus: The motives of the contracting parties for thelowering of price of the sale in the present case, the reduction

125Olegario v. Court of Appeals, 238 SCRA 96 (1994).126314 SCRA 69, 81 (1999).127

Ibid,at p. 83.128Ibid, at p. 85.129446 SCRA 54 (2004).

take the place of the consideration.

oOo

130Ibid, at pp. 68-69.


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213

(c) The purpose is to deceive third persons.271

However, R.F. Navarro & Co. v. Vailoces,272warned that thebare assertion, without evidence presented to bolster the clausethat the signature appearing on the Deeds of Sale is a forgery

is not enough, since forgery is never presumed, and must beproven by clear, positive and convincing evidence.

When a sale is void the right to set up its nullity or non

FORMATION OF SALE LAW ON SALES214

CHAPTER6

PERFORMANCEOR

CONSUMMATIONOFSALE


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When a sale is void, the right to set up its nullity or non-existence is available to third persons whose interests aredirectly affected thereby; and the action for the declaration ofthe contracts nullity is imprescriptible.273 Likewise, the remedyof accion pauliana is available when the subject matter is aconveyance, otherwise valid, undertaken in fraud of creditors.274

oOo

271Loyola v. Court of Appeals, 326 SCRA 285 (2000). See also Cruz v. BancomFinance Corp., 379 SCRA 490 (2002).

272361 SCRA 139 (2001).273Fil-Estate Golf and Dev., Inc. v. Navarro,526 SCRA 51 (2007).274Manila Banking Corp. v. Silverio, 466 SCRA 438 (2005). 214

OBLIGATIONSOFSELLER

1. To Preserve the Subject Matter

Article 1163 of the Civil Code lays down a rule applicableto obligations and contracts in general, that [E]very person

obliged to give a determinate thing is also obliged to takecare of it with the proper diligence of a good father of a family,unless the law or the stipulation of the parties requires anotherstandard of care.

When a sale covers a specific or determinate object, uponperfection and even prior to delivery, and although the seller stillowns the subject matter, he is already obliged to take care ofthe subject matter with the diligence of a good father of a family;

otherwise, he becomes liable to the buyer for breach of suchobligation, as when the thing deteriorates or is lost throughsellers fault.

The ancillary obligation to preserve the subject matter ofthe sale involves a personal obligation to do,rather than a realobligation to give,and arises as a necessary legal assuranceto the buyer that the seller would be able to comply fully with themain obligation to deliver the object of sale.

2. To Deliver the Subject Matter

Under Article 1495 of the Civil Code, the seller is bound: (a)to transfer the ownership of, and (b) to deliver the thing, whichis the object of the sale to the buyer. Even in the definition ofsale under Article 1458, it covers the twin-obligations of the seller


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299PERFORMANCE OR CONSUMMATION OF SALE

price, in the absence of agreement or usage of trade permittingsuch examination.265

b.Goods Sold Deliverable by Installments

Unless otherwise agreed, the buyer of goods is not bound to

accept delivery thereof by installments.266

Where the sale covers goods to be delivered by statedinstallments, which are to be separately paid for, and theseller makes defective deliveries in respect of one or moreinstallments, or the buyer neglects or refuses without justcause to take delivery of or pay for one or more installments,it depends in each case on the terms of the contract and the

LAW ON SALES300

he is not bound to return them to the seller, and it is sufficient thathe notifies the seller of his refusal.270If he voluntarily constituteshimself as a depository, he shall be liable as such.271

On the other hand, in the absence of stipulation, when thebuyers refusal to accept the goods is without just cause, the title

thereto passes to him from the moment they are placed at hisdisposal.272

oOo


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it depends in each case on the terms of the contract and thecircumstances of the case, whether the breach of contract is

so material as to justify the injured party in refusing to proceedfurther and suing for damages for breach of the entire contract,or whether the breach is severable, giving rise to a claim forcompensation but not to a right to treat the whole contract asbroken.267

c.Effect of Acceptance of Goods on Sellers Warranty

In the absence of an agreement to the contrary, acceptance

of the goods by the buyer shall not discharge the seller fromliability in damages or other legal remedy for breach of promiseor warranty in the sale.268

However, if after acceptance of the goods, the buyer failsto give notice to the seller of breach in any promise or warrantywithin a reasonable time after the buyer knows, or ought to know,of such breach, the seller is excused.269

d.Refusal to Accept Goods

Unless otherwise agreed, where goods are delivered to thebuyer, and he refuses to accept them, having the right to do so,

265Art. 1584, Civil Code.266Art. 1583, Civil Code.267Art. 1583, Civil Code.268Art. 1586, Civil Code.269Art. 1586, Civil Code.

270Art. 1587, Civil Code.271Art. 1587, Civil Code.272

Art. 1588, Civil Code.


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423REMEDIES OF PARTIES

any time without interest and to have suchfull payment of the purchase price anno-tated in the certificate of title covering theproperty.180

Notice that the provisions of Section 6 of the Maceda Lawrender nugatory all provisions in loan agreements covering the

financing of residential real estate and condominium units pre-termination penalty clauses whereby any payment ahead tothe scheduled amortization was met with a penalty clause tocompensate the bank or financial institution for the inability ofsuch pre-payment to earn interest income on the loan.

6. Effect of Contrary Stipulations

Under Section 7 of the Maceda Law, any stipulation in anycontract entered into contrary to the provisions of the Law, shallbe null and void.

7 Maceda Law Cannot Be Availed of by Developer

LAW ON SALES424

to sell; rather, it prescribes the responsibility of the seller in casethe contract[s are] cancelled.183

CANCELLATIONOFJUDICIALSALE

Where a judicial sale is voided without fault of the purchaser,the latter is entitled to reimbursement of the purchase money

paid by him. A judicial sale can only be set aside upon the returnto the buyer of the purchase price with simple interest, togetherwith all sums paid out by him in improvements introduced on theproperty, taxes, and other expenses by him.184

oOo


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7. Maceda Law Cannot Be Availed of by Developer

In Lagandaon v. Court of Appeals,181 the Court held thatthe Maceda Law has no application to protect the developeror one who succeeds the developer, since the policy of thatlaw, as embodied in its title, is to provide protection to buyersof real estate on installment payments. As clearly specified inSection 3, the declared public policy espoused by Republic

Act No. 6552 is to protect buyers of real estate on installmentpayments against onerous and oppressive conditions.182Therefore, one who buys the property from the developer andwho steps into the shoes of the seller under the Contract toSell cannot claim any right or protection under the Law. If the

Maceda Law has any relevance at all, it is to protect the buyer,not the developer-seller or his successor-in-interest. The Courtfurther held that Section 3(b) of the same law does not grantpetitioner [developer] any legal ground to cancel the contracts

180Sec. 6, Rep. Act 6552.181290 SCRA 330 (1998).182Ibid, at p. 345.

183Ibid.184Seven Brothers Shipping Corp. v. Court of Appeals, 246 SCRA 33 (1995).


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513CONDITIONS AND WARRANTIES

the warranty, and that in such case the retailer shall shoulder theexpenses and costs necessary to honor the warranty.

The remedy of the retailer in such case would be to proceedagainst the distributor or manufacturer.79

2. Enforcement of Warranty

The warranty rights can be enforced by presentment to the

immediate seller either the warranty card or the official receiptalong with the product to be serviced or returned to the immediateseller. No other documentary requirement shall be demandedfrom the purchaser.80

3. Duration of Warranty

The seller and the consumer may stipulate the period

within which the express warranty shall be enforceable. But ifthe implied warranty on merchantability accompanies an expresswarranty, both will be of equal duration.

Any other implied warranty shall endure not less than sixty(60) days nor more than one (1) year following the sale of newconsumer products.81

4. Breach of Warranties

I f b h f h

LAW ON SALES514

In case the refund of the purchase price is elected, theamount directly attributable to the use of the consumer prior tothe discovery of the non-conformity shall be deducted.82

In case of breach of implied warranty, the consumer mayretain the goods and recover damages, or reject the goods,cancel the contract and recover from the seller so much of thepurchase price as has been paid, including damages.83

5. Contrary Stipulations

All covenants, stipulations or agreements contrary to theprovisions of Article 68 are specifically declared null and void,and without legal effect.

oOo


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In case of breach of express warranty, the consumer mayelect to have the goods repaired or its purchase price refundedby the warrantor.

In case the repair of the product in whole or in part iselected, the warranty work must be made to conform to theexpress warranty within thirty (30) days by either the warrantoror his representative.

The thirty-day period, however, may be extended byconditions which are beyond the control of the warrantor or hisrepresentatives.

79Art. 68, Rep. Act 7394.80Ibid.81Ibid.

82Ibid.83Ibid.


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Published & Distributed by

LAW ONSALES

CESAR LAPUZ [email protected]

B.S.C. (HOLYANGELUNIVERSITY)

LL.B. (ATENEODEMANILALAWSCHOOL)

LL.M. (HARVARDLAWSCHOOL)

D.J.S. (SANBEDAGRADUATESCHOOLOFLAW)

DEAN

ATENEO LAW SCHOOLROCKWELLCENTER, MAKATICITY

CHAIRMAN, COMMERCIALLAWDEPARTMENT

PHILIPPINE JUDICIAL ACADEMY

MEMBER

MCLE GOVERNING BOARDSUPREMECOURT

FOUNDINGPARTNER

VILLANUEVA GABIONZA & DE SANTOS

[email protected]/F 139 CORPORATECENTER

VALEROSTREET, SALCEDOVILLAGEMAKATICITY1200, PHILIPPINES

FELLOW

AUSTRALIAN INSTITUTE OF COMPANY DIRECTORSSYDNEY, AUSTRALIA

PHILIPPINESCOPYRIGHT, 2009

BY

CESAR LAPUZ VILLANUEVA

ISBN 978-971-23-5250-8

No portion of this book may be copied orreproduced in books, pamphlets, outlines or notes,whether printed, mimeographed, typewritten, copiedin different electronic devices or in any other form, fordistribution or sale, without the written permission ofthe author, except brief passages in articles, reviews,legal papers, and judicial or other official proceedings.

Any copy of this book without the correspondingnumber and the signature of the author on this pageeither proceeds from an illegitimate source or is in

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ISBN 978-971-23-5250-8

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after the Uniform Sales Law of the United States. In addition, our

jurisdiction adheres to the precedential value of the decisions of

the Supreme Court on the Law on Sales. This work therefore

recognizes what has been implicit in the Philippine legal system:

that our hybrid legal system adheres to both the traditions of the

civil law and the common law systems; and although our system

recognizes the primacy of statutory provisions, it also placespractically the same value to policy considerations as they evolve

in actual settlement of disputes in our society as expressed in

decisions of the Supreme Court. Necessarily, the complexion of

various legal principles and doctrines continue to evolve, if not

altered or discarded, as policy considerations are made to adjust

to evolving contemporary settings.

Cesar L. Villanueva

PREFACETO2002 EDITION

The publication of the 1998 edition of the work was

necessitated by the need to update the original edition and to

include the latest decisions of the Supreme Court on important

doctrines in Sales.

This latest edition is now being issued in order to include the

applicable provisions of the Electronic Commerce Law, especially

as they bear upon the form of sales pursued as electronic data orelectronic form. Also the chapter of retail trade had to be revised

to reflect the provisions of the Retail Trade Liberalization Act of

2000.

Likewise, the latest pronouncements of the Supreme Court

on the nature and effects of Contracts of Sale are analyzed in

Chapter 11.

This edition strives to improve on the presentation anddiscussion of the various issues and doctrines in the Law on

Sales. Citations to sources have also been presented in footnote

format in order to allow a better reading of the text.

The author hopes that this latest edition of his work on Sales

would contribute to a better understanding and appreciation of

this field of law that pervades so many aspects of our lives.

CESARL. VILLANUEVA10 MAY2002


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vii viii

PREFACETO2009 EDITION

The latest edition of the book is intended primarily to include

the latest decisions of the Supreme Court that have impacted on

the doctrines in the Law on Sales.

There has also been an attempt by the author to simplify

discussions whenever it could be done in order to reduce the

book into the concise and compact manner it was when first

published.

Finally, Appendix B on the Topical Index appearing in

the earlier edition of the book has been entirely deleted since

its usefulness has not been proven to match the cost of the

enormous number of pages that it covers. The Outline which is

used for class assignment, will be updated annually and made

available at www.dean.clv.net.

CESARL. VILLANUEVA26 JANUARY2009


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ix x

TABLEOFCHAPTERS

CHAPTER1 THENATUREOFSALE......................... 1

CHAPTER2 PARTIESOFSALE............................... 40

CHAPTER3 SUBJECTMATTER............................... 70

CHAPTER4 PRICEANDOTHER

CONSIDERATION.................................. 97

CHAPTER5 FORMATIONOFSALE........................... 135

CHAPTER6 PERFORMANCEORCONSUMMATION

OFSALE............................................ 214

CHAPTER7 DOCUMENTSOFTITLE.......................... 301

CHAPTER8 SALEBYANON-OWNERORBYONE

HAVINGVOIDABLETITLE...................... 318

CHAPTER9 LOSSANDDETERIORATION,

FRUITSANDOTHERBENEFITS............... 344

CHAPTER10 REMEDIESOFPARTIES......................... 361

CHAPTER11 REMEDIESOFRESCISSIONAND

CANCELLATIONFORSALESOF

IMMOVABLES...................................... 425

CHAPTER12 CONDITIONSANDWARRANTIES.............. 490CHAPTER13 EXTINGUISHMENTOFSALE................... 515

CHAPTER14 ASSIGNMENT...................................... 568

CHAPTER15 THEBULKSALESLAW........................ 583

CHAPTER16 RETAILTRADELIBERALIZATION

ACTOF2000 .................................... 595


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xi

APPENDIXA THELAWONCONTRATOS

INNOMINADOS..................................... 619

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CATEGORIESOFRETAILTRADEENTERPRISES............................. 604

WHENALIENSMAYINVESTAND/ORENGAGEINRETAILTRADE

1. Grandfather Rule .................................................. 607

2. Requirements of Foreign Investors ....................... 6093. Foreign Investors Acquiring Shares of Stock

of Local Retailers .................................................. 610

4. Public Offering of Shares of Stock ........................ 610

FOREIGNRETAILERS

1. Prequalification Requirements .............................. 611

2. Application for Prequalification .............................. 612

3. Branches/Stores .................................................... 613

a. Direct Opening of Branches/Stores .................. 613b. Acquiring/Investing in Existing

Retail Stores ..................................................... 613

4. Promotion of Locally-Manufactured Products ....... 614

5. Prohibited Activities of Qualified Foreign

Retailers ............................................................... 614

6. Binding Effect of License to Engage in Retailon Private Parties ................................................. 614

PENALTYCLAUSE................................................................... 614

APPLICATIONOFANTI-DUMMYLAW.......................................... 615

IMPLEMENTINGAGENCY

1. DTI as the Implementing Agency .......................... 617

2. Role of DOJ and SEC ........................................... 618

APPENDIXA

THELAWONCONTRATOSINNOMINADOS............................ 619


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