sales - 1st exam

Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 1

Part V: SALE BY NON-OWNER OR BY ONE

HAVING VOIDABLE TITLE

Ownership is not required for the perfection or validity

of a contract of sale as a sale is perfected the

moment there is meeting of minds upon the thing

which is the object of the contract and upon the price.

Under article 1477, the ownership of the thing sold

shall be transferred to the vendee upon actual or

constructive delivery thereof.

What is the effect if there was a sale by the person

who was not the owner thereof? We know that the

sale is valid, but what about the right of the buyer in a

contract of sale? We have article 1505…

Article 1505. Subject to the provisions of this

Title, where goods are sold by a person who is

not the owner thereof, and who does not sell them

under authority or with the consent of the owner,

the buyer acquires no better title to the goods

than the seller had, unless the owner of the goods

is by his conduct precluded from denying the

seller's authority to sell.

Nothing in this Title, however, shall affect:

(1) The provisions of any factors' act, recording

laws, or any other provision of law enabling the

apparent owner of goods to dispose of them as if

he were the true owner thereof;

(2) The validity of any contract of sale under

statutory power of sale or under the order of a

court of competent jurisdiction;

(3) Purchases made in a merchant's store, or in

fairs, or markets, in accordance with the Code of

Commerce and special laws. (n)

General rule: Seller not the owner, no authority or

consent of the owner, even if there is delivery, buyer

will acquire no better title than the seller had.

Exemption: owner of the goods is precluded by his

conduct, applying the principle of estoppel.

However, you have there “Nothing in this Title shall

affect the provisions of any factor’s act…” we do not

have factor’s act here in the Philippines but you could

say that this is more or less similar to our laws in a

contract of agency. “The validity of any contract of

sale under statutory power of sale or under the order

of a court of competent jurisdiction”; and “purchases

made in a merchant's store, or in fairs, or markets, in

accordance with the Code of Commerce and special

laws.”

Take into consideration itong mga purchases made in

a merchant’s store, fairs or market. Yung Anti-Fencing

Law. You purchase goods na ninakaw. You can still

be liable even if you purchase it in a store. You also

take that into consideration and other provisions of

our law.

If a sale was made by a non-owner at the time of the

perfection, the sale is nevertheless valid because

ownership is necessary only at the time of delivery.

Title passes by operation of law to grantee when

person who is not the owner of the goods deliver it

and later he acquires title thereto. That is article 1434.

Why would it be important to say that the contract was

valid even if it was not made by the owner? Since it is

valid, action to annul is not proper because there is

already a perfected contract. You can ask for

damages due to breach or you can ask for rescission.

What about properties that are co-owned? In a

contract if sale of a co-owned property, what the

vendee obtains by virtue of such a sale is the same

rights as the vendor as the co-owner. The vendee

merely steps into the shoes of the vendor as co-

owner except from the intention of the purchase was

really the property itself and not just a spiritual share.

In co-ownership, not the specific portion over a

property but a spiritual or ideal share. Kung dalawa

kayong owners, 50% of the whole property, but not

one of the co-owners can say that this is my part.

They are co-owners.

What happens if a co-owner sells the whole parcel of

land? The sale would be considered valid as to the

interest of the co-owner. In the absence of the

consent of the other co-owner, yung walang consent,

hindi sya maapektohan sa sale. Except, the sale

would not be considered valid if it is the intention that

it is the property itself is the object and not just the

spiritual share of the co-owner who sold the property.

An agreement that purports a specific portion of an

unpartitioned co-owned property is not void. It shall

effectively transfer the ideal share in the co-

ownership.

Instances where ownership is transferred by act of

non-owner: estoppel on the part of the true owner,

applying 1505; recording laws or Torrens System (for

example, co-owners kayo, pero ang naka record na

owner under sa RoD isa lang. If in good faith, the

buyer relies on that, the co-owner cannot assert his

right with this in our Torrens System or recording

laws.); statutory power, order of courts, sale in

merchant’s stores, fairs and market, under 1505; and

“innocent purchaser for value” under 1506. When it

comes to movable, we have already discussed article

559, in good faith. And when you go to special

remedies of an unpaid seller you also have there the

right to resell the goods.

A co-owner who sells the whole property prior to

partition, sale of property itself is not void, but valid as

to the spiritual share of the one who sold the property.

If co-owner sells a definite portion, sale is void to

other co-owners but valid as to his spiritual share if

the buyer who have still bought the spiritual share had

he known that the definite portion would not be

acquired by him.

Sale of a seller with a voidable title. Voidable – valid

until annulled. What are the instances wherein you

have a voidable contract of sale? When there is

vitiation of consent or one of the parties is

incapacitated. We have here…

Article 1506. Where the seller of goods has a

voidable title thereto, but his title has not been

avoided at the time of the sale, the buyer acquires

a good title to the goods, provided he buys them

in good faith, for value, and without notice of the

seller's defect of title.

Properties were bought from an insane person or

even a minor, or were sold through vitiation of

consent of the vendor. It is voidable. The vendor can

have the contract annulled. What if the purchaser in a


voidable contract subsequently sells the same subject

property to a third person? What is the effect as to the

third person? The buyer who buys the goods subject

of a previously voidable contract would have a valid

title over the subject matter if he purchased the goods

in good faith, for value and without notice of the

seller’s defect of title.

Take note in 1506, you have the phrase there “at the

time of sale”. This should mean actually delivery. The

phrase means here, at the time of delivery because it

is delivery that transfers ownership. Title is not

required at the time of sale, so it must be read “at the

time of delivery”.

What is the effect? Juan sold to Pedro a property. It

appears, however, that Pedro has a voidable title

because Juan’s consent was vitiated. Pedro

subsequently sells that same property to Maria who

purchased it in good faith, for value and without notice

of Pedro’s defective title. Even if Pedro’s title is

annulled, if it was annulled after perfection, but before

delivery, then Maria will not obtain good title over the

thing because there is yet no delivery. But the

contract of sale is valid. So basis sya for an action, on

the part of Maria to go after Pedro.

What if the annulment took place after the perfection

and after the goods were delivered to Maria? This

time, Maria obtains good title over the thing as long as

the 3 requisites are present: she is an innocent

purchaser for value, being in good faith and without

notice of seller’s defect of title. An innocent purchaser

for value is one who buys property of another without

notice that some other person has a right to or

interest in such property, pays a full and fair price of

the same at the time of such purchase or before he

has notice of such claim or interest of some other

person or property.

TAGATAC VS JIMENEZ

FACTS: Trinidad Tagatac bought a car for $4,500 in

the US. After 7 months, she brought the car to the

Philippines. Warner Feist, who pretended to be a

wealthy man, offered to buy Trinidad’s car for

P15,000, and Tagatac was amenable to the idea.

Hnece, a deed of sale was exceuted.

Feist paid by means of a postdated check, and the

car was delivered to Feist. However, PNB refused to

honor the checks and told her that Feist had no

account in said bank.

Tagatac notified the law enforcement agencies of the

estafa committed by Feist, but the latter was not

apprehended and the car disappeared.

Meanwhile, Feist managed succeeded in having the

car’s registration certificate (RC) transferred in his

name. He sold the car to Sanchez, who was able to

transfer the registration certificate to his name.

Sanchez then offered to sell the car to defendant

Liberato Jimenez, who bought the car for P10,000

after investigating in the Motor Vehicles Office.

Tagatac discovered that the car was in California Car

Exchange’s (place where Jimenez displayed the car

for sale), so she demanded from the manager for the

delivery of the car, but the latter refused.

Tagatac filed a suit for the recovery of the car’s

possession, and the sheriff, pursuant to a warrant of

seizure that Tagatac obtained, seized and impounded

the car, but it was delivered back to Jimenez upon his

filing of a counter-bond.

The lower court held that Jimenez had the right of

ownership and possession over the car.

ISSUE: W/N Jimenez was a purchaser in good faith

and thus entitled to the ownership and possession of

the car. YES

HELD: It must be noted that Tagatac was not

unlawfully deprived of his car

In this case, there is a valid transmission of ownership

from true owner [Tagatac] to the swindler [Feist],

considering that they had a contract of sale (note: but

such sale is voidable for the fraud and deceit by

Feist).

The disputable presumption that a person found in

possession of a thing taken in the doing of a recent

wrongful act is the taker and the doer of the whole act

does NOT apply in this case because the car was not

stolen from Tagatac, and Jimenez came into

possession of the car two months after Feist swindled

Tagatac.

Jimenez was a purchaser in good faith for he was not

aware of any flaw invalidating the title from the seller

of the car.

In addition, when Jimenez acquired the car, he had

no knowledge of any flaw in the title of the person

from whom he acquired it. It was only later that he

became fully aware that there were some questions

regarding the car, when he filed a petition to dissolve

Tagatac’s search warrant which had as its subject the

car in question.

The contract between Feist and Tagactac was a

voidable contract, it can be annulled or ratified

. . . The fraud and deceit practiced by Warner L. Feist

earmarks this sale as a voidable contract (Article

1390). Being a voidable contract, it is susceptible of

either ratification or annulment. (If the contract is

ratified, the action to annul it is extinguished -Article

1392) and the contract is cleansed from all its defects

(Article 1396); if the contract is annulled, the

contracting parties are restored to their respective

situations before the contract and mutual restitution

follows as a consequence (Article 1398).

Being a voidable contract, it remains valid and binding

until annulled.

However, as long as no action is taken by the party

entitled, either that of annulment or of ratification, the

contract of sale remains valid and binding. When

plaintiff-appellant Trinidad C. Tagatac delivered the

car to Feist by virtue of said voidable contract of sale,

the title to the car passed to Feist. Of course, the title

that Feist acquired was defective and voidable.

Nevertheless, at the time he sold the car to Felix

Sanchez, his title thereto had not been avoided and

he therefore conferred a good title on the latter,

provided he bought the car in good faith, for value and

without notice of the defect in Feist's title (Article

1506, N.C.C.). There being no proof on record that

Felix Sanchez acted in bad faith, it is safe to assume


that he acted in good faith.

NB: ART. 1506. Where the seller of goods has a

voidable title thereto, but his title has not been

avoided at the time of the sale, the buyer acquires a

good title to the goods provided he buys them in good

faith, for value, and without notice of the seller’s

defect of title.

Were the 3 Contracts of sale here valid? Yes

Who has better right, Jiminez or Tagactac?

Can we not say here that the contract between

Tagactac and Feist voidable?

There was a valid transfer of ownership as Jimenez

here is deemed to be an innocent purchaser for value.

And even if there was valid transfer of ownership,

there was no action to have the title in favor of Feist

annulled because of the fraud allegedly employed to

him to Tagactac.

September 21, 2015

With regard to sale by non-owner, ownership is not required for the perfection of the sale. Ownership will be transferred to the vendee upon actual or constructive delivery, that’s under Art 1477.

Art. 1477. The ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof. (n)

Art. 1505. Subject to the provisions of this Title, where goods are sold by a person who is not the owner thereof, and who does not sell them under authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had, unless the owner of the goods is by his conduct precluded from denying the seller's authority to sell. Nothing in this Title, however, shall affect: (1) The provisions of any factors' act, recording laws, or any other provision of law enabling the apparent owner of goods to dispose of them as if he were the true owner thereof; (2) The validity of any contract of sale under statutory power of sale or under the order of a court of competent jurisdiction; (3) Purchases made in a merchant's store, or in fairs, or markets, in accordance with the Code of Commerce and special laws. (n)

Under Art 1505, it is clear that if goods are sold to the person who is not the owner and who does not sell them under the authority or consent of the owner, the buyer acquires no better title. The exception: applying the principle of estoppel, in which the owner is precluded from denying the seller’s authority to sell due to his conduct. However take note of the exceptions mentioned therein, ung “factor’s acts”, which is similar to our rule on agency. Also take note of the sale of a co-owned property. If not all of the co-owners would execute the sale, what the vendee obtains is the same right as the vendor has as a co-owner. Remember in a co-ownership,

ideal share lang siya diba? So it’s not as to a specific portion. An agreement that purports a specific portion of an unpartitioned co-owned property is not void. It shall effectively transfer only the seller’s ideal share in the co-ownership. If the co-owner sells a definite portion, the sale is void to other co-owners who did not give their consent but it shall be valid as to the spiritual share of the seller if the buyer would have still bought the spiritual share had it been known that the definite portion sold would not be acquired by him. So again, a sale not made by the owner at the perfection, you still have a perfected or valid COS. If there was a subsequent delivery, take note of Art 1505, that the buyer has no better title.

Art. 1434. When a person who is not the owner of a thing sells or alienates and delivers it, and later the seller or grantor acquires title thereto, such title passes by operation of law to the buyer or grantee.

Also take note Art 1434 by operation of law, the title passes. Wherein the seller, at the time of sale and delivery, had no title over the subject matter but subsequently he becomes owner thereof and the effect by the operation of law, the title passes to the purchaser. We also have Art 1506.

Art. 1506. Where the seller of goods has a voidable title thereto, but his title has not been avoided at the time of the sale, the buyer acquires a good title to the goods, provided he buys them in good faith, for value, and without notice of the seller's defect of title. (n)

When we say “voidable title”, we mean voidable in one of the parties or one of the parties is incapacitated or one of the parties’ consent is vitiated. So in this provision, take note of the requisites. The buyer buys in good faith and for value, and without notice of the seller’s defect of title. Now if you look at Art 1506, we have the phrase there “at the time of SALE”. Be very careful of that phrase because the actual meaning is “delivery”. The phrase should mean “at the time of the delivery of the subject matter”, since it is the fact of delivery which transfers ownership. So what if A and B entered into a COS? At the time of the COS, A has a voidable title. Why? Because A purchased it from a minor. Now if B does not know of the voidable title of A, and A’s title annulled AFTER THE PERFECTION BUT BEFORE THE DELIVERY, then B does not obtain good title over subject matter. Now it’s a different thing if the annulment took place after the sale was perfected and AFTER DELIVERY. Because in this instance, B would obtain good title over the thing AS LONG AS THE 3 REQUISITES FOR INNOCENT PURCHASER FOR VALUE ARE PRESENT. Requisites:

1. Purchases the good in good faith 2. For value 3. Without notice of the seller’s defect of title

Again, an innocent purchaser for value is one without notice that some other person has a right or interest to such property and pays a fair and full price for the same at the time of the purchase, or before he has


notice of the claim or interest of some other person in the property. So we’ve already discussed the case of Tagactac. Now we go to the case of Edca vs Santos.

EDCA PUBLISHING VS SPS. SANTOS G.R. No. 80298, April 26, 1990

FACTS: On October 5, 1981, a person identifying

himself as Prof. Jose Cruz ordered 406 books from EDCA Publishing. EDCA Subsequently prepared the corresponding invoice and delivered the books as ordered, for which Cruz issued a personal check covering the purchase price of said books. Subsequently on October 7, 1981, Cruz sold 120 of the books to Leonor Santos who, after verifying the seller’s ownership from the invoice he showed her, paid him P1,700. Upon verification by EDCA, it was discovered that Cruz was not employed as professor by De La Salle College and that he had no more account or deposit with Phil. Amanah Bank, the bank where he allegedly drawn the payment check. Upon arrest of Cruz by the police, it was revealed that his real name was Tomas dela Pena and that there was a further sale of 120 books to Sps. Santos. EDCA, through the assistance of the police forced their way into the store of Sps. Santos and threatened Leonor with prosecution for buying stolen property. The 120 books were seized and were later turned over to EDCA. This resulted to Sps. Santos filing a case for recovery of the books after their demand for the return of the books was rejected. ISSUE: W/N EDCA may retrieve the books from

Santos. NO (W/N EDCA has been unlawfully deprived of the books because the heck issued by Cruz in payment thereof was dishonored. NO.) HELD: EDCA argues that because Cruz, the impostor

acquired no title to the books, the latter could not have validly transferred such to Sps. Santos. Its reason is that as the payment check bounced for lack of funds, there was a failure of consideration that nullified the contract of sale between it and Cruz. However, upon perusal of the provisions on the Law on Sales, a contract of sale is consensual and is perfected once agreement is reached between the parties on the subject matter and the consideration. As provided in Art. 1478- Ownership in the thing sold shall not pass to the buyer until full payment of the purchase only if there is a stipulation to that effect.

Otherwise, the rule is that such ownership shall pass from the vendor to the vendee upon the actual or constructive delivery of the thing sold even if the purchase price has not yet been paid. Non-payment only creates a right to demand payment or to rescind the contract, or to criminal prosecution in the case of bouncing checks. But absent the stipulation above noted, delivery of the thing sold will effectively transfer ownership to the buyer who can in turn transfer it to another. Actual delivery of the books having been made, Cruz acquired ownership over the books which he could then validly transfer to the private respondents. The fact that he had not yet paid for them to EDCA was a matter between him and EDCA and did not impair the title acquired by the private respondents to the books.

Leonor Santos took care to ascertain first that the books belonged to Cruz before she agreed to purchase them. The EDCA invoice Cruz showed her assured her that the books had been paid for on delivery. By contrast, EDCA was less than cautious — in fact, too trusting in dealing with the impostor. Although it had never transacted with him before, it readily delivered the books he had ordered (by telephone) and as readily accepted his personal check in payment. It did not verify his identity although it was easy enough to do this. It did not wait to clear the check of this unknown drawer. Worse, it indicated in the sales invoice issued to him, by the printed terms thereon, that the books had been paid for on delivery, thereby vesting ownership in the buyer. Santos did not need to go beyond that invoice to satisfy herself that the books being offered for sale by Cruz actually belonged to him; yet she still did. Although the title of Cruz was presumed under Article 559 by his mere possession of the books, these being movable property, Leonor Santos nevertheless demanded more proof before deciding to buy them. NB: Law on Property Art. 559. The possession of movable property acquired in good faith is equivalent to a title. Nevertheless, one who has lost any movable or has been unlawfully deprived thereof may recover it from the person in possession of the same. If the possessor of a movable lost or of which the owner has been unlawfully deprived has acquired it in good faith at a public sale, the owner cannot obtain its return without reimbursing the price paid therefor.

Q: Can you say that there was a defect in the contract between Edca and Cruz? A: Yes. Edca is alleging here that since there was no consideration between the COS, since the check that was issued by Cruz in favor of Edca was dishonored due to lack of funds. Q: So what do we have here? An absence of consideration? A: No. Q: Was there a valid delivery? A: Yes. The fact that Edca delivered the books to Cruz and that the received the same, there was a valid transfer of ownership. Q: Can we say that Cruz has a voidable title over the goods? A: Yes, based on the fraud. Q: But what happened after the delivery of the books to Cruz? A: He sold the books to Santos, who was an innocent purchaser for value. And since Cruz has acquired ownership over the property, his subsequent sale and delivery also transferred ownership to Santos. So the issue here “W/N there a transfer of ownership” (YES) So what was the status of the contract? The first one was voidable and when the subsequent sale was entered into by Cruz and Santos, the first sale was not yet annulled, and it was duly proven that Santos was an innocent purchaser for value. So applying Art 1506, there was a valid transfer of ownership. Therefore between Edca and Santos, it was Santos who had the better right.

AZNAR vs YAPDIANGCO 13 SCRA 486

G.R. No. L-18536


March 31, 1965

Remember this case was discussed already before. Yung may nagbenta ng kanyang car tapos inutusan nya ang son nya na sumama dun sa gusting bumili then pumunta sila sa isang house tapos nung paglabas ng anak wala na yung kotse and yung pamangkin ng bibili. FACTS: Teodoro Santos was selling his FORD

FAIRLANE 500. One day, a certain L. De Dios, claiming to be a nephew of Vicente Marella, said that his uncle Vicente wants to buy the car. Marella agreed to buy the car for P14,700.00 on the understanding that the price would be paid only after the car had been registered in his name. The DOS for the car was executed in Marella's favor. Afterwhich, the car in was registered Marella's name. Up to this stage of the transaction, the purchased price had not been paid. Teodoro Santos gave the registration papers and a copy of the DOS to his son Irineo and instructed him not to part with them until Marella has given the full payment for the car. Irineo Santos and L. De Dios then proceeded to meet Marella and Ireneo demanded the payment. Marella said that the amount he had on hand then was short by some P2,000.00 and begged off to be allowed to secure the shortage from a sister supposedly living somewhere on Azcarraga Street, also in Manila. Thereafter, he ordered L. De Dios to go to the said sister and suggested that Irineo go with him. At the same time, he requested the registration papers and the DOS from Irineo on the pretext that he would like to show them to his lawyer. Trusting the good faith of Marella, Irineo handed over the same to the latter and thereupon, in the company of L. De Dios and another unidentified person, proceeded to the alleged house of Marella's sister. It was there that the car, L. De Dios and the unidentified companion disappeared. That very same day, Marella was able to sell the car in question Jose B. Aznar, for P15,000.00. Aznar claims ownership over the vehicle. Trial court awarded the vehicle to Santos. ISSUE: Between Santos and Aznar, who has a better

right to the possession of the disputed automobile? - SANTOS

HELD: Aznar accepts that the car in question

originally belonged to and was owned by Santos, and that the latter was unlawfully deprived of the same by Marella. However, Aznar contends that upon the facts of this case, the applicable provision of the CC is Article 1506 and not Article 559 as was held by the decision under review. Article 1506 provides:

ART. 1506. Where the seller of goods has a voidable title thereto, but his, title has not been voided at the time of the sale, the buyer acquires a good title to the goods, provided he buys them in good faith, for value, and without notice of the seller's defect of title.

The contention is clearly unmeritorious. Under the aforequoted provision, it is essential that the seller should have a voidable title at least. It is very clearly inapplicable where, as in this case, the seller had no title at all.

Ownership is not transferred by contract merely but by tradition or delivery. Contracts only constitute titles or rights to the transfer or acquisition of ownership, while delivery or tradition is the mode of

accomplishing the same. For the legal acquisition and transfer of ownership and other property rights, the thing transferred must be delivered, inasmuch as, according to settled jurisprudence, the tradition of the thing is a necessary and indispensable requisite in the acquisition of said ownership by virtue of contract. So long as property is not delivered, the ownership over it is not transferred by contract merely but by delivery. Contracts only constitute titles or rights to the transfer or acquisition of ownership, while delivery or tradition is the method of accomplishing the same, the title and the method of acquiring it being different in our law. Vicente Marella did not have any title to the property under litigation because the same was never delivered to him. He sought ownership or acquisition

of it by virtue of the contract. Vicente Marella could have acquired ownership or title to the subject matter thereof only by the delivery or tradition of the car to him. The lower court was correct in applying Article 559 of the CC to the case at bar, for under it, the rule is to the effect that if the owner has lost a thing, or if he has been unlawfully deprived of it, he has a right to recover it, not only from the finder, thief or robber, but also from third persons who may have acquired it in good faith from such finder, thief or robber. The said article establishes two exceptions to the general rule of IRREVINDICABILITY: when

the owner (1) has lost the thing, or (2) has been unlawfully deprived thereof. In these cases, the possessor cannot retain the thing as against the owner, who may recover it without paying any indemnity, except when the possessor acquired it in a public sale.

Q: So what is the difference between the case of Aznar and the case of Edca? A: In the case of Aznar, there was no delivery at all and therefore there was no ownership on the part of Marella. Q: So in the case of Aznar, was Aznar entitled to the car subject of the case? A: No. Applying Art 559, Santos was unlawfully deprived of the thing De Dios and Marella stole the car from him. So take note of the difference between these 2 cases. In Edca vs Santos, Cruz had a voidable title in the sense that the sale was valid and there was delivery of the subject matter and subsequently the books were sold to an innocent purchaser for value. In the case of Aznar vs Yapdiangco, you cannot apply Art 1506 because even if Aznar had no knowledge of the transaction between Santos and Marella, the fact is that there was no delivery on the part of Marella. She came into possession of the said car by stealing it. So walang delivery. Remember as we have emphasized before, delivery to transfer ownership must be with the intention to transfer ownership of the subject matter. In this case, it did not happen. What we have here is an unlawful deprivation. There was no valid transfer and Marella did not have any title to the car because the same was never delivered to her. The car in question was never delivered to the vendee by the vendor. It should be recalled that while there was a COS, Marella took possession of the subject matter while stealing the same while it was in custody of the son of Santos.


PART VI: LOSS, DETERIORATION, FRUITS and OTHER BENEFITS

Art. 1493. If at the time the contract of sale is perfected, the thing which is the object of the contract has been entirely lost, the contract shall be without any effect. But if the thing should have been lost in part only, the vendee may choose between withdrawing from the contract and demanding the remaining part, paying its price in proportion to the total sum agreed upon. (1460a)

Art. 1494. Where the parties purport a sale of specific goods, and the goods without the knowledge of the seller have perished in part or have wholly or in a material part so deteriorated in quality as to be substantially changed in character, the buyer may at his option treat the sale:

(1) As avoided; or

(2) As valid in all of the existing goods or in so much thereof as have not deteriorated, and as binding the buyer to pay the agreed price for the goods in which the ownership will pass, if the sale was divisible. (n)

CHRYSLER VS. CA

133 SCRA 567 G.R. No. 55684

December 19, 1984 FACTS: Petitioner Chrysler is a domestic corporation

engaged in the assembling and sale of motor vehicles and other automotive products. Respondent Sambok is a general partnership and was a dealer for automotive products. Chrysler filed with CFI a complaint for damages against Allied Brokerage Corp, Negros Navigation Co, and Sambok, alleging that: 1. On Oct 2, 1970, Sambok Bacolod ordered from

petitioner various automotive products worth P30,909.61 payable in 45 days,

2. That on Nov 25, 1970, Chrysler delivered said products to its forwarding agent Allied Brokerage for delivery to Sambok (Allied loaded the goods through vessel of Negros Nav),

3. That when Chrysler tried to collect from Sambok Bacolod the amount of P31,037.56 (price of spare parts plus handling charges), Sambok refused to pay, claiming that it had not received the merchandise,

4. That Chrysler also demanded the return of the merchandise or their value from Allied and Negros Navigation, but both denied any liability.

Sambok Bacolod denied having received the automotive products and professed no knowledge of having ordered from petitioner the said articles. Trial Court dismissed the complaint against Allied and Negros Navigation, but found Sambok liable for damages “in refusing to take delivery of the shipment for no justifiable reason. The decision was reversed

by CA after finding that Chrysler had not performed its part of the obligation under the contract by not delivering the goods at Sambok, Iloilo, the place designated in the Parts Order Form. In other words, CA found that there was misdelivery. ISSUE: W/N Sambok Bacolod should be liable for damages. NO

HELD: To our minds, the matter of misdelivery is not

the decisive factor for relieving Sambok, Bacolod, of liability herein. While it may be that the Parts Order Form specifically indicated Iloilo as the destination, as testified to by Ernesto Ordonez, Parts Sales Representative of petitioner, Sambok, Bacolod, and Sambok, Iloilo, are actually one. In fact, admittedly, the order for spare parts was made by the President of Sambok, Pepito Ng, through its marketing consultant.

Notwithstanding, upon receipt of the Bill of Lading, Sambok, Bacolod, initiated, but did not pursue, steps to take delivery as they were advised by Negros Navigation that because some parts were missing. They would just be informed as soon as the

missing parts were located. It was only four years later however, or in 1974, when a warehouseman of Negros Navigation, Severino Aguarte, found in their off-shore bodega, parts of the shipment in question, but already deteriorated and valueless.

Under the circumstances, Sambok, Bacolod, cannot be faulted for not accepting or refusing to accept the shipment from Negros Navigation four years after shipment. The evidence is clear that Negros

Navigation could not produce the merchandise nor ascertain its whereabouts at the time Sambok, Bacolod, was ready to take delivery. Where the seller delivers to the buyer a quantity of goods less than he contracted to sell, the buyer may reject them. From the evidentiary record, Negros Navigation was the party negligent in failing to deliver the complete shipment either to Sambok, Bacolod, or to Sambok, Iloilo, but as the Trial Court found, petitioner failed to comply with the conditions precedent to the filing of a judicial action. Thus, in the last analysis, it is petitioner that must shoulder the resulting loss. The general rule that before, delivery, the risk of loss is home by the seller who is still the owner, under the principle of "res perit domino", is applicable in petitioner's case.

In sum, the judgment of respondent Appellate Court, will have to be sustained not on the basis of misdelivery but on non-delivery since the merchandise was never placed in the control and possession of Sambok, Bacolod, the vendee.

Decision of CA affirmed.

Q: So there was no delivery here at all? Q: What is the effect of that non-delivery? Before a contract is perfected and the subject matter was lost or there was deterioration, the owner shall bear the loss or deterioration. Of course before perfection, it is also entitled to the fruits. If at the time of perfection, the goods were lost, then the seller would bear the loss because there has been no transfer of ownership. But what if the contract was already perfected but the goods were lost after the perfection but before the delivery? In this case, since there was still no delivery, the seller bears the loss. However with regard to deterioration, the buyer would bear the fruits. If there has been perfection and delivery and subsequently the subject matter is lost, it will now be the buyer who will suffer the loss as delivery extinguishes the ownership of the owner and creates a new one in favor of the buyer.


So you could recall here Art 1163, Art 1165, Art 1262, and Art 1480. You also take into consideration if there is fault on the part of the buyer. Because even if there has been no delivery but the buyer is at fault, like what we have discussed before, if the refusal to accept is not based on valid grounds, then any subsequent loss will be borne by the buyer.

LAWYER’S COOP VS TABORA FACTS: Perfecto Tabora bought from the Lawyers

Cooperative Publishing Company one complete set of American Jurisprudence consisting of 48 volumes with 1954 pocket parts, plus one set of American Jurisprudence, General Index, consisting of 4 volumes, for a total price of P1,675.50 which, in addition to the cost of freight of P6.90, makes a total of P1,682.40. Tabora made a partial payment of P300.00, leaving a balance of P1,382.40. The books were delivered and receipted by Tabora in his law office. In the midnight of the same date, however, a big fire broke out in that locality which destroyed and burned all the buildings standing on one whole block including at the law office and library of Tabora As a result, the books bought from the company as above stated, together with Tabora's important documents and papers, were burned during the conflagration. This unfortunate event was immediately reported by Tabora to the company by sending a letter. The company replied and as a token of goodwill it sent to Tabora free of charge volumes 75, 76, 77 and 78 of the Philippine Reports. As Tabora failed to pay monthly installments, the company commenced the present action for the recovery of the balance of the obligation. It was provided in the contract that "title to and ownership of the books shall remain with the seller until the purchase price shall have been fully paid. Loss or damage to the books after delivery to the buyer shall be borne by the buyer." The total price of the books, including the cost of freight, amounts to P1,682.40. Appellant only made a down payment of P300.00 thereby leaving a balance of P1,382.40. Defendant, in his answer, pleaded force majeure as a defense, saying that since the loss was due to force majeure he cannot be held responsible for the loss. ISSUE: WON Tabora is absolved from liability on the

ground of force majeure RULING: No. He is liable for the loss. It is true that

in the contract entered into between the parties the seller agreed that the ownership of the books shall remain with it until the purchase price shall have been fully paid, but such stipulation cannot make the seller liable in case of loss not only because such was agreed merely to secure the performance by the buyer of his obligation but in the very contract it was expressly agreed that the "loss or damage to the books after delivery to the buyer shall be borne by the buyer."

Article 1504 of our Civil Code, which in part provides: (1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance of the contract and the ownership in the goods has been retained by the seller merely

to secure performance by the buyer of his obligations under the contract, the goods are at the buyer's risk from the time of such delivery.

The rule that an obligor should be held exempt from liability when the loss occurs thru a fortuitous event should not apply because it only holds true when the obligation consists in the delivery of a determinate thing and there is no stipulation holding him liable even in case of fortuitous event. Here these qualifications are not present. The obligation does not refer to a determinate thing, but is pecuniary in nature, and the obligor bound himself to assume the loss after the delivery of the goods to him. In other words, the obligor agreed to assume any risk concerning the goods from the time of their delivery, which is an exception to the rule provided for in Article 1262 of our Civil Code.

Q: Why can we not apply the rule that loss of the thing due will extinguish the obligation? A: Because in the contract itself, it is stipulated that the buyer bears is still liable for the loss or damage of the goods. Q: But isn’t it that the loss was due to a fortuitous event? And we know that if there’s a loss due to a FE, the obligation is extinguished? A: The obligation is not to deliver a definite thing, but is pecuniary in nature. Q: What do you mean pecuniary in nature? Q: So loss of the thing due will extinguish the obligation will apply to obligations to deliver a determinate thing. What about in this case? A: It was an obli to deliver a generic thing—money. Again, remember the rule that loss of the object of the contract of sale is borne by the owner, or in case of a FE, the one under the obligation to deliver is exempt from liability. However the same could not be applied in the facts of the case because:

1. It is very clear that the title and ownership shall remain with the seller until the purchase price is fully paid. However there is a provision: loss or damage to the goods after delivery to the buyer shall be borne by the buyer. So it is very expressly stipulated. It is not contrary to law, morals, public policy, etc. so that is binding between the parties.

2. The obligation here on the part of Tabora was not to deliver a determinate thing and therefore his obligation was not extinguished due to a FE. The obligation here does not refer to a determinate thing but is pecuniary in nature. The obligation to pay money is an obligation to give or deliver a generic thing since money is a generic thing.

PART VII: REMEDIES IN CASE OF BREACH

Art. 1594. Actions for breach of the contract of sale of goods shall be governed particularly by the provisions of this Chapter, and as to matters not specifically provided for herein, by other applicable provisions of this Title. (n)

Art. 1595. Where, under a contract of sale, the ownership of the goods has passed to the buyer and he wrongfully neglects or refuses to pay for the goods according to the terms of the contract of sale, the seller may maintain an action against him for the price of the goods. Where, under a contract of sale, the price is payable on a certain day, irrespective of delivery


or of transfer of title and the buyer wrongfully neglects or refuses to pay such price, the seller may maintain an action for the price although the ownership in the goods has not passed. But it shall be a defense to such an action that the seller at any time before the judgment in such action has manifested an inability to perform the contract of sale on his part or an intention not to perform it. Although the ownership in the goods has not passed, if they cannot readily be resold for a reasonable price, and if the provisions of article 1596, fourth paragraph, are not applicable, the seller may offer to deliver the goods to the buyer, and, if the buyer refuses to receive them, may notify the buyer that the goods are thereafter held by the seller as bailee for the buyer. Thereafter the seller may treat the goods as the buyer's and may maintain an action for the price. (n)

In 1595, there is a breach on the part of the buyer due to failure to pay. What is the remedy available to the seller? He may maintain an action against the buyer for the price of the goods. Now if the parties have agreed that the price is payable on a certain day, irrespective of delivery or transfer of title, and again the buyer refuses or neglects to pay, so there is a breach on the part of the buyer. Then an action for the price can be maintained even if ownership has not yet passed because there is a stipulation that payment be made on a certain day. But again it shall be a defense on the part of the buyer that the seller, at any time, has manifested his inability to perform the contract of sale. So if the reason of the buyer in refusing to pay the price is due to the manifest inability of the seller to deliver the goods, then that is a valid defense. Again, this is based on the reciprocal nature of a COS.

Art. 1596. Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may maintain an action against him for damages for nonacceptance. The measure of damages is the estimated loss directly and naturally resulting in the ordinary course of events from the buyer's breach of contract. Where there is an available market for the goods in question, the measure of damages is, in the absence of special circumstances showing proximate damage of a different amount, the difference between the contract price and the market or current price at the time or times when the goods ought to have been accepted, or, if no time was fixed for acceptance, then at the time of the refusal to accept. If, while labor or expense of material amount is necessary on the part of the seller to enable him to fulfill his obligations under the contract of sale, the buyer repudiates the contract or notifies the seller to proceed no further therewith, the buyer shall be liable to the seller for labor performed or expenses made before receiving notice of the buyer's repudiation or countermand. The profit the seller would have made if the contract or the sale had been fully performed shall be considered in awarding the damages. (n)

Note: Failure to pay the price = action for the price of goods

Failure to accept and pay = damages for non-acceptance. So with regard to the 3

rd paragraph, if the seller can

resell the property to 3rd

persons and the difference to the price, if he was able to sell it at a lower price, with the original price entered into by the buyer, that is the amount of the damages. In the 4

th paragraph, we can see that in case there is

breach on the part of the buyer, like there is refusal to pay or even if there was refusal to pay despite delivery, or even if there was no delivery but the parties have stipulated on a date. We also discussed 1593 regarding movable property.

Art. 1593. With respect to movable property, the rescission of the sale shall of right take place in the interest of the vendor, if the vendee, upon the expiration of the period fixed for the delivery of the thing, should not have appeared to receive it, or, having appeared, he should not have tendered the price at the same time, unless a longer period has been stipulated for its payment. (1505)

Take note that we also discussed in Art 1593, with regard to movable properties, if it is sold and delivery is unaccepted, rescission is available without the need of judicial or notarial demand. And if delivery is accepted and the price is not paid, you can also file rescission under Art 1593, or you can file an action for the price + damages, wherein title is passed but the price is not paid. If the sale was repudiated by the buyer before delivery, the sale can be rescinded with damages. The basis of damages is Art 1596 (4). In inability to pay before delivery, rescission with damages can also be availed of. Before going over the special remedies, what if there is breach by the seller? What are the remedies available to the buyer? Recall Art 1590.

Art. 1590. Should the vendee be disturbed in the possession or ownership of the thing acquired, or should he have reasonable grounds to fear such disturbance, by a vindicatory action or a foreclosure of mortgage, he may suspend the payment of the price until the vendor has caused the disturbance or danger to cease, unless the latter gives security for the return of the price in a proper case, or it has been stipulated that, notwithstanding any such contingency, the vendee shall be bound to make the payment. A mere act of trespass shall not authorize the suspension of the payment of the price. (1502a)

Take note of the exception, if there was security or if there was a stipulation. If there was non delivery by the seller, you can also file an action for specific performance with damages. We also have the Condominium Act (PD 987) Wherein the developer cannot deliver (kasi naka-stipulate yan sa contract ung date ng delivery of the unit), what would happen if the developer fails to deliver the property, the payment CANNOT BE FORFEITED in favor of the developer because the fault here is on the part of the developer. In other words, the buyer can be entitled to a refund and the buyer can even compel the developer to complete the facilities. Take note, to consider whether the buyer or the seller committed breach, we have to familiarize ourselves as to the obligations of the seller. Also take note that


when the seller fails to deliver, the buyer may seek performance with the (???) seller, (with?) option to retain goods on payment of damages. Special Remedies of an Unpaid Seller

Remember the general rule: you cannot take the law into your own hands and therefore you must seek remedy through courts. However there are exceptions, one of which you have discussed before: Art 1429 The Doctrine of Self Help. The other one are the special remedies available to an unpaid seller. The unpaid seller can refer to these remedies even without going to court or without filing an action before the court. However before the seller can avail of these special remedies, the following requisites must be present:

1. The subject matter must refer to goods 2. The seller is unpaid. When we say that the

seller is unpaid, it does not apply to instances where the seller was totally unpaid. Even if there was partial payment, the seller can still be considered an unpaid seller

3. Physical possession of the goods is not yet with the buyer.

So what are the SPECIAL REMEDIES that we are talking about?

1. Possessory lien 2. Stoppage in transitu 3. Special right of resale 4. Special right to rescind

One thing you should take note of is that these special remedies are not alternative. THE UNPAID SELLER DOES NOT GET TO CHOOSE. It’s actually a (???) in the sense that you take into consideration the circumstances of the case because for each special remedy, there are requisites that must be present. Also with regard to the special right of resale or the special right to rescind, it is only when an active seller has exercised, either possessory lien or stoppage in transitu, can the seller proceed with the other special right of resale or to rescind. Again, #3 and #4 can only be used when either 1 or 2 has already been exercised.

Art. 1526. Subject to the provisions of this Title, notwithstanding that the ownership in the goods may have passed to the buyer, the unpaid seller of goods, as such, has: (1) A lien on the goods or right to retain them for the price while he is in possession of them; (2) In case of the insolvency of the buyer, a right of stopping the goods in transitu after he has parted with the possession of them; (3) A right of resale as limited by this Title; (4) A right to rescind the sale as likewise limited by this Title. Where the ownership in the goods has not passed to the buyer, the unpaid seller has, in addition to his other remedies a right of withholding delivery similar to and coextensive with his rights of lien

and stoppage in transitu where the ownership has passed to the buyer. (n)

Notwithstanding that ownership of the goods may have passed to the buyer. Why do we have this provision when I said earlier that one of the requisites is that physical possession must not be with the buyer? Because of constructive delivery. Because for example the general rule: delivery to the carrier is equivalent to delivery to the buyer. We have POSSESSORY LIEN. Art 1527-Art 1529

Art. 1527. Subject to the provisions of this Title, the unpaid seller of goods who is in possession of them is entitled to retain possession of them until payment or tender of the price in the following cases, namely: (1) Where the goods have been sold without any stipulation as to credit; (2) Where the goods have been sold on credit, but the term of credit has expired; (3) Where the buyer becomes insolvent. The seller may exercise his right of lien notwithstanding that he is in possession of the goods as agent or bailee for the buyer. (n)

Again in Art 1526, ownership may have been transferred to the buyer but the seller is still unpaid. With possessory lien, the seller may retain the goods for the price while the goods are still in his possession. Obviously this special remedy is not available anymore when the seller has lost custody of the subject matter. We’re talking about physical possession of the goods. So possessory lien can only be exercised when:

1. The goods were sold without any stipulation as to credit

2. Goods were sold on credit but term of credit has already expired

3. The buyer becomes insolvent If ANY of those 3 instances are present, the right to possessory lien can already be availed of. If there has been partial delivery of the physical possession of the goods to the buyer, possessory lien can still be exercised the over the remainder of the goods.

Art. 1528. Where an unpaid seller has made part delivery of the goods, he may exercise his right of lien on the remainder, unless such part delivery has been made under such circumstances as to show an intent to waive the lien or right of retention. (n)

When is possessory LOST:

Art. 1529. The unpaid seller of goods loses his lien thereon: (1) When he delivers the goods to a carrier or other bailee for the purpose of transmission to the buyer without reserving the ownership in the goods or the right to the possession thereof; (2) When the buyer or his agent lawfully obtains possession of the goods; (3) By waiver thereof. The unpaid seller of goods, having a lien thereon, does not lose his lien by reason only that he has


obtained judgment or decree for the price of the goods. (n)

Possessory lien is lost: (check 3 instances above)

4. When the seller parts with the goods. Take note that notice by the seller to the buyer that he exercised his possessory lien is not essential. Now if the seller has lost possession of the goods, there is still another remedy that may be available to him. STOPPAGE IN TRANSITU

Art. 1530. Subject to the provisions of this Title, when the buyer of goods is or becomes insolvent, the unpaid seller who has parted with the possession of the goods has the right of stopping them in transitu, that is to say, he may resume possession of the goods at any time while they are in transit, and he will then become entitled to the same rights in regard to the goods as he would have had if he had never parted with the possession. (n)

So stoppage in transit can be exercised if the seller is no longer in possession of the goods, and take note of this requirement: the buyer becomes insolvent. Required yan siya for stoppage in transitu. Sa possessory lien, notice that it is only one of the instances. Kasi even if the buyer is not insolvent, there are instances where possessory lien can still be exercised, such as when the goods were sold without any stipulation as to credit. So what happens in stoppage in transitu? The seller can stop the goods in transitu or assume possession at anytime while the goods are in transit, or in other words wala pang physical possession ang buyer. And then the seller will enjoy the same rights as if he had never parted possession of the thing. Of course you have to take into consideration when the goods are deemed to be in transit. We have Art 1351…

Art. 1531. Goods are in transit within the meaning of the preceding article: (1) From the time when they are delivered to a carrier by land, water, or air, or other bailee for the purpose of transmission to the buyer, until the buyer, or his agent in that behalf, takes delivery of them from such carrier or other bailee; (2) If the goods are rejected by the buyer, and the carrier or other bailee continues in possession of them, even if the seller has refused to receive them back. Goods are no longer in transit within the meaning of the preceding article: (1) If the buyer, or his agent in that behalf, obtains delivery of the goods before their arrival at the appointed destination; (2) If, after the arrival of the goods at the appointed destination, the carrier or other bailee acknowledges to the buyer or his agent that he holds the goods on his behalf and continues in possession of them as bailee for the buyer or his agent; and it is immaterial that further destination for the goods may have been indicated by the buyer;

(3) If the carrier or other bailee wrongfully refuses to deliver the goods to the buyer or his agent in that behalf. If the goods are delivered to a ship, freight train, truck, or airplane chartered by the buyer, it is a question depending on the circumstances of the particular case, whether they are in the possession of the carrier as such or as agent of the buyer. If part delivery of the goods has been made to the buyer, or his agent in that behalf, the remainder of the goods may be stopped in transitu, unless such part delivery has been under such circumstances as to show an agreement with the buyer to give up possession of the whole of the goods. (n)

How this right is exercised, this is under Art 1532

Art. 1532. The unpaid seller may exercise his right of stoppage in transitu either by obtaining actual possession of the goods or by giving notice of his claim to the carrier or other bailee in whose possession the goods are. Such notice may be given either to the person in actual possession of the goods or to his principal. In the latter case the notice, to be effectual, must be given at such time and under such circumstances that the principal, by the exercise of reasonable diligence, may prevent a delivery to the buyer. When notice of stoppage in transitu is given by the seller to the carrier, or other bailee in possession of the goods, he must redeliver the goods to, or according to the directions of, the seller. The expenses of such delivery must be borne by the seller. If, however, a negotiable document of title representing the goods has been issued by the carrier or other bailee, he shall not obliged to deliver or justified in delivering the goods to the seller unless such document is first surrendered for cancellation. (n)

Again notice by the seller to the buyer is not required but notice to the carrier is required to exercise the stoppage in transitu.

Art. 1535. Subject to the provisions of this Title, the unpaid seller's right of lien or stoppage in transitu is not affected by any sale, or other disposition of the goods which the buyer may have made, unless the seller has assented thereto. If, however, a negotiable document of title has been issued for goods, no seller's lien or right of stoppage in transitu shall defeat the right of any purchaser for value in good faith to whom such document has been negotiated, whether such negotiation be prior or subsequent to the notification to the carrier, or other bailee who issued such document, of the seller's claim to a lien or right of stoppage in transitu. (n)

If the buyer sells the thing without the consent of the seller while in transitu, pwede ba yan? The seller’s right of stoppage in transitu is not affected. In other words, the seller would still have a better right than the subsequent purchaser. Also, the right of stoppage does not defeat the title of an innocent purchaser for value who issued a negotiable instrument of title.


September 22, 2015

Art. 1594. xxx

Art. 1595. xxx

Art. 1596. xxx

Art. 1597. xxx

Also known as Technical recission

Art. 1526. xxx

Remedies are not alternative. There are requisites to be considered to avail of these remedies. When can Special right of resale or stoppage in transitu be availed of? Who can exercise? Unpaid Seller The possessory lien of the unpaid seller is

exerciseable only in the following instances: (a) Where the goods have been sold without

any stipulation as to credit; (b) Where the goods have been sold on credit,

but the term of credit has expired; (c) Where the buyer becomes insolvent.

The seller may exercise his right of lien notwithstanding that he is in possession of the goods as agent or bailee for the buyer. The unpaid seller’s right of lien is not affected by any sale, or other disposition of the goods which the buyer may have made, unless the seller assented thereto. The unpaid seller of goods loses his lien on the goods whenever:

(a) Seller delivers the goods to a carrier or other bailee for the purpose of transmission to buyer without reserving the ownership in the goods or the right to the possession thereof;

(b) The buyer or his agent lawfully obtains possession of the goods;

(c) By waiver thereof. However, the unpaid seller of goods, having a lien thereon, does not lose his lien by reason only that he has obtained judgment or decree for the price of the goods. As will be noted, the unpaid seller losses his possessory lien, when he parts with physical possession of the goods, as when he delivers the goods to the carrier. In that case, he still has the remedy of stoppage in transitu, but only if the buyer has in the meantime become insolvent.

STOPPAGE IN TRANSITU

Under Article 1530 of the Civil Code, when the buyer of goods is or becomes insolvent, the unpaid seller who has parted with the possession of the goods has the right of stopping them in transitu, that is to say, he may resume possession of the goods at any time while they are in transit, and he will then become entitled to the same rights in regard to the goods as he would have had if he had never parted with the possession. The unpaid seller’s right of stoppage in transitu is not affected by any sale or other disposition of the goods which the buyer may have made, unless the seller assented thereto. Take note Art. 1532, when is it considered in transit. How is this right exercised? Art. 1532.

Take note: notice to buyer is not required. What is required is notice to carrier. Take note Art 1535

SPECIAL RIGHT OF RESALE

Art. 1533. Where the goods are of perishable nature, or where the seller expressly reserves the right of resale in case the buyer should make default, or where the buyer has been in default in the payment of the price for an unreasonable time, an unpaid seller having a right of lien or having stopped the goods in transitu may resell the goods. He shall not thereafter be liable to the original buyer upon the contract of sale or for any profit made by such resale, but may recover from the buyer damages for any loss occasioned by the breach of the contract of sale. Where a resale is made, as authorized in this article, the buyer acquires a good title as against the original buyer. It is not essential to the validity of resale that notice of an intention to resell the goods be given by the seller to the original buyer. But where the right to resell is not based on the perishable nature of the goods or upon an express provision of the contract of sale, the giving or failure to give such notice shall be relevant in any issue involving the question whether the buyer had been in default for an unreasonable time before the resale was made. It is not essential to the validity of a resale that notice of the time and place of such resale should be given by the seller to the original buyer. The seller is bound to exercise reasonable care and judgment in making a resale, and subject to this requirement may make a resale either by public or private sale. He cannot, however, directly or indirectly buy the goods. (n)

Available only if Unpaid Seller has exercised Possessory lien or stoppage in transitu. Notice to buyer that he will now sell is not necessary. It is not essential to the validity of a resale that notice of an intention to resell the goods be given by the seller to the original buyer. But where the right to resell is not based on the perishable nature of the goods or upon an express provision of the sale, the giving or failure to give such notice shall be relevant in any issue involving the question whether the buyer had been in default for an unreasonable time before the resale was made. It is not essential to the validity of a resale that notice of the time and place of such resale should be given by the seller to the original buyer. The special right of resale can be made only when the unpaid seller has previously exercised either his right of possessory lien or stoppage in transitu, and under

any of the following conditions: (a) The goods are of perishable nature; (b) Where the seller has been expressly reserved in case the buyer should make default; or (c) Where the buyer has been in default in the payment of the price for an unreasonable time. Take note:

(a) and (b), notice is not essential but in (c), it is essential.

This is the special feature of the right of the unpaid seller to resell: not only is he able to destroy or obliterate the ownership over the goods in the original buyer, he is also able to transfer ownership to the subsequent buyer, even if at the time of tradition, he no longer had ownership over the goods. Ordinarily, the destruction or taking away of ownership in one person and placing it in another person in such


manner can only be done through court action. But in the case of an unpaid seller, he can effect these, even without judicial action. Liability of Buyer? Pay difference if sold at lower price. Plus damages. Ex: Price is @ P1000, S was able to sell it at only P800. B will have to pay S the difference of P200 plus damages. What if sold for a profit? Kay seller na lahat. Ex: Sold @ P1200. S need not give the P200 to B. S will keep it, additional profit nya. Plus S can still recover damages.

SPECIAL RIGHT TO RESCIND

Art. 1534. An unpaid seller having the right of lien or having stopped the goods in transitu, may rescind the transfer of title and resume the ownership in the goods, where he expressly reserved the right to do so in case the buyer should make default, or where the buyer has been in default in the payment of the price for an unreasonable time. The seller shall not thereafter be liable to the buyer upon the contract of sale, but may recover from the buyer damages for any loss occasioned by the breach of the contract. The transfer of title shall not be held to have been rescinded by an unpaid seller until he has manifested by notice to the buyer or by some other overt act an intention to rescind. It is not necessary that such overt act should be communicated to the buyer, but the giving or failure to give notice to the buyer of the intention to rescind shall be relevant in any issue involving the question whether the buyer had been in default for an unreasonable time before the right of rescission was asserted. (n)

An unpaid seller having the right of lien or having stopped the goods in transitu, may rescind the transfer of title and resume the ownership in the goods, where: (a) The seller has expressly reserved the right to do so in case the buyer should make default; or (b) The buyer has been in default in the payment of the price for an unreasonable time. Can you rescind the sale by the mere fact that the goods are perishable? (take note, you can resell perishable goods) No. 2 instances lang. but these two instances, pwede rin to sa resell. But MERE FACT THAT GOODS ar perishable, hindi pwede irescind. Dapat meron either ang dalawang instances. Perishable PLUS (a) or (b) Why is it a special remedy? Same, no need for court action. Notice appears seems like necessary here, noh. “The transfer of title shall not be held to have been rescinded by an unpaid seller until he has manifested by notice to the buyer or by some other overt act an intention to rescind.” But take note: “the giving or failure to give notice to the buyer of the intention to rescind shall be relevant in any issue involving the question whether the buyer had been in default for an unreasonable time before the right of rescission was asserted.”

C. REMEDIES OF BUYER

Art. 1590. Should the vendee be disturbed in the possession or ownership of the thing acquired, or should he have reasonable grounds to fear such disturbance, by a vindicatory action or a foreclosure of

mortgage, he may suspend the payment of the price until the vendor has caused the disturbance or danger to cease, unless the latter gives security for the return of the price in a proper case, or it has been stipulated that, notwithstanding any such contingency, the vendee shall be bound to make the payment. A mere act of trespass shall not authorize the suspension of the payment of the price. (1502a)

CONDOMINUIM ACT

Art. 1598. Where the seller has broken a contract to deliver specific or ascertained goods, a court may, on the application of the buyer, direct that the contract shall be performed specifically, without giving the seller the option of retaining the goods on payment of damages. The judgment or decree may be unconditional, or upon such terms and conditions as to damages, payment of the price and otherwise, as the court may deem just. (n)

Art. 1599. Where there is a breach of warranty by the seller, the buyer may, at his election: (1) Accept or keep the goods and set up against the seller, the breach of warranty by way of recoupment in diminution or extinction of the price; (2) Accept or keep the goods and maintain an action against the seller for damages for the breach of warranty; (3) Refuse to accept the goods, and maintain an action against the seller for damages for the breach of warranty; (4) Rescind the contract of sale and refuse to receive the goods or if the goods have already been received, return them or offer to return them to the seller and recover the price or any part thereof which has been paid. When the buyer has claimed and been granted a remedy in anyone of these ways, no other remedy can thereafter be granted, without prejudice to the provisions of the second paragraph of Article 1191. Where the goods have been delivered to the buyer, he cannot rescind the sale if he knew of the breach of warranty when he accepted the goods without protest, or if he fails to notify the seller within a reasonable time of the election to rescind, or if he fails to return or to offer to return the goods to the seller in substantially as good condition as they were in at the time the ownership was transferred to the buyer. But if deterioration or injury of the goods is due to the breach or warranty, such deterioration or injury shall not prevent the buyer from returning or offering to return the goods to the seller and rescinding the sale. Where the buyer is entitled to rescind the sale and elects to do so, he shall cease to be liable for the price upon returning or offering to return the goods. If the price or any part thereof has already been paid, the seller shall be liable to repay so much thereof as has been paid, concurrently with the return of the goods, or immediately after an offer to return the goods in exchange for repayment of the price. Where the buyer is entitled to rescind the sale and elects to do so, if the seller refuses to accept an offer of the buyer to return the goods, the buyer shall thereafter be deemed to hold the goods as bailee for the seller, but subject to a lien to secure payment of any portion of the price which has been paid, and with the remedies for the enforcement of such lien allowed to an unpaid seller by Article 1526. (5) In the case of breach of warranty of quality, such loss, in the absence of special circumstances showing proximate damage of a greater amount, is the difference between the value of the goods at the time of delivery to the buyer and the value they would have had if they had answered to the warranty. (n)


RECTO LAW

Art. 1484. In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise any of the following remedies: (1) Exact fulfillment of the obligation, should the vendee fail to pay; (2) Cancel the sale, should the vendee's failure to pay cover two or more installments; (3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee's failure to pay cover two or more installments. In this case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void. (1454-A-a)

This is specific. Sale of PERSONAL Property in INSTALLMENT. What’s the remedy?

1. Exact fulfilment or specific performance 2. Cancel if there’s failure to pay 2 installments 3. Foreclose the chattel mortgage, you can’t

recover na for deficiency Take note these remedies are alternative noh, based on the premise that no one shall enrich himself at the expense of others.

The remedies cannot also be pursued simultaneously, as when a complaint is fi led to exact fulfillment of the obligation, to seize the property purchased and to foreclose the mortgage executed thereof. HOWEVER there’s an exception: If the seller chooses specific performance, and later it becomes impossible, he can exercise the second remedy.

What’s the purpose of Art 1484? The passage of the Recto Law was meant to remedy the abuses committed in connection with the foreclosure of chattel mortgages and to prevent mortgagees from seizing the mortgaged property, buying it at foreclosure sale for a low price and then bringing suit against the mortgagor for a defi ciency judgment. The invariable result of such a procedure was that the mortgagor found himself minus the property and still owing practically the full amount of his original indebtedness. The Recto Law “aims to correct a social and economic evil, the inordinate love for luxury of those who, without sufficient means, purchase personal effects, and the ruinous practice of some commercial houses of purchasing back the goods sold for a nominal price besides keeping a part of the price already paid and collecting the balance, with stipulated interest, cost and attorney’s fees. ... And although, of course, the purchaser must suffer the consequences of his imprudence and lack of foresight, the chastisement must not be to the extent of ruining him completely and, on the other hand, enriching the vendor in a manner which shocks the conscience. The object of the law is highly commendable. Also in Levy v Gervacio the Court held that the Recto Law “is aimed at those sales where the price is payable in several installments, for, generally, it is in these cases that partial payments consists in relatively small amounts, constituting thus a great temptation for improvident purchasers to buy beyond their means. There is no such temptation where the price is to be paid in cash, or, as in the instant case, partly in cash and partly in one term, for, in the latter case, the partial payments are not so small as to place purchasers off their guard and delude them to a miscalculation of their ability to pay.”

When Is Sale “on Installments?”

LEVY VS. GERVACIO

FACTS: Levy Hermanos, Inc., sold to defendant

Lazaro Blas Gervacio, a Packard car. Defendant, after making the initial payment, executed a promissory note for the balance of P2,400, payable on or before June 15, 1937, with interest at 12 % per annum, to secure the payment of the note, he mortgaged the car to the plaintiff.

Defendant failed to pay the note it its maturity. Thus, Levy foreclosed the mortgage and the car was sold at public auction, at which plaintiff was the highest bidder for P1,800. The present action is for the collection of the balance of P1,600 and interest. ISSUE: WON plaintiff still may collect the balance and

interest after it has already foreclosed the mortgage and sold it at public auction RULING: Yes it can still collect the balance.

Article 1454-A of the Civil Code reads as follows: In a contract for the sale of personal property payable in installments shall confer upon the vendor the right to cancel the sale or foreclose the mortgage if one has been given on the property, without reimbursement to the purchaser of the installments already paid, if there be an agreement to this effect. However, if the vendor has chosen to foreclose the mortgage he shall have no further action against the purchaser for the recovery of any unpaid balance owing by the same and any agreement to the contrary shall be null and void. In Macondray and Co. vs. De Santos, the Court held that "in order to apply the provisions of article 1454-A of the Civil Code it must appear that there was a contract for the sale of personal property payable in installments and that there has been a failure to pay two or more installments." The

contract, in the instant case, while a sale of personal property, is not, however, one on installments, but on straight term, in which the balance, after payment of the initial sum, should be paid in its totality at the time specified in the promissory note. The transaction is not, therefore, the one contemplated in Act No. 4122 and accordingly the mortgagee is not bound by the prohibition therein contained as to the right to the recovery of the unpaid balance. The suggestion that the cash payment made in this case should be considered as an installment in order to bring the contract sued upon under the operation of the law, is completely untenable. A cash payment cannot be considered as a payment by installment, and even if it can be so considered, still the law does not apply, for it requires non-payment of two or more installments in order that its provisions may be invoked. Here, only one installment was unpaid.

Sale of Personal property? Yes. Why Recto law not applicable? Manner of payment noh. Not instalment. The seller sold a car whereby the buyer paid an initial payment, and issued a promissory note for the balance payable on or before a specified date, with stipulated interest. When the buyer failed to pay the note at its maturity, the seller foreclosed the mortgage constituted on the car and sold the same at public auction, which resulted into a deficiency judgment. When the action was brought to collect on the deficiency, the buyer sought the application of the provisions of the then Article 1454-A of the old Civil Code, and held that the seller could no longer collect on the balance unpaid.


The Court held that the provisions of the Recto Law cannot apply to a sale where there is an initial payment, and the balance payable in the future, because the same is not a sale on installment but actually a “straight sale.” Since such a sale is not covered by the Recto Law, the barring effects of the law cannot be made to apply, and the seller may recover the unpaid balance of the purchase price against the buyer even when the latter shall have lost by foreclosure the subject matter of the sale. The Court held that when there is only one payment to be paid in the future, there is no basis to apply the Recto Law, since under the language of then Article 1454-A, the buyer needs to have defaulted in the payment of two or more installments to allow the seller to rescind or foreclose on the chattel mortgage.

DELTA MOTOR SALES CORP. v NIU KIM DUAN

FACTS: Niu Kim Duan purchased from Delta Motors

3 air conditioning units. Niu paid the down payment, the balance payable in 24 instalments. Title to the property remained with Delta until the payment of the full purchase price. Under the agreement, failure to pay 2monthly instalments makes the obligation entirely due and demandable. The units were delivered, Niu failed to pay. Thus, Delta filed a complaint for Replevin and applied the installments paid by Niu as rentals. Niu contends that the contractual stipulations are unconscionable. ISSUE: W/N the remedy Delta availed of was

unconscionable HELD: NO. A stipulation in the contract treating

installments as rentals in case of failure to pay is VALID — so long as they are not unconscionable. The provision in this case is reasonable. An unpaid seller has 3 alternative (not cumulative) remedies: (1) to exact fulfilment of the obligation; (2) to cancel the sale for default in 2 installments; and (3) to foreclose the chattel mortgage. If the creditor chooses one remedy, he cannot avail himself of the other two. It is not disputed that the plaintiff-appellee had taken possession of the three air-conditioners, through a writ of replevin when defendants-appellants refused to extra-judicially surrender the same. This was done pursuant to paragraphs 5 and 7 of its Deed of Conditional Sale when defendants-appellants failed to pay at least two (2) monthly installments, so much so that as of January 6, 1977, the total amount they owed plaintiff-appellee, inclusive of interest, was P12,920.08. 12 The case plaintiff-appellee filed was to seek a judicial declaration that it had validly rescinded the Deed of Conditional Sale. Clearly, plaintiff-appellee chose the second remedy of Article 1484 in seeking enforcement of its contract with defendants-appellants. This is shown from the fact that the computation of the outstanding account of defendants-appellants as of October 3, 1977 took into account "the value of the units repossessed." Having done so, it is barred from exacting payment

from defendants-appellants of the balance of the price of the three air-conditioning units which it had already repossessed.

This is a contract to sell, can Art 1484 be applied? Yes. With regard to the amount paid, ibalik pa? No. applied as rental, not obliged to return. Is this allowed? Yes, kasi nagamit na rin nila ang aircon for 22 mos. Basis? Art. 1486. How about the balance? They can’t recover. Why? Essence of cancellation, diba ibalik - restitution, so bakit ka pa magcollect, ibinalik na ang aircon. What’s the remedy availed of? Cancellation. Supreme Court said “You can’t have your cake and eat it too,” but if you have your cake, eat it. ‘Di ba? Bakit di pwedeng kainin?

The Court recognized that “[a] stipulation in a contract that the instalments paid shall not be returned to the vendee is valid insofar as the same may not be unconscionable under the circumstances,” The Court took pains to show that the treatment of the forfeited installments as rental is more than justified by the retention and use of the air-conditioning units by the buyer for 22 months. The present version of the Recto Law under Article 1484 only provides for a barring on recovery of balance only when it comes to the remedy of foreclosure. In this case “the third option or remedy, however, is subject to the limitation that the vendor cannot recover any unpaid balance of the price and any agreement to the contrary is void,” implying no such barring effect to the remedy of rescission. Nevertheless, it recognized that when the seller takes possession of the subject property in rescission of the sale, the seller is barred from recovering the balance of the price. Although no barring effect is expressly provided for the remedy of rescission under the present language of Article 1484 of the Civil Code, the same is implicit from the nature of the remedy of rescission, which requires mutual restitution. Under Article 1385 of the Civil Code, even a non-defaulting party cannot seek rescission unless he is in a position to return what he has received under the contract. In other words, when the unpaid seller shall have chosen the remedy of rescission, then generally he cannot seek further action on the purchase price against the buyer, and in fact, where there is no stipulation to the contrary, the seller is even obliged to return any portion of the purchase price he received from the buyer, although he can recover damages. The general rule is that the seller is deemed to have chosen the remedy of rescission, and can no longer avail of the other two (2) remedies under Article 1484, when he has clearly indicated to end the contract, such as when he sends a notice of rescission, or takes possession of the subject matter of the sale, or when he files an action for rescission.

TAJANLANGIT v SOUTHERN MOTORS

FACTS: Tajanlangit bought 2 tractors and a thresher

from Southern Motors. They executed a promissory note in payment thereof; it contained an acceleration clause. Tajanlang it failed to pay any of the stipulated installments. Thus, Southern Motors sued him on the PN. The sheriff levied upon the properties of Tajanlangit (same machineries) and sold them at a public auction to satisfy the debt. Southern Motors now prayed for execution. Tajanlangit sought to annul the writ of execution — claiming that since Southern Motors repossessed the machineries (mortgaged), he


was therefore relieved from liability on the balance of the purchase price. ISSUE: W/N Tajanlangit is relieved from his obligation

to pay HELD: NO. While it is true that the foreclosure on the

chattel mortgage on the thing sold bars further action for the recovery of the balance of the purchase price, this does not apply in this case since Southern did not foreclose on the mortgage but instead sued based on the PNs exclusively. That being the case, it is not limited to the proceeds of the sale on execution of the mortgaged goods and may claim the balance from Tajanlangit.

Remedy here is exacting payment. Nalevy ang property ng spouses including the tractors. But take note, this is not foreclosure sale but rather an execution sale. Do not confuse the two. Art. 1484 refers to foreclosure sale. Why is this important, kasi if foreclosure and highest bid is not enough to cover the price, seller can no longer sue for the balance. But here, they can still recover because execution sale eh. Court held that although the subject matter of the sale on installment was mortgaged to secure the note issued to the seller for the balance of the purchase price, where the seller actually chose to collect on the note and did not seek foreclosure of the mortgage, and although the execution of the judgment resulted in the levy on execution and eventual sale at public auction of the very subject matter of the sale, nevertheless, the barring effect of foreclosure cannot be applied, and the seller had every right to recover on the unpaid balance of the purchase price from the buyer. The Court held: “[The seller] had a right to select among the three remedies established in Article 1484. In choosing to sue on the note, it was not thereby limited to the proceeds of the sale, on execution, of the mortgaged good.”

ELISCO TOOL MANUFACTURING vs. COURT OF APPEALS, ROLANDO AND RINA LANTAN

G.R. No. 109966 May 31, 1999

FACTS: Private respondent Rolando Lantan was

employed at the Elisco Tool Mfg. Corp. On Jan. 1980, he entered into a car plan with the company, which constitutes a lease with option to buy for a period of 5 years. The agreement provides that Lantan shall pay a monthly rental of P 1010.65 to be deducted from his salary or a total of P60, 639.00 at the end of 5 years. The agreement provides that at the 60th month of payment he may exercise his option to buy and all monthly rentals shall be applied to the payment of the full purchase price of the car. In 1981 Elisco Tool ceased operations, and Rolando Lantan was laid off. Nonetheless, as of December 4, 1984, private respondent was able to make payments for the car in the total amount of P61, 070.94. On 1986 Elisco filed a complaint for replevin plus sum of money against Rolando Lantan for the latter‘s alleged failure to pay the monthly rentals as of May 1986. Elisco prayed for the following: 1. The payment of Lantan of the sum of the monthly rentals due as of May 1986 plus legal interest; 2. The issuance of writ of replevin to gain possession of the car; and 3. On the alternative, should the delivery of the car not be possible, that Lantan be ordered to pay the actual value of the car in the amount of 60,000 plus the accrued monthly rentals thereof with interest until

fully paid. Both the trial court and the CA decided in

favor of Lantan, declaring the latter the lawful owner of the car and sentencing Elisco to pay for actual damages caused to the private respondents, thus this petition. ISSUE: WON the lease with option to buy is in reality

an installment sale so as to apply the Recto Law under Art. 1484. WON Elisco is entitled to any of the remedies under Art. 1484. HELD:

1. Yes. The agreement between Elisco and the Lantans is in reality an installment sale of personal property. However, the remedies under Article 1484 are alternative, not cumulative. 2. No. There was already full payment. In the case at bar, although the agreement provides for the payment of monthly rentals, it also provides the option to purchase upon the payment of the 60th monthly rental and that all monthly rentals shall be applied to the payment of the full purchase price of the car. Clearly the transaction is a lease in name only and so Articles 1484 and 1485 apply. It is noteworthy that the remedies provided for in Art. 1484 are alternative, not cumulative. The exercise of one bars the exercise of the others. It was held that in choosing to deprive the defendant of possession of the leased vehicles, the plaintiff waived its right to bring an action to recover unpaid rentals on the said vehicles. Furthermore, both the trial court and the CA correctly ruled that Elisco is not entitled to any of the remedies under Art. 1484 as there has already been full payment. The agreement does not provide for the payment of interest on unpaid monthly "rentals" or installments. The 2% surcharge is not provided for in the agreement. Consequently, the total amount of P 61, 070.94 already paid is more than sufficient to cover the full purchase price of the car which only amounts to P 60, 639.

Is Recto Law applicable? Yes Art 1485 What was the remedy availed of? Specific performance This is a contract of lease. But still Art 1484 is applicable pursuant to 1485. Replevin is only for the purpose of ensuring specific performance. Court held that under a purported contract of lease with option to purchase which is covered under Articles 1484 and 1485, the condition that the lessor has deprived the lessee of possession or enjoyment of the thing for the purpose of applying Article 1485 which would be fulfi lled by the fi ling by the lessor of a complaint for replevin to recover possession of movable property and its enforcement by the sheriff, and barred all action to recover any amount from the lessee. However, the Court also held that if the main purpose for seeking recovery of the personal property under a writ of replevin was merely to ensure enforcement of the remedy of specifi c performance under Article 1484(1), there would be no barring effect by reason of the enforcement of the writ. Therefore, not every deprivation of possession would result in producing the barring effect under Article 1485 of the Civil Code.


Attendance: Glemarie? Wala? She has been absent for the last three meetings. (Glem! Sulod pud maski once a week lang. ehehe) September 28, 2015

Okay so we are already done with the Recto Law, under Art 1484. And in relation thereto we also have Art 1385 and 1386. Under the Recto Law, we have there the 3 alternative remedies, applicable to the contracts of sale of personal property in installments. E. Remedies in Case of Immovables

So how about remedies in the case of immovables? So we have already made mentioned of some remedies. Recall Art 1591:

Art. 1591. Should the vendor have reasonable grounds to fear the loss of immovable property sold and its price, he may immediately sue for the rescission of the sale. Should such ground not exist, the provisions of Article 1191 shall be observed. (1503)

We have discussed that under the said article, where there is anticipatory breach, if the seller has reasonable grounds to fear the loss of the immovable property sold and its price, he may immediately sue for the rescission of the sale. (1) And then, for non-payment of the price of the buyer, we also have under Art 1191, the power to rescind. (2)

Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law. (1124)

Now in case of real properties, remedies available to the buyer, we have also discussed under the Condominium Act, the buyer may suspend payment if the real estate developer fails to comply with the obligations according to the approved plan, or the buyer may even demand for rescission. (3)

In Case of Subdivision or Condominium Projects (*BOOK): Sections 23 and 24 of Pres. Decree 957, provide that no installment payments made by the buyer in a subdivision or condominium project for the lot or unit he contracts to buy shall be forfeited in favor of the owner or developer when the buyer, after due notice to the owner or developer desists from further payment due to the failure of the owner or developer to develop the subdivision or condominium project according to the approved plans and within the time limit for complying with the same. The sections also grant

to the buyer the option to be reimbursed the total amount paid.

Notice Required under Section 23 of P.D. 957: Section 23 of Pres. Decree 957 does not require that a notice be given first by the buyer to the seller before a demand for refund can be made as the notice and demand can be made in the same letter or communication.

And then we also have the remedy provided in Art 1592. (4)

Art. 1592. In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act. After the demand, the court may not grant him a new term. (1504a)

Remember, 1592, the requirement for rescission, demand for a notarial act or a judicial act but it is solely applicable to a contract of sale and not to a contract to sell. F. Sale of Real Estate on Installments- RA 6552

Now if we have the Recto Law, for sale of personal properties in installment, then we also have the Maceda Law for sale of real estate properties in installment. So the Maceda Law is RA 6552.

REPUBLIC ACT No. 6552 AN ACT TO PROVIDE PROTECTION TO BUYERS

OF REAL ESTATE ON INSTALLMENT PAYMENTS. (Rep. Act No. 6552)

Section 1. This Act shall be known as the "Realty Installment Buyer Act." Section 2. It is hereby declared a public policy to protect buyers of real estate on installment payments against onerous and oppressive conditions. Section 3. In all transactions or contracts involving the sale or financing of real estate on installment payments, including residential condominium apartments but excluding industrial lots, commercial buildings and sales to tenants under Republic Act Numbered Thirty-eight hundred forty-four, as amended by Republic Act Numbered Sixty-three hundred eighty-nine, where the buyer has paid at least two years of installments, the buyer is entitled to the following rights in case he defaults in the payment of succeeding installments: (a) To pay, without additional interest, the unpaid installments due within the total grace period earned by him which is hereby fixed at the rate of one month grace period for every one year of installment payments made: Provided, That this right shall be exercised by the buyer only once in every five years of the life of the contract and its extensions, if any. (b) If the contract is canceled, the seller shall refund to the buyer the cash surrender value of the payments on the property equivalent to fifty per cent of the total payments made, and, after five years of installments, an additional five per cent every year but not to exceed ninety per cent


of the total payments made: Provided, That the actual cancellation of the contract shall take place after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer. Down payments, deposits or options on the contract shall be included in the computation of the total number of installment payments made. Section 4. In case where less than two years of installments were paid, the seller shall give the buyer a grace period of not less than sixty days from the date the installment became due. If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel the contract after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act. Section 5. Under Section 3 and 4, the buyer shall have the right to sell his rights or assign the same to another person or to reinstate the contract by updating the account during the grace period and before actual cancellation of the contract. The deed of sale or assignment shall be done by notarial act. Section 6. The buyer shall have the right to pay in advance any installment or the full unpaid balance of the purchase price any time without interest and to have such full payment of the purchase price annotated in the certificate of title covering the property. Section 7. Any stipulation in any contract hereafter entered into contrary to the provisions of Sections 3, 4, 5 and 6, shall be null and void. Section 8. If any provision of this Act is held invalid or unconstitutional, no other provision shall be affected thereby. Section 9. This Act shall take effect upon its approval. Approved: August 26, 1972.

Under sec 2 thereof you have the purpose: for public policy, to protect the buyers of real estate in installment payments against onerous and oppressive conditions. So it is known as The Sale Of Real Estate On Installment or also known as the Realty Installment Buyer Act. We have the case of Valarao.

ABELARDO VALARAO, GLORIOSA VALARAO, CARLOS VALARAO vs. COURT OF APPEALS

AND MEDEN ARELLANO G.R. No. 130347 March 3, 1999

FACTS: Spouses Valarao, thru their son, Carlos, sold to Arellano a parcel of land situated in Diliman, Quezon City for the sum of 3.225 M embodied under a Deed of Conditional Sale. It was further stipulated upon that should Arellano fail to pay three (3) successive monthly installments or any one year-end lump sum payment within the period stipulated, the sale shall be considered automatically rescinded without the necessity of judicial action and all payments made by Arellano shall be forfeited in favor of the spouses by way of rental for the use and occupancy of the property and as liquidated damages. All improvements introduced by Arellano to the property shall belong to the spouses without any right of reimbursement.

Arellano alleged that as of September 1990 he was already able to pay the sum of 2.028 M although she admitted that she failed to pay for the installments due in October and November 1990. Arellano tried to pay but was turned down by the spouses thru their maid. Arellano avers that the same maid was the on who received payments tendered by her. It appears that the maid refused to receive the payment allegedly on orders of her employees who were not at home. This prompted Arellano to seek the help of barangay officials. Efforts to settle before the barangay was unavailing, as the spouses never appeared in meetings. Arellano sought judicial action by filing a petition for consignation on January 4, 1991. Spouses Valarao, thru counsel, sent Arellano a letter dated 4 January 1991 notifying her that they were enforcing the provision on automatic rescission as a consequence of which the Deed of Conditional Sale was deemed null and void, and xxx all payments made, as well as the improvements introduced on the property, were thereby forfeited. The letter also made a formal demand on Arellano to vacate the property should she not heed the demand of the spouses to sign a contract of lease for her continued stay in the property. The RTC ruled against Arellano but the Court of Appeals reversed the decision of the trial court hence this petition. ISSUE: 1. WON the automatic forfeiture clause is enforceable. 2. WON RA 6552 is applicable. HELD: 1. Yes. As a general rule, a contract is the law between the parties. Thus, "from the moment the contract is perfected, the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all consequences which, according to their nature, may be in keeping with good faith, usage and law." Also, "the stipulations of the contract being the law between the parties, courts have no alternative but to enforce them as they were agreed [upon] and written, there being no law or public policy against the stipulated forfeiture of payments already made." However, it must be shown that Arellano failed to perform her obligation, thereby giving spouses the right to demand the enforcement of the contract. We concede the validity of the automatic forfeiture clause, which deems any previous payments forfeited and the contract automatically rescinded upon the failure of the vendee to pay three successive monthly installments or any one-yearend lump sum payment. However, the spouses failed to prove the conditions that would warrant the implementation of this clause. Based on the facts of the case, the spouses were not justified in refusing the tender of payment made by Arellano. Had the spouses accepted the payment, she would have paid all three monthly installments. In other words, there was no deliberate failure on Arellano’s part to meet her responsibility to pay. 2. Yes. Sec. 3, RA 6552 provides: Sec. 3. In all transactions or contracts involving the sale or financing of real estate on installment payments, including residential condominium apartments but excluding industrial lots, commercial buildings and sales to tenants under Republic Act.


Numbered Thirty-eight hundred Forty-four as amended by Republic Act Numbered Sixty-three hundred eighty-nine, where the buyer has paid at least two years of installments, the buyer is entitled to the following rights in case he defaults in the payment of succeeding installments: (a) To pay, without additional interest, the unpaid installments due within the total grace period earned by him, which is hereby fixed at the rate of one month grace period for every year of installment payments made: Provided, That this right shall be exercised by the buyer only once in every five years of the life of the contract and its extensions, if any. (b) If the contract is cancelled, the seller shall refund to the buyer the cash surrender value on the payments on the property equivalent to fifty percent of the total payments made and, after five years of installments, an additional five percent every year but not to exceed ninety percent of the total payments made: Provided, That the actual cancellation of the contract shall take place after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer. Down payments, deposits or options on the contract shall be included in the computation of the total number of installments made. Therefore, Arellano is entitled to a one-month grace period for every year of installment paid, which means that she had a total grace period of three months from December 31, 1990. Indeed, to rule in favor of the spouses would result in patent injustice and unjust enrichment.

Q: Was there an action here for consignation?

What happens in consignation? What’s the purpose? Effect? – Extinguish obligation as a special form of payment, so if with the tender of payment, which was refused and considered valid, the remedy available was to consign so that the obligation will be extinguished. But what did the petitioner do here? They filed an action to enforce the automatic rescission, so what was the ruling of SC?

So is the Maceda Law applicable? What is the effect of the application? – Yes.

Can we not apply article 1592? No. Contract here is a contract to sell, 1592 only applies to contracts of sale.

D: So notice here we have the Maceda Law applicable to contracts of sale of real properties in installment. But likewise the contract in this case is denominated as a deed of conditional sale but the same was regarded as a contract to sell based on their agreement. So what can we deduce from that? That the Maceda Law is likewise applicable to contracts to sell of real property in installment, not just to contracts of sale. So you distinguish this with regard to the application of 1592 because 1592 applies only a contract of sale. Now since the Maceda Law is applicable, it was held that the private respondent was entitled to a one-month grace period for every year of installment paid, which means that she had a total grace period of three months, so therefore they could still pay, not withstanding the automatic rescission provision in their contract.

Now do also take note as to the sales that are covered under the Maceda Law. So under sec 3 thereof, sale or financing of real estate on installment payments, including residential condominium apartments but excluding industrial lots, commercial buildings and sales to tenants. Now section 3 governs the instance wherein the buyer has paid at least two years of installment, while section 4 provides for instances wherein the buyer has paid for less than 2 years of installment. Under Section 3, where the buyer has paid at least two years of installments, the buyer is entitled to the following rights in case he defaults in the payment of succeeding installments:

(a) To pay, without additional interest, the unpaid installments due within the total grace period earned by him which is hereby fixed at the rate of one month grace period for every one year of installment payments made: Provided, That this right shall be exercised by the buyer only once in every five years of the life of the contract and its extensions, if any. – “so this was the provision that was applied in Valarao.”

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

So we also have here the case of Garcia.

SPOUSES GARCIA, SPOUSES vs. COURT OF APPEALS

G.R. No. 172036 April 23, 2010

FACTS: On May 28, 1993, plaintiffs spouses Faustino and Josefina Garcia and spouses Meliton and Helen Galvez (herein appellees) and defendant Emerlita dela Cruz (herein appellant) entered into a Contract to Sell wherein the latter agreed to sell to the former, for P3,170,220.00, five (5) parcels of land. At the time of the execution of the said contract, three of the subject lots, were registered in the name of one Angel Abelida from whom defendant allegedly acquired said properties by virtue of a Deed of Absolute Sale dated March 31, 1989. As agreed upon, plaintiffs shall make a down payment of P500,000.00 upon signing of the contract. The balance of P2,670,220.00 shall be paid in three installments. On its due date, December 31, 1993, plaintiffs failed to pay the last installment in the amount of One P1,670,220.00. Sometime in July 1995, plaintiffs offered to pay the unpaid balance, which had already been delayed by one and a half year, which defendant refused to accept. On September 23, 1995, defendant sold the same parcels of land to intervenor Diogenes G. Bartolome for P7,793,000.00.


Plaintiffs filed before the RTC a complaint for specific performance to compel defendant to accept plaintiffs’ payment and, thereafter, execute the necessary document of transfer. In their complaint, plaintiffs alleged that they discovered the infirmity of the Deed of Absolute Sale covering those 3 lots, between their former owner Angel Abelida and defendant, the same being spurious because the signature of Angel Abelida and his wife were falsified. Due to their apprehension regarding the authenticity of the document, they withheld payment of the last installment. They tendered payment of the unpaid balance sometime in July 1995, after Angel Abelida ratified the sale made in favor of defendant, but defendant refused to accept their payment for no jusitifiable reason. In her answer, defendant denied the allegation that the Deed of Absolute Sale was spurious and argued that plaintiffs failed to pay in full the agreed purchase price on its due date despite repeated demands; that the Contract to Sell contains a proviso that failure of plaintiffs to pay the purchase price in full shall cause the rescission of the contract and forfeiture of 1/2 of the total amount paid to defendant; that a notarized letter stating the indended rescission of the contract to sell and forfeiture of payments was sent to plaintiffs at their last known address but it was returned with a notation "insufficient address." ISSUE: Whether or not Maceda Law is applicable in this case. HELD: No. Not applicable. It is clear from the above-quoted provisions that the parties intended their agreement to be a Contract to Sell: Dela Cruz retains ownership of the subject lands and does not have the obligation to execute a Deed of Absolute Sale until petitioners’ payment of the full purchase price. The Maceda Law applies to contracts of sale of real estate on installment payments, including residential condominium apartments but excluding industrial lots, commercial buildings and sales to tenants. The subject lands, comprising five (5) parcels and aggregating 69,028 square meters, do not comprise residential real estate within the contemplation of the Maceda Law. Moreover, even if we apply the Maceda Law to the present case, petitioners’ offer of payment to Dela Cruz was made a year and a half after the stipulated date. This is beyond the sixty-day grace period under Section 4 of the Maceda Law. Petitioners still cannot use the second sentence of Section 4 of the Maceda Law against Dela Cruz for Dela Cruz’s alleged failure to give an effective notice of cancellation or demand for rescission because Dela Cruz merely sent the notice to the address supplied by petitioners in the Contract to Sell. The applicable provision of law in instant case is Article 1191 of the New Civil Code which provides as follows: Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The Court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.

Q: So what is the nature of the contract here? – Contract to sell

Can we apply the Maceda Law? – No.

Why? - The subject lands do not comprise residential real estate within the contemplation of the Maceda Law.

So was there breach on the part of Dela Cruz when she sold the property to another person? – No.

Is 1191 applicable to contracts of sell? – No. Rescission not available in Contracts to sell. Here, no right to demand the execution of the deed of absolute sale since the buyers have failed to pay within the period provided. So ownership was never transferred so therefore they could validly disagree without any breach of the obligation.

D: So here we have a contract to sell but the Maceda Law is not applicable because again, under sec 3, it only applies to sale or financing of real estate on installment payments, including residential condominium apartments but excluding industrial lots, commercial buildings and sales to tenants. The subject lands do not comprise residential real estate within the contemplation of the Maceda Law. Moreover, even if we apply the Maceda Law to the present case, petitioners’ offer of payment to Dela Cruz was made a year and a half after the stipulated date. This is beyond the sixty-day grace period under Section 4 of the Maceda Law. However, also take note here, there was no notice to rescind. How about in the case of Pagtalunan?

PAGTALUNAN vs. VDA. DE MANZANO G.R. No. 147695 September 13, 2007

FACTS: On July 19, 1974, Patricio Pagtalunan (Patricio), petitioner’s stepfather and predecessor-in-interest, entered into a Contract to Sell with respondent Rufina dela Cruz Vda. De Manzano, whereby the former agreed to sell, and the latter to buy, a house and lot which formed half of a parcel of land for a consideration of P17,800. The parties agreed that it shall be paid in the following manner: P1,500 as downpayment upon execution of the Contract to Sell, and the balance to be paid in equal monthly installments of P150 on or before the last day of each month until fully paid. It was also stipulated in the contract that respondent could immediately occupy the house and lot; that in case of default in the payment of any of the installments for 90 days after its due date, the contract would be automatically rescinded without need of judicial declaration, and that all payments made and all improvements done on the premises by respondent would be considered as rentals for the use and occupation of the property or payment for damages suffered, and respondent was obliged to peacefully vacate the premises and deliver the possession thereof to the vendor. Petitioner claimed that respondent paid only P12,950. She allegedly stopped paying after December 1979 without any justification or explanation. Petitioner asserted that when respondent ceased paying her installments, her status of buyer was automatically transformed to that of a lessee. Therefore, she continued to possess the property by mere tolerance of Patricio and, subsequently, of petitioner.


Respondent did not deny that she still owed Patricio P5,650, but claimed that she did not resume paying her monthly installment because of the unlawful acts committed by Patricio, as well as the filing of the ejectment case against her. Patricio and his wife died on September 17, 1992 and on October 17, 1994, respectively. Petitioner became their sole successor-in-interest pursuant to a waiver by the other heirs. On March 5, 1997, respondent received a letter from petitioner’s counsel dated February 24, 1997 demanding that she vacate the premises within five days on the ground that her possession had become unlawful. Respondent ignored the demand. The Punong Barangayfailed to settle the dispute amicably. On April 8, 1997, petitioner filed a Complaint for unlawful detainer against respondent. ISSUE: Whether or not the cancellation of the contract complied with what is required under the Maceda law. HELD: No. R.A. No. 6552, otherwise known as the "Realty Installment Buyer Protection Act," recognizes in conditional sales of all kinds of real estate (industrial, commercial, residential) the right of the seller to cancel the contract upon non-payment of an installment by the buyer, which is simply an event that prevents the obligation of the vendor to convey title from acquiring binding force.

The Court agrees with

petitioner that the cancellation of the Contract to Sell may be done outside the court particularly when the buyer agrees to such cancellation. However, the cancellation of the contract by the seller must be in accordance with Sec. 3 (b) of R.A. No. 6552, which requires a notarial act of rescission and the refund to the buyer of the full payment of the cash surrender value of the payments on the property. Actual cancellation of the contract takes place after 30 days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer. Based on the records of the case, the Contract to Sell was not validly cancelled or rescinded under Sec. 3 (b) of R.A. No. 6552. First, Patricio, the vendor in the Contract to Sell, died on September 17, 1992 without canceling the Contract to Sell. Second, petitioner also failed to cancel the Contract to Sell in accordance with law. Petitioner contends that that his demand letter dated February 24, 1997 should be considered as the notice of cancellation or demand for rescission by notarial act. The Court, however, finds that the letter dated February 24, 1997, which was written by petitioner’s counsel, merely made formal demand upon respondent to vacate the premises in question. Clearly, the demand letter is not the same as the notice of cancellation or demand for rescission by a notarial act required by R.A No. 6552. Petitioner cannot rely on Layug v. Intermediate Appellate Court to support his contention that the demand letter was sufficient compliance since the seller therein filed an action for annulment of contract, which is a kindred concept of rescission by notarial

act. Evidently, the case of unlawful detainer filed by petitioner does not exempt him from complying with the said requirement. In addition, Sec. 3 (b) of R.A. No. 6552 requires refund of the cash surrender value of the payments on the property to the buyer before cancellation of the contract. The provision does not provide a different requirement for contracts to sell which allow possession of the property by the buyer upon execution of the contract like the instant case. Hence, petitioner cannot insist on compliance with the requirement by assuming that the cash surrender value payable to the buyer had been applied to rentals of the property after respondent failed to pay the installments due. There being no valid cancellation of the Contract to Sell, the CA correctly recognized respondent’s right to continue occupying the property subject of the Contract to Sell and affirmed the dismissal of the unlawful detainer case by the RTC. SC DISPOSITION: Considering that the Contract to Sell was not cancelled by the vendor, the Court agrees with the CA that it is only right and just to allow respondent to pay her arrears and settle the balance of the purchase price.

Q: Do we have a contract to sell or contract of sale? - Contract to sell.

Is the Maceda Law applicable? – Yes.

Effect? – It cancels the Contract to sell.

Automatic? – No.

What is the requirement under Maceda Law for cancellation of contracts where the same is applicable? – Twin requirements: notice of cancellation or demand for rescission by a notarial act; and refund of the cash surrender value of the payments on the property to the buyer before cancellation of the contract. So in here, no valid cancellation.

D: Applying the Maceda Law, for the cancellation of the contract, the requirements are: the notarial act of rescission and refund of the cash surrender value of the payments on the property. Actual cancellation of the contract shall take place after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer. In this case, there was no demand in compliance with the Maceda Law. The letter purported to be a demand is not the one contemplated under the Maceda Law. It is not the same as the notice of cancellation because what was provided herein is, in-indicate lang "long ceased to have any right to possess the premises x x x due to [her] failure to pay without justifiable cause the installment payments x x x." Now assuming it could be considered as a demand required under the Maceda Law, there was still no refund of the cash surrender value. So again, even if it is a Contract to Sell, the Maceda Law is applicable. So no cancellation took place here, continue to occupy but bound to payment of arrears. Take note of the distinction here, as to the 2 remedies. The first thing that we should take note of is, again, if the Maceda Law is applicable. And if it is applicable, whether the buyer has paid at least 2 annual installments or less than 2 annual installments. In Sec 4, less than 2 installments, option 1: grace


period of not less than sixty days is given. Or if no payment is made within the grace period, the sale may be cancelled within 30 days from receipt of cancellation or notice of cancellation. If there has been payment for 2 or more annual installments, the buyer may pay without interest, within the grace period. However the grace period can only be exercised once every 5 years. And take note, the grace period is 1 month for every one year of installment payments made. However, if the contracts need to be cancelled, aside from the notice, there must be the refund of the cash surrender value, five per cent every year but not to exceed ninety per cent of the total payments made. So let us say the total installment that was already paid by the buyer is 400k for 4 years. How much is the cash surrender value? 200k. Now what if the total installment made is 600k and payment has already been for 6 annual installment. How much is the cash surrender value? So for the first 5 years, 50%. Plus 5% for every year. So kung 6 years, 55% ng 600k. Hanggang maabot sya but only up to 90% of the installment made. Like for example long term talaga yung contract. Of course no computation in our exam. And I doubt this will be asked in the bar, but just take note, para lang ma-envision ninyo ang applicability nito. Now the case of Planters.

G.R. NO. 195619, SEPTEMBER 5, 2012 PLANTERS DEVELOPMENT BANK, VS JULIE

CHANDUMAL

FACTS: BF Homes and Julie Chandumal entered into a contract to sell a parcel of land located in Las Pinas. Later, BF Homes sold to PDB all its rights over the contract. Chandumal paid her monthly amortizations until she defaulted in her payments. So, PDB sent a notice to Chandumal with a demand to vacate the land within 30days, otherwise all of her rights will be extinguished and the contract will be terminated and deemed rescinded. In spite of the demand, Chandumal failed to settle her account. PDB filed an action for judicial confirmation of notarial rescission and delivery of possession but still Chandumal refused to do so. Summons were then issued and served by deputy sheriff Galing but its was unavailing as she was always out of her house on the dates the summons were served. RTC then issued an order granting the motion of PDB. Chandumal filed an urgent motion to set aside order of default and to admit attached answer. Chandumal said that she did not receive the summons and was not notified of the same and her failure to file an answer within the reglementary period was due to fraud. RTC denied Chandumal’s motion to set aside the order of default. Chandumal appealed to the CA. CA nullified the RTC’s decision. ISSUE: (1) Whether there was valid substituted service of summons? (2) Whether Chandumal voluntarily submitted to the jurisdiction of the RTC?

(3) Whether there was proper rescission by notarial act of the contract to sell? HELD: (1) Correctly ruled that the sheriff’s return failed to justify a resort to substituted service of summons. According to the CA, the Return of Summons does not specifically show or indicate in detail the actual exertion of efforts or any positive step taken by the officer or process server in attempting to serve the summons personally to the defendant. (2) The Court notes that aside from the allegation that she did not receive any summons, Chandumal’s motion to set aside order of default and to admit attached answer failed to positively assert the trial court lack of jurisdiction. In fact, what was set forth therein was the substantial claim that PDB failed to comply with the requirements of R.A. No. 6552 on payment of cash surrender value, which already delves into the merits of PDB’s cause of action. In addition, Chandumal even appealed the RTC decision to the CA, an act which demonstrates her recognition of the trial court’s jurisdiction to render said judgment. (3) R.A. No. 6552 recognizes the right of the seller to cancel the contract but any such cancellation must be done in conformity with the requirements therein prescribed. In addition to the notarial act of rescission, the seller is required to refund to the buyer the cash surrender value of the payments on the property. The actual cancellation of the contract can only be deemed to take place upon the expiry of a thirty (30)-day period following the receipt by the buyer of the notice of cancellation or demand for rescission by a notarial act and the full payment of the cash surrender value. Petition is denied.

Q: Was there a notarial demand? – No.

How about the allegation of Planters here that they tried to give the cash surrender value but they cannot find Chandumal anymore? – Such is not enough.

So let us say there is a valid demand for rescission, would it not be unfair to the seller, na hindi na nya makita si buyer so di na nya mabigay yung cash surrender value, so hindi na sya maka rescind? Assuming that it was true that Chandumal was located out of the country for a period of time? What is the proper step that Planters should have done para macomply nila yung requirement under Maceda Law? – Consignation. This is another instance when the debtor cannot pay the creditor because Chandumal here, with respect to the cash surrender value, he is the creditor. If he cannot be located anymore then consignation is a valid course of action for the seller to take otherwise it would be prejudicial to the seller na maghintay sila forever for the rescission of the contract.

D: Again, twin requirements: Twin requirements: notice of cancellation or demand for rescission by a notarial act; and refund of the cash surrender value of the payments on the property to the buyer before cancellation of the contract. And the actual cancellation of the contract to take place after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer. In this case there was failure to give the full payment of the cash surrender value. The fact that Chandumal was unavailable for such purpose is not sufficient,


because again the proper action was for the bank to consign the amount. The allegation that Chandumal made herself unavailable for payment is not an excuse as the twin requirements for a valid and effective cancellation under the law, i.e., notice of cancellation or demand for rescission by a notarial act and the full payment of the cash surrender value, is MANDATORY. There was no valid rescission of the contract to sell by notarial act undertaken by PDB and the RTC should not have given judicial confirmation over the same.

OPTIMUM DEVELOPMENT BANK vs. SPOUSES BENIGNO V. JOVELLANOS and LOURDES R.

JOVELLANOS G.R. No. 189145 December 4, 2013

FACTS: On April 26, 2005, Sps. Jovellanos entered into a Contract to Sell

6 with Palmera Homes, Inc.

(Palmera Homes) for the purchase of a residential house and lot situated in Block 3, Lot 14, Villa Alegria Subdivision, Caloocan City (subject property) for a total consideration of P1,015,000.00. Pursuant to the contract, Sps. Jovellanos took possession of the subject property upon a down payment of P91,500.00, undertaking to pay the remaining balance of the contract price in equal monthly installments of P13,107.00 for a period of 10 years starting June 12, 2005. On August 22, 2006, Palmera Homes assigned all its rights, title and interest in the Contract to Sell in favor of petitioner Optimum Development Bank (Optimum) through a Deed of Assignment of even date. On April 10, 2006, Optimum issued a Notice of Delinquency and Cancellation of Contract to Sell

for

Sps. Jovellanos’s failure to pay their monthly installments despite several written and verbal notices. In a final Demand Letter dated May 25, 2006, Optimum required Sps. Jovellanos to vacate and deliver possession of the subject property within seven (7) days which, however, remained unheeded. Hence, Optimum filed, on November 3, 2006, a complaint for unlawful detainer

before the MeTC,

docketed as Civil Case No. 06-28830. Despite having been served with summons, together with a copy of the complaint, Sps. Jovellanos failed to file their answer within the prescribed reglementary period, thus prompting Optimum to move for the rendition of judgment. Thereafter, Sps. Jovellanos filed their opposition with motion to admit answer, questioning the jurisdiction of the court, among others. Further, they filed a Motion to Reopen and Set the Case for Preliminary Conference, which the MeTC denied. ISSUE: W/N there was a valid and effective cancellation of the Contract to Sell in accordance with Section 4 of RA 6552 RULING: YES. Verily, in a contract to sell, the prospective seller binds himself to sell the property subject of the agreement exclusively to the prospective buyer upon fulfillment of the condition agreed upon which is the full payment of the purchase price but reserving to himself the ownership of the subject property despite delivery thereof to the prospective buyer.The full payment of the purchase price in a contract to sell is a suspensive condition, the non-fulfillment of which prevents the prospective seller’s obligation to convey title from becoming effective, as in this case.

Further, it is significant to note that given that the Contract to Sell in this case is one which has for its object real property to be sold on an installment basis, the said contract is especially governed by — and thus, must be examined under the provisions of — RA 6552, or the “Realty Installment Buyer Protection Act”, which provides for the rights of the buyer in case of his default in the payment of succeeding instalments. Given the nature of the contract of the parties, the respondent court correctly applied Republic Act No. 6552. Known as the Maceda Law, R.A. No. 6552 recognizes in conditional sales of all kinds of real estate (industrial, commercial, residential) the right of the seller to cancel the contract upon non-payment of an installment by the buyer, which is simply an event that prevents the obligation of the vendor to convey title from acquiring binding force. It also provides the right of the buyer on installments in case he defaults in the payment of succeeding installments, viz.: (1) Where he has paid at least two years of installments, (a) To pay, without additional interest, the unpaid installments due within the total grace period earned by him, which is hereby fixed at the rate of one month grace period for every one year of installment payments made: Provided, That this right shall be exercised by the buyer only once in every five years of the life of the contract and its extensions, if any. (b) If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the payments on the property equivalent to fifty per cent of the total payments made and, after five years of installments, an additional five per cent every year but not to exceed ninety per cent of the total payments made: Provided, That the actual cancellation of the contract shall take place after cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer. Down payments, deposits or options on the contract shall be included in the computation of the total number of installments made. (2) Where he has paid less than two years in installments, Sec. 4. x x x the seller shall give the buyer a grace period of not less than sixty days from the date the installment became due. If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel the contract after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act. (Emphasis and underscoring supplied) Pertinently, since Sps. Jovellanos failed to pay their stipulated monthly installments as found by the MeTC, the Court examines Optimum’s compliance with Section 4 of RA 6552, as above-quoted and highlighted, which is the provision applicable to buyers who have paid less than two (2) years-worth of installments. Essentially, the said provision provides for three (3) requisites before the seller may actually cancel the subject contract: first, the seller shall give the buyer a 60-day grace period to be reckoned from the date the installment became due; second, the

seller must give the buyer a notice of cancellation/demand for rescission by notarial act if the buyer fails to pay the installments due at the expiration of the said grace period; and third, the

seller may actually cancel the contract only after thirty

http://www.lawphil.net/judjuris/juri2013/dec2013/gr_189145_2013.html#fnt6


(30) days from the buyer’s receipt of the said notice of cancellation/demand for rescission by notarial act. In the present case, the 60-day grace period automatically operated in favor of the buyers, Sps. Jovellanos, and took effect from the time that the maturity dates of the installment payments lapsed. With the said grace period having expired bereft of any installment payment on the part of Sps. Jovellanos, Optimum then issued a notarized Notice of Delinquency and Cancellation of Contract on April 10, 2006. Finally, in proceeding with the actual cancellation of the contract to sell, Optimum gave Sps. Jovellanos an additional thirty (30) days within which to settle their arrears and reinstate the contract, or sell or assign their rights to another. It was only after the expiration of the thirty day (30) period did Optimum treat the contract to sell as effectively cancelled – making as it did a final demand upon Sps. Jovellanos to vacate the subject property only on May 25, 2006. Thus, based on the foregoing, the Court finds that there was a valid and effective cancellation of the Contract to Sell in accordance with Section 4 of RA 6552 and since Sps. Jovellanos had already lost their right to retain possession of the subject property as a consequence of such cancellation, their refusal to vacate and turn over possession to Optimum makes out a valid case for unlawful detainer as properly adjudged by the MeTC.

Q: How is the Maceda Law related to the issue of jurisdiction? Is the Maceda Law applicable here? – Yes. The authority granted to the MeTC to preliminarily resolve the issue of ownership to determine the issue of possession ultimately allows it to interpret and enforce the contract or agreement between the plaintiff and the defendant. To deny the MeTC jurisdiction over a complaint merely because the issue of possession requires the interpretation of a contract will effectively rule out unlawful detainer as a remedy.

How is sec 4 different from sec 3?

In this case was there a valid rescission? – Yes. It was only after the expiration of the thirty-day (30) period did Optimum treat the contract to sell as effectively cancelled – making as it did a final demand upon Sps. Jovellanos to vacate the subject property only on May 25, 2006.

Effect of rescission? – Loss their right to possess, therefore, the unlawful detainer was proper and within the jurisdiction of the MeTC.

D: Take note when to apply section 3 and 4 and also notice the difference. Sec 4 is only applicable when the buyer failed to pay less than 2 annual installments. And in sec 4, when can there be rescission? The seller shall give the buyer a grace period of not less than sixty days from the date the installment became due. If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel the contract after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act. Notice, walang refund for cash surrender value. In the present case, the 60-day grace period automatically operated

in favor of the buyers, Sps.

Jovellanos, and took effect from the time that the maturity dates of the installment payments lapsed. With the said grace period having expired bereft of any installment payment on the part of Sps. Jovellanos,

Optimum then issued a notarized Notice

of Delinquency and Cancellation of Contract on April 10, 2006. Finally, in proceeding with the actual cancellation of the contract to sell, Optimum gave Sps. Jovellanos an additional thirty (30) days within which to settle their arrears and reinstate the contract, or sell or assign their rights to another. It was only after the expiration of the thirty day (30) period did Optimum treat the contract to sell as effectively cancelled – making as it did a final demand upon Sps. Jovellanos to vacate the subject property only on May 25, 2006. So there was a valid cancellation, Sps. Jovellanos had already lost their right to retain possession of the subject property as a consequence of such cancellation, their refusal to vacate and turn over possession to Optimum makes out a valid case for unlawful detainer as properly adjudged by the MeTC. Now if you have read the case of DIEGO VS DIEGO, medyo nasaag sya noh but still related to our previous discussion because this one is not under Maceda Law but nevertheless, you have there the discussion with regard to contracts to sell. So again, just take note, in Diego, notice you have here brothers in dispute. So here you have a contract to sell and then the SC took into consideration the instances why it was considered a contract to sell, and it also emphasized that rescission is not available in contracts to sell. Further the said case also pointed out that 1592 is not applicable to a contract to sell. And why is it that Maceda Law is not applicable here? It appears that there was no provision that it was between an insolvent. (??) Notice, anong nakalagay dyan? Fixed at 500k, downpayment at 250k, and then the payment of remaining balance of 250k, so it would not be considered as a real estate sold in installments. Merely a contract to sell, rescission is not available strictly speaking. And it was for failure to pay the price that the contract was terminated. No breach of contract as there was no obligation to transfer title. Failure to pay the price is not the breach contemplated under 1191, rather it is just an event that prevents petitioner from being bound to convey title to respondent. Therefore it was erroneous for CA to fixed the period for the payment of the balance. It was the obligation of the buyer to remit payment and not the obligation of seller to compel the buyer to pay.

September 29, 2015

PART VIII: CONDITIONS AND WARRANTIES

Ok, so we now go to the next topic which deals with

conditions and warranties.

Now recall when we enumerated the obligations of

the seller and we added an obligation of the seller not

provided in the article that we have discussed before.

Wherein it was provided that the seller has obviously

the obligation to pass ownership and deliver

possession thereof and in addition thereto, he also

has the obligation to warrant the thing sold.

A. CONDITIONS

Now do not confuse condition from warranty. As you

very well recall from your obligations and contracts,

when you talk about condition, it is a future and


uncertain event which may or may not happen. Now

in relation to CoS, we already know that a condition

may be absolute or conditional. And also, we must be

able to distinguish a condition which affects the

perfection of the contract or to a condition which

affects the performance of the obligations arising

therefrom. Now in relation to condition, we have

Article 1545.

Art. 1545. Where the obligation of either party to a

contract of sale is subject to any condition which

is not performed, such party may refuse to

proceed with the contract or he may waive

performance of the condition. If the other party

has promised that the condition should happen or

be performed, such first mentioned party may

also treat the nonperformance of the condition as

a breach of warranty.

Where the ownership in the thing has not passed,

the buyer may treat the fulfillment by the seller of

his obligation to deliver the same as described

and as warranted expressly or by implication in

the contract of sale as a condition of the

obligation of the buyer to perform his promise to

accept and pay for the thing. (n)

Alright, first thing that you should take note of in 1545,

the condition referred to is as to the performance of

the obligation. In other words, there is already a valid

contract. Now, if the condition is not performed, a

party may refuse to proceed or he may waive the

performance of the condition and proceed to the

performance in relation thereto.

Now, conditions and warranties, we must also

distinguish. Because when we talk about warranties,

a collateral undertaking on the part of either party. It

can be express or implied. So if the property sold do

not contain certain incidents or qualities, the

purchaser may either consider the sale void or claim

damages or breach of warranty. Condition is different

from warranty. In the last sentence of the 1st

paragraph of 1545 however, if the other party has

promised that the condition should happen or be

performed, such first mentioned party may also treat

the nonperformance of the condition as a breach of

warranty.

Now, please take note of the distinctions between a

warranty and a condition. When you talk about

warranty it goes into the performance of the obligation

and even the obligation itself. But when you talk about

condition, it goes into the root of the existence of the

obligation. In a warranty, it may form part of the

obligation by law without the parties having agreed

thereto. Recall your discussion as to the elements of

the contract. You have the essential elements, you

also have the natural elements and accidental

elements. Warranty or implied warranties as provided

under the law are natural elements; they exist in a

contract even without the agreement by the parties. If

you distinguish it with a condition, among the three

elements, what is a condition? Accidental, because it

only exists by stipulation of the parties. Another

distinction, a warranty relates to the subject matter

itself or to the obligation of the seller. While a

condition attaches to the obligation itself or to deliver

possession and transfer ownership over the subject

matter of the sale.

Alright, what happened in the case of Catungal?

CATUNGAL VS. RODRIGUEZ

FACTS: Agapita Catungal owned a parcel of land in

Barrio Talamban, Cebu City. On April 232, 1990,

Agapita, with the consent of her husband (Atty. Jose

Catungal), entered a Contract to Sell with respondent

Angel Rodriguez. This Contract to Sell was further

upgraded into a Conditional Deed of Sale where it

was stipulated that the sum of P25 million will be

payable as follows:

a. P500, 000 down payment upon signing of

the agreement;

b. The balance of P24, 500, 000 will be

payable in five separate checks:

First check shall be for P4, 500, 000 while the

remaining balance to be paid in four checks in the

amount of P5 million each will be payable only after

Rodriguez (Vendee) has successfully negotiated,

secured, and provided a Road Right of Way. If

however the Road Right of Way could not be

negotiated, Rodriguez shall notify the Catungals for

them to reassess and solve the problem by taking

other options and should the situation ultimately prove

futile, he shall take steps to rescind or cancel the

herein Conditional Deed of Sale.

It was also stipulated that the access road or Road

Right of Way leading to the lot shall be the

responsibility of the VENDEE to secure and any or all

cost relative to the acquisition thereof shall be borne

solely by the VENDEE. He shall, however, be

accorded with enough time necessary for the success

of his endeavor, granting him a free hand in

negotiating for the passage.

Spouses Catungal requested an advance of P5

million on the purchase price for personal reasons.

However, Rodriguez refused on the ground that the

amount was not due under the terms of their

agreement. Further, he learned that the Catungals

were offering the property for sale to third parties who

are willing to pay a higher amount of money for a

Road Right of Way than what Rodriguez has initially

negotiated. In other words, instead of assisting

Rodriguez in successfully negotiating, the Catungals

allegedly maliciously defeated his efforts so to justify

the rescission. Rodriguez then received letters

signed by Atty. Jose Catungal demanding him to

make up his mind about buying the land or exercising

his option to buy because they needed money to

pay personal obligations or else the Catungals

warned that they would consider the contract

cancelled.

RTC ruled in favor of Rodriguez finding that his

obligation to pay the balance arises only after

successfully negotiating a Road Right of Way. CA

affirmed the RTC’s decision but the defendants filed a

motion for reconsideration and raised for the first time

the contention that the court erred in not finding their

stipulations null for violating the principle of mutuality

of contracts.

ISSUE: Whether or not the stipulations of their

Conditional Deed of Sale constitute a potestative

condition (one that is subject to the will of one of the

parties – either the debtor or creditor).

HELD: NO. the condition in their Conditional Deed of

Sale stating that respondent shall pay the balance of


the purchase price when he has successfully

negotiated and secured a road right of way, is not a

condition on the perfection of the contract nor on the

validity of the entire contract or its compliance as

contemplated in Article 1308. It is a condition imposed

only on respondent's obligation to pay the remainder

of the purchase price. In our view and applying

Article 1182, such a condition is not purely potestative

as petitioners contend. It is not dependent on the sole

will of the debtor but also on the will of third persons

who own the adjacent land and from whom the road

right of way shall be negotiated. Ina manner of

speaking, such a condition is likewise dependent on

chance as there is no guarantee that respondent and

the third party-landowners would come to

an agreement regarding the road right of way. This

type of mixed condition is expressly allowed under

Article 1182 of the Civil Code.

IN RELATION TO ARTICLE 1197 – The Catungals

also argued that Rodriguez has been given enough

time to negotiate for the Road Right of Way.

However, no stipulation regarding specific time can be

found in their agreement. SC said that. Even

assuming arguendo that the Catungals were correct

that the respondent's obligation to negotiate a road

right of way was one with an uncertain period, their

rescission of the Conditional Deed of Sale would still

be unwarranted. What the Catungals should have

done was to first file an action in court to fix the period

within which Rodriguez should accomplish the

successful negotiation of the road right of way

pursuant to the above quoted provision. Thus, the

Catungals' demand for Rodriguez to make an

additional payment of P5 million was premature and

Rodriguez's failure to accede to such demand did not

justify the rescission of the contract.

MODIFICATION:

If still warranted, respondent Angel S. Rodriguez is

given a period of thirty (30) days from the finality of

this Decision to negotiate a road right of way. In the

event no road right of way is secured by respondent

at the end of said period, the parties shall reassess

and discuss other options as stipulated in paragraph

1(b) of the Conditional Deed of Sale and, for this

purpose, they are given a period of thirty (30) days to

agree on a course of action. Should the discussions

of the parties prove futile after the said thirty (30)-day

period, immediately upon the expiration of said period

for discussion, Rodriguez may (a) exercise his option

to rescind the contract, subject to the return of his

down payment, in accordance with the provisions of

paragraphs 1(b) and 5 of the Conditional Deed of

Sale or (b) waive the road right of way and pay the

balance of the deducted purchase price as

determined in the RTC Decision dated May 30, 1992.

Q: So first, what was the condition here or what

were the conditions that make it a conditional

deed of sale?

A: First, the payment of the installments. That the

payment of the installments shall only be made upon

the negotiation of the road right of way.

Q: Did the negotiation of the road right of way

prosper?

A: There was no negotiation because it was alleged

by Rodriguez that the Spouses made

misrepresentations about the subject land. Also, since

the spouses deemed the deed of sale rescinded, they

offered the subject property to other buyers and so

the price of the intended road right of way increased.

The misrepresentation here on the part of the seller-

spouses that they already agreed with the owner of

the lot that the price would be 550 per sq.m. However,

when the seller-spouses offered it to other buyers, the

price already escalated. So Rodriguez here failed to

negotiate with the owners of the subject lot.

Q: So the condition here was the establishment of

the road right of way. What kind of condition was

that?

A: The Supreme Court ruled that it is a condition for

the performance of the obligation.

Q: So there was already a valid contract. However,

with the failure of the condition to happen, what is

the effect? Can the contract be rescinded?

A: The Supreme Court here ruled that 1545 provides

that the other party may refuse to proceed with the

contract or he may deem the condition waived.

Q: Who is the ‘other’ party referred in to this

case?

A: Rodriguez.

Q: You also mentioned a while ago with regard to

the issue, condition is as to the performance of

the obligation, however you mentioned that there

was an issue that this condition was a potestative

condition. First, what is a potestative condition?

A: A potestative condition can only be fulfilled by the

sole will of one of the parties.

Q: What is the effect if you have a potestative

condition in a contract?

A: The condition will be void.

Q: Only the condition?

A: And also the obligation.

Q: In all instances? In what instance can a

potestative condition make the condition and

obligation void?

A: Only if the obligation is dependent upon the sole

will of the debtor.

Q: So here, was there a potestative condition?

A: None.

Q: What kind of condition was involved here?

A: It was a mixed condition because it is not only

dependent on the part of Rodriguez but also depends

on the owners of the lots where the road right of way

will be imposed.

Q: With that finding that there was no potestative

condition here which would invalidate the

contract and with the finding that the condition

here is as to the performance of the obligation

therein, what is now the effect as to the parties?

A: The contract was still valid.

Q: Valid pa rin yung contract. With regard to

Rodriguez, what does he have here?

A: He can still proceed with the contract and he can

still negotiate the owners of the lot for the imposition

of the road right of way.

CATUNGAL VS RODRIGUEZ: So you have here

with reference to 1545, again it emphasizes the

condition provided therein refers to the performance

of the obligation. If the condition is imposed as to the

perfection, failure to comply with the obligation

(condition ata ito) results into the failure of the

contract. But failure to comply with the condition as to

the performance of the obligation gives the other party

the option to either to refuse or to proceed or to waive

the condition. So here, since the condition was

imposed only upon respondent’s obligation to pay the

remainder of the purchase price, then that is a

condition in relation to performance.


As to the issue whether what you have here is a

potestative condition, the Supreme Court held that

first, there was no potestative condition. A potestative

condition is a condition dependent upon the sole will

of one of the parties. If the potestative condition is

upon the sole will of the debtor, then that is the time

that the contract as well as the condition will be

deemed void. But in this case, what you have here is

a mixed condition, as it is not only dependent, is not

merely potestative but also mixed condition as his

obligation to pay the balance of the purchase price

was not only dependent on him but as to other parties

(di ko siya gets but I guess what Ma’am meant was

that it was not only dependent on him but also

dependent to the other parties).

So with that, it was Rodriguez here who has the

option to rescind the contract subject to the return of

his downpayment or waive the road right of way and

pay the balance of the purchase price. In other words,

the Spouses Catungal here were not entitled to

rescind the contract. And in fact they were also

considered in bad faith for having contributed to the

collapse of the negotiation as to the road right of way.

So, that is a condition. Again, distinguish it from a

warranty. However, if the condition is in the form of a

warranty any breach of warranty can be considered

as such (?).

B. WARRANTIES

1. EXPRESS WARRANTIES

Now, I mentioned earlier that there are 2 kinds of

warranties, you have express warranties and implied

warranties. Express warranties we have Article 1546.

Art. 1546. Any affirmation of fact or any promise

by the seller relating to the thing is an express

warranty if the natural tendency of such

affirmation or promise is to induce the buyer to

purchase the same, and if the buyer purchase the

thing relying thereon. No affirmation of the value

of the thing, nor any statement purporting to be a

statement of the seller's opinion only, shall be

construed as a warranty, unless the seller made

such affirmation or statement as an expert and it

was relied upon by the buyer. (n)

Ok, you have in 1546 the definition of an express

warranty. So express, agreed upon by the parties.

There is an affirmation of fact or promise by the seller

relating to the subject matter of the sale. Second, the

natural tendency of such affirmation or promise is to

induce the buyer to purchase the same. And third, the

buyer purchases the thing relying on that affirmation

or promise.

Now, if there is breach of this express warranty, then

the seller will be liable for damages.

So we have here the case of Harrison Motors.

HARRISON MOTORS CORPORATION vs. RACHEL

A. NAVARRO

FACTS: Sometime in June of 1987 Harrison Motors

Corporation through its president, Renato Claros, sold

2 Isuzu Elf trucks to Rachel Navarro, owner of RN

Freight Lines. Prior to the sale, Renato Claros

represented to Navarro that all the BIR taxes and

customs duties for the parts used on the two 2 trucks

had been paid for.

On 10 September 1987 the Bureau of Internal

Revenue (BIR) and the Land Transportation Office

(LTO) entered into a Memorandum of Agreement

(MOA) which provided that prior to registration in the

LTO of any assembled or re-assembled motor vehicle

which used imported parts, a Certificate of Payment

should first be obtained from the BIR to prove

payment of all taxes required under existing laws.

On 16 June 1988 the BIR, BOC and LTO entered into

a tripartite MOA which provided that prior to the

registration in the LTO of any locally assembled motor

vehicle using imported component parts, a Certificate

of Payment should first be obtained from the BIR and

the BOC to prove that all existing taxes and customs

duties have been paid.

In December of 1988 government agents seized and

detained the two (2) Elf trucks of Navarro after

discovering that there were still unpaid BIR taxes and

customs duties thereon. The BIR and the BOC

ordered NAvarro to pay the proper assessments or

her trucks would be impounded. Navarro went to

Claros to ask for the receipts evidencing payment of

BIR taxes and customs duties; however, Claros

refused to comply. Navarro then demanded from

Claros but her demands were again ignored.

But wanting to secure the immediate release of the

trucks to comply with her business commitments,

Navarro paid the assessed BIR taxes and customs

duties amounting to P32,943.00. Consequently, she

returned to Harrison‘s office to ask for reimbursement,

but it again refused, prompting her to send a demand

letter through her lawyer. When Harrison still ignored

her letter, she filed a complaint for a sum of money on

24 September 1990 with the Regional Trial Court of

Makati.

On 5 March 1992 the trial court rendered a decision

ordering Harrison to reimburse private respondent in

the amount of P32,943.00 for the customs duties and

internal revenue taxes the latter had to pay to

discharge her 2 Elf trucks from government custody.

Harrison argues that it was no longer obliged to pay

for the additional taxes and customs duties imposed

on the imported component parts by the

Memorandum Orders and the two (2) Memoranda of

Agreement based on non-impairment clause of the

Constitution but also the principle of non-retroactivity

of laws provided in Art. 4 of the Civil Code.

The records however reveal that the Memorandum

Orders and Memoranda of Agreement do not impose

any additional BIR taxes or customs duties. The MOA

mandated that prior to registration in the LTO of any

assembled automobile using imported parts, a

Certificate of Payment should first be obtained from

the BIR which would then transmit the Certificate to

the LTO to prove that all the BIR taxes required under

existing laws have been paid.

The MOA provided that prior to registration with the

LTO of any assembled motor vehicle using imported

component parts, a Certificate of Payment should first

be secured from the BIR or the BOC which should

then be duly forwarded to LTO. The Certificate would

serve as proof that all taxes and customs duties

required under existing laws, rules and regulations

had already been settled.


ISSUE: Who should pay the BIR taxes and customs

duties which the administrative regulations sought to

enforce?

HELD: Harrison contends that Navarro should be the

one to pay the internal revenue taxes and customs

duties. It claims that at the time the Memorandum

Orders and the two (2) Memoranda of Agreement

took effect the two (2) Elf trucks were already sold to

Navarro, thus, it no longer owned the vehicles.

Thus, although the Whereas clause in the MOA

provides that private respondent is the one required

by the administrative regulations to secure the

Certificate of Payment for the purpose of registration,

petitioner as the importer and the

assembler/manufacturer of the two (2) Elf trucks is

still the one liable for payment of revenue taxes and

customs duties.

Harrison‘s obligation to pay does not arise from the

administrative regulations but from the tax laws

existing at the time of importation. Hence, even if

Navarro already owned the two (2) trucks when the

Memorandum Orders and Memoranda of Agreement

took effect, the fact remains that Harrison was still the

one duty-bound to pay for the BIR taxes and customs

duties.

It is also quite obvious that as between Harrison, who

is the importer- assembler/manufacturer, and

Navarro, who is merely the buyer, it is petitioner which

has the obligation to pay taxes to the BIR and the

BOC. Harrison would be unjustly enriched if private

respondent should be denied reimbursement.

Besides, Harrison‘s allegation that it already paid the

BIR taxes and customs duties is highly doubtful. This

entire controversy would have been avoided had

Harrison simply furnished private respondent with the

receipts evidencing payment of BIR taxes and

customs duties. If only Navarro had the receipts to

prove payment of such assessments then she would

have easily secured the release of her two (2) Elf

trucks. But Harrison arbitrarily and unjustly denied

Navarro‘s demands. Instead, Harrison obstinately

insisted that it was no longer concerned with the

problem involving the two (2) trucks since it no longer

owned the vehicles after the consummation of the

sale.

It is true that the ownership of the trucks shifted to

private respondent after the sale. But petitioner must

remember that prior to its consummation it expressly

intimated to her that it had already paid the taxes and

customs duties. Such representation shall be

considered as a seller‘s express warranty under Art.

1546 of the Civil Code which covers any affirmation of

fact or any promise by the seller which induces the

buyer to purchase the thing and actually purchases it

relying on such affirmation or promise. It includes all

warranties which are derived from express language,

whether the language is in the form of a promise or

representation. Presumably, therefore, private

respondent would not have purchased the two (2) Elf

trucks were it not for petitioner‘s assertion and

assurance that all taxes on its imported parts were

already settled.

This express warranty was breached the moment

petitioner refused to furnish private respondent with

the corresponding receipts since such documents

were the best evidence she could present to the

government to prove that all BIR taxes and customs

duties on the imported component parts were fully

paid. Without evidence of payment, she was

powerless to prevent the trucks from being

impounded.

Under Art. 1599 of the Civil Code, once an express

warranty is breached the buyer can accept or keep

the goods and maintain an action against the seller

for damages. This was what private respondent did.

She opted to keep the two (2) trucks which she

apparently needed for her business and filed a

complaint for damages, particularly seeking the

reimbursement of the amount she paid to secure the

release of her vehicles.

Q: So what is the effect of that breach?

A: The effect of that, as used in this case is the

second remedy which is the buyer may accept or

receive the thing procured and an accompanying

action for damages.

HARRISON MOTORS VS NAVARRO: So here it was

an express warranty. What was the express warranty

here? Prior to the consummation, petitioner expressly

intimated to the seller (buyer siguro) that he had

already paid the taxes and customs duty. Such

representation is considered as a seller’s express

warranty, 1. It is an affirmation of a fact or promise by

the seller; 2. The natural tendency of that promise to

induce the buyer to purchase the same; and 3. The

buyer purchased the thing relying thereon. Private

respondent would not have purchased the trucks

were it not for petitioner’s assertion and assurance

that all taxes of its imported parts were already

settled. So considering that there was breach of

express warranty, the remedy under 1599 is available

wherein the buyer can accept or keep the goods and

maintain an action against the seller for damages.

2. IMPLIED WARRANTIES

Now how about Implied Warranties. Implied

warranties, again these are natural elements in a

contract. It constitute part of every CoS whether the

parties are aware of them or not or whether the

parties intended them to exist in the contract. Implied

warranties however may be suppressed by

agreement of the parties.

So what are these implied warranties provided under

the law? We have:

1. the warranty that the seller has the right to

sell the property;

2. warranty against eviction;

3. warranty against non-apparent servitudes;

4. warranty against hidden defects; and

5. warranty as to fitness or quality.

So, Art. 1547 provides the warranty that the seller has

the right to sell.

Art. 1547. In a contract of sale, unless a contrary

intention appears, there is:

(1) An implied warranty on the part of the seller

that he has a right to sell the thing at the time

when the ownership is to pass, and that the buyer

shall from that time have and enjoy the legal and

peaceful possession of the thing;


(2) An implied warranty that the thing shall be free

from any hidden faults or defects, or any charge

or encumbrance not declared or known to the

buyer.

This Article shall not, however, be held to render

liable a sheriff, auctioneer, mortgagee, pledgee, or

other person professing to sell by virtue of

authority in fact or law, for the sale of a thing in

which a third person has a legal or equitable

interest. (n)

Ok, so nandiyan sa Article, implied warranty that

the seller has the right to sell the thing at the time

when the ownership is to pass. It does not still detract

with our discussions that ownership is not required at

the time of perfection. What must exist at the time of

perfection is that there is an implied warranty on the

part of the seller that he has the right to sell the thing

when the ownership is to pass. In other words, he can

transfer ownership at the time of delivery. If he fails to

do so, that can be considered as an implied breach of

warranty.

Also under 1547, you have here the warranty

against eviction. Under the same paragraph 1,

implied warranty on the part of the seller that the

buyer shall from the time have and enjoy the legal

possession of the thing. So we have here Art. 1548.

Art. 1548. Eviction shall take place whenever by a

final judgment based on a right prior to the sale or

an act imputable to the vendor, the vendee is

deprived of the whole or of a part of the thing

purchased.

The vendor shall answer for the eviction even

though nothing has been said in the contract on

the subject.

The contracting parties, however, may increase,

diminish, or suppress this legal obligation of the

vendor. (1475a)

Alright, we have in Article 1548 as well as the

subsequent provisions in this chapter, we can

enumerate what are these requisites for there to be

breach of warranty against eviction.

1. There must be deprivation of the vendee of

the whole or part of the thing purchased;

2. The deprivation must be by virtue of a final

judgment;

3. The deprivation must be based on a right

prior to the sale or an act imputable to the

vendor;

4. That the vendor must be summoned in the

suit for eviction at the instance of the

vendee; and

5. There must be no waiver of warranty as

executed by the vendee.

All these requisites must be present in order for the

seller to be held liable for breach of warranty against

eviction. Under Article 1549 in relation to Article 1557,

you have therein the requisite that there must be a

final judgment.

Art. 1549. The vendee need not appeal from the

decision in order that the vendor may become

liable for eviction. (n)

In 1549, the vendee did not appeal from the decision

in order that the vendor may be liable for eviction. As

long as the decision is already deemed final, final

judgment na siya, and all other requisites are present,

then the breach of warranty takes place.

Art. 1557. The warranty cannot be enforced until a

final judgment has been rendered, whereby the

vendee loses the thing acquired or a part thereof.

(1480)

Now, Article 1550, Adverse Possession.

Art. 1550. When adverse possession had been

commenced before the sale but the prescriptive

period is completed after the transfer, the vendor

shall not be liable for eviction. (n)

Now, first thing that we should take note of here, of

course this is in relation to the third requisite we just

mentioned, based on a right prior to the sale. But

when you talk about adverse possession here, so in

your Property, 30 years in bad faith and 10 years in

good faith. But remember, that period for acquisitive

prescription is only applicable to properties not

covered by titles. So ganun din sa Art. 1550. Now, for

example the possessor is in good faith, the

prescriptive period is 10 years. What does Art. 1550

mean? If the 10 year prescriptive period, prescribed

happened before sale, in other words you have here

buyer knew beforehand of the acquisitive prescription

by the third person, and nevertheless proceeded to

buy the property, the buyer is deemed to have waived

his right for the warranty against eviction. However, if

the prescriptive period or since the prescriptive period

was completed during the sale, there is no liability.

Now what if, the prescriptive period happened after

the sale, so let us say it was purchases on the 7th

or

8th

year of the possession of the property. The seller

shall not be liable for eviction, as the buyer should

have interrupted the prescriptive period. Exception is

the time left for interruption is too short for the buyer

to be given full opportunity to perform acts of

interruption. Then the seller shall be liable for

warranty.

So again, if the prescriptive period occurred after the

sale, seller is not liable as the buyer should have

interrupted the prescriptive period. Exception, if time

is too short for the buyer to be given opportunity to

perform acts of interruption wherein the seller is liable

for warranty. But for example, the 10 year prescriptive

period is already completed before the perfection of

the sale, then take into consideration the knowledge

of the buyer. If the buyer is in good faith, the seller will

not be liable for breach of warranty. But, if the buyer

knew beforehand of such acquisitive prescription, but

nevertheless proceeded to buy the property, then

there is deem waiver on his part to enforce said

eviction.

Now also in Article 1551:

Art. 1551. If the property is sold for nonpayment

of taxes due and not made known to the vendee

before the sale, the vendor is liable for eviction.

(n)

Example for this is when the government forecloses

the property, sells the property for failure to pay real

property taxes. So, ang mangyari niyan, merong

foreclosure sale na nevertheless the seller-owner sold

it to the vendee, the vendor will be liable.


Art. 1552. The judgment debtor is also

responsible for eviction in judicial sales, unless it

is otherwise decreed in the judgment. (n)

Now, take note of Article 1553.

Art. 1553. Any stipulation exempting the vendor

from the obligation to answer for eviction shall be

void, if he acted in bad faith. (1476)

Again, it is void if he acted in bad faith. In other words,

can there be a valid waiver of this eviction? Yes, as

long as long as the vendor is not in bad faith.

In relation thereto we have Article 1554.

Art. 1554. If the vendee has renounced the right to

warranty in case of eviction, and eviction should

take place, the vendor shall only pay the value

which the thing sold had at the time of the

eviction. Should the vendee have made the waiver

with knowledge of the risks of eviction and

assumed its consequences, the vendor shall not

be liable. (1477)

Alright, there can be a valid waiver of this warranty

against eviction. There are two kinds of waiver

mentioned here in 1554:

1. Consciente

2. Intencionada

So what is this consciente? Voluntarily made by the

buyer without knowledge or assumption of the risk of

eviction. Compare it to intencionada wherein the

buyer voluntarily made such waiver but with the

knowledge and assumptions of the risks of eviction.

For example in consciente, sige I will pay but just in

case may mag-habol _____ as to the property and

then he would have a better right over me, vendor is

not liable. So at the time, parang general waiver siya

of the warranty against eviction. Pero when you talk

about intencionada, it is a specific instance. For

example, the vendor will inform the vendee, I am

selling to you this property, however there is this

person who might be a sibling or cousin saying that

he has a better right over me. So baka mag-kaso

siya, so ok lang ba sa iyo na mag-execute ka ng

waiver na just in case manalo siya, that he has a

better right, hindi mo ako habulin. So that is

considered as a valid waiver considered as

intencionada. But again, if the waiver is made in bad

faith, the vendor was in bad faith, may alam siya with

the risk involved in a CoS na pwedeng mapa-alis si

buyer sa property but he never informed the buyer,

then any waiver may be considered as void. Again,

relate 1554 and 1553. Waiver is void if seller acted in

bad faith, therefore the seller will still be held liable.

Under Article 1554, general waiver or no particular

risk in other words consciente, seller must pay the

value of the thing sold at the time of eviction. Liability

is not extinguished but remits the liability of the seller.

However, if waiver is made with knowledge of the risk,

intencionada, the seller is not liable, his liability is

entirely extinguished.

We also have Article 1555, what can the vendee

demand in case there is liability on the part of the

vendor?

Art. 1555. When the warranty has been agreed

upon or nothing has been stipulated on this point,

in case eviction occurs, the vendee shall have the

right to demand of the vendor:

(1) The return of the value which the thing sold

had at the time of the eviction, be it greater or less

than the price of the sale;

(2) The income or fruits, if he has been ordered to

deliver them to the party who won the suit against

him;

(3) The costs of the suit which caused the

eviction, and, in a proper case, those of the suit

brought against the vendor for the warranty;

(4) The expenses of the contract, if the vendee

has paid them;

(5) The damages and interests, and ornamental

expenses, if the sale was made in bad faith. (1478)

So, Art. 1555, what can the vendee demand as to

warranty against eviction whether implied or express.

Return of the value of the thing, take note ha, value of

the thing and not the selling price. Second, income or

fruits. Third, expenses of suit, damages and interest

and ornamental expenses if the sale was made in bad

faith.

Now also take note, even if there is partial eviction,

the seller can still be liable for warranty against

eviction under Art. 1556.

Art. 1556. Should the vendee lose, by reason of

the eviction, a part of the thing sold of such

importance, in relation to the whole, that he would

not have bought it without said part, he may

demand the rescission of the contract; but with

the obligation to return the thing without other

encumbrances that those which it had when he

acquired it.

He may exercise this right of action, instead of

enforcing the vendor's liability for eviction.

The same rule shall be observed when two or

more things have been jointly sold for a lump

sum, or for a separate price for each of them, if it

should clearly appear that the vendee would not

have purchased one without the other. (1479a)

Alright, so partial eviction, again the vendor may be

held liable. But even if there is partial eviction, it is

possible that the seller can be liable for the whole

property as provided in 1556, if the buyer would not

have bought the property without the said part where

he was evicted and therefore he may demand the

rescission of the contract. However, instead of

enforcing eviction, he may exercise his right of action.

This is also applicable, let us say you purchased 2

properties for a lump sum or a separate price. But if

you would not have brought the other without the

other property wherein you have been evicted, then

there is a breach of both Contracts of Sale. Like if you

purchase property to franchise a gasoline station, now

yung Gasoline Company would require you to be a

franchisee, a specific area. So let us say 500 sq. m.

So you purchase the property thinking that it is really

500 sq. m. But in turns out na merong 20 sq. m. na

hindi pala covered sa property nay un. So what is the

effect therein? While it is true that there is only partial

eviction, the fact is that, you would not have brought

the property if it was less than 500 sq. m. So you can


seek rescission of the contract. The same thing, like

for example you purchased two properties, also for

gasoline operations. Two lots, 250 sq. m. each. So

kung na-evict ka dun sa property mon a 250 sq. m.,

again the reason here, you would not have brought

the other property, if hindi kasama yung other

property kasi nga ang purpose mo is for gasoline

operations. So the same rule will apply. What are the

remedies here? You can either enforce Art. 1555,

yung demand return, fruits, costs, expenses and

damages or rescind the contract as provided in 1556

with the obligation to return the thing without the other

encumbrances that those which it had when he

acquired it. Then if it is separable then Article 1555

can be applied to such part wherein there has been

eviction.

Alright, another requirement that we pointed out that

the vendor shall not be obliged to make good the

proper warranty, unless he is summoned in the suit

for eviction at the instance of the vendee.

So we have here the case of Escaler.

ESCALER V. CA AND SPS. REYNOSO

FACTS: On March 7, 1958, the spouses Reynoso

sold to petitioners a parcel of land situated in Antipolo,

Rizal with an area of 239,479 sqm and covered by

TCT No. 57400. However, on April 21, 1961, the

Register of Deeds of Rizal and A. Doronilla

Resources Development, Inc. filed a case (Case no.

4252) for the cancellation of OCT No. 1526 issued in

the name of Angelina C. Reynoso (the predecessors-

in-interest of the spouses Reynoso) on the ground

that the subject property is already covered by TCT

No. 42999 issued under A. Doronilla. The court

favored A. Doronilla in this case.

Thereafter, herein petitioners filed the present case

against the respondents, for the recovery of the value

of the property sold to them plus damages on the

ground that the spouses violated the vendors’

“warranty against eviction.” The lower court ruled in

favor of the petitioners, which was reversed in the CA.

Hence, the present petition.

ISSUE: W/n Articles 1558 and 1559 of the Civil Code

are to be strictly applied in this case.

HELD: YES. (See Articles 1548, 1558 and 1559). In

order that a vendor’s liability for eviction may be

enforced, the following requisites must concur:

a. There must be a final judgment;

b. The purchaser has been deprived of the whole or

part of the thing sold;

c. Said deprivation was by virtue of a right prior to the

sale made by the vendor; and

d. The vendor has been summoned and made co-

defendant in the suit for eviction at the instance of the

vendee.

In the case at bar, the fourth requisite—that of being

summoned in the suit for eviction (Case no. 4252) at

the instance of the vendee—is not present. All that

petitioners did, per their very admission, was to

furnish respondents, by registered mail, with a copy of

the opposition they (petitioners) filed in the suit.

Decidedly, this is not the kind of notice prescribed by

Articles 1558 and 1559 of the Civil Code.

The term “unless he is summoned in the suit for

eviction at the instance of the vendee” means that the

respondents as vendor/s should be made parties to

the suit at the instance of petitioners-vendees, either

by way of asking that the former be made a co-

defendant or by the filing of a third-party complaint

against said vendors. Nothing of that sort appeared to

have been done by the petitioners in the instant case.

Q: So what do you mean by summon?

A: Summon means an order by the court for the party

to appear. To make that person a party to the case.

ESCALER VS CA: So in this case, the vendor should

be made party to the suit at the instance of the

vendee which did not happen in this case. It is not

sufficient that they informed the vendor that there is

this pending case to make him a party to the said

action in court.

So again take note, all the requisites should be

present: final judgment, deprivation by virtue of a right

prior to the sale or an act imputable to the vendor,

and the vendor has been summoned and made co-

defendant in the suit for eviction at the instance of the

vendee. In this case, while it is true that the vendor

was furnished by registered mail with the copy of the

opposition filed by the petitioners, this is not the kind

of notice that is required under the law. Also take note

under Article 1559:

Art. 1559. The defendant vendee shall ask, within

the time fixed in the Rules of Court for answering

the complaint, that the vendor be made a co-

defendant. (1482a)

In this case, it did not happen. The seller was not

made a co-defendant. Again, the requirement here is

that the respondent as vendors should be made

parties to the suit at the instance of the vendees

either by asking that the former be made a co-

defendant or by the filing of a third-party complaint

against said vendors.

So that’s 1558 and 1559 in relation to the

requirements for the liability for breach of warranty

against eviction.

Now, another warranty is the warranty against non-

apparent servitudes. So by now you already know

servitudes, easements. So we have Article 1560.

Art. 1560. If the immovable sold should be

encumbered with any non-apparent burden or

servitude, not mentioned in the agreement, of

such a nature that it must be presumed that the

vendee would not have acquired it had he been

aware thereof, he may ask for the rescission of

the contract, unless he should prefer the

appropriate indemnity. Neither right can be

exercised if the non-apparent burden or servitude

is recorded in the Registry of Property, unless

there is an express warranty that the thing is free

from all burdens and encumbrances.

Within one year, to be computed from the

execution of the deed, the vendee may bring the

action for rescission, or sue for damages.

One year having elapsed, he may only bring an

action for damages within an equal period, to be


counted from the date on which he discovered the

burden or servitude. (1483a)

Alright, so when do you apply Article 1560? An

immovable property sold is encumbered with any non-

apparent burden or servitude not mentioned in the

agreement.

Since tapos naman kayo nag-easements, example ng

non-apparent servitude? Light and view, what else?

The building with a specified height that is also an

example of a non-apparent burden or servitude. Now,

the nature of the non-apparent burden or servitude is

such that it must be presumed that the buyer would

not acquire it had he been aware thereof.

Now, what are the remedies in case of breach of this

warranty? Rescission or indemnity for damages.

However, take note of the prescriptive period. One

year from the execution of the contract, either

rescission or damages. If one year has already

elapsed, rescission cannot be availed of, only

damages na lang. So please take note of that as well.

However, if the servitude is recorded in the Registry

of Deeds, then this warranty does not apply. Because

that registration constitutes constructive knowledge.

Unless of course it is not registered and there is an

express warranty that the thing is free from all

burdens and encumbrances. So that is the warranty

against non-apparent servitudes.

Now, the third implied warranty and this is the most

common, the other most common is warranty against

eviction, so this is warranty against hidden defects,

Article 1561.

Art. 1561. The vendor shall be responsible for

warranty against the hidden defects which the

thing sold may have, should they render it unfit

for the use for which it is intended, or should they

diminish its fitness for such use to such an extent

that, had the vendee been aware thereof, he would

not have acquired it or would have given a lower

price for it; but said vendor shall not be

answerable for patent defects or those which may

be visible, or for those which are not visible if the

vendee is an expert who, by reason of his trade or

profession, should have known them. (1484a)

Alright for the requisites for the breach of warranty

against hidden defects:

1. The defect must be serious or important;

2. The defect must be hidden or latent;

3. The defect must exist at the time of the sale;

4. the vendee must give notice of the defect to

the vendor within a reasonable time;

5. Remedies must be brought within 6 months

from delivery or 40 days from delivery in

case of animals;

6. There must be no waiver of warranty against

hidden defects.

Now, in relation to this warranty against hidden

defects, you also have Article 1562 with regard to the

warranty as to the fitness and merchantability of the

goods.

Art. 1562. In a sale of goods, there is an implied

warranty or condition as to the quality or fitness

of the goods, as follows:

(1) Where the buyer, expressly or by implication,

makes known to the seller the particular purpose

for which the goods are acquired, and it appears

that the buyer relies on the seller's skill or

judgment (whether he be the grower or

manufacturer or not), there is an implied warranty

that the goods shall be reasonably fit for such

purpose;

(2) Where the goods are brought by description

from a seller who deals in goods of that

description (whether he be the grower or

manufacturer or not), there is an implied warranty

that the goods shall be of merchantable quality.

(n)

So two kinds of warranty here, implied warrant as to

the merchantability of the goods and implied warranty

as to fitness thereof. When we say merchantability, it

refers to the general purpose of the goods. But when

we refer to fitness, specific purpose for the said

goods. So, we have the case of Moles vs IAC.

MOLES vs IAC

FACTS: In 1977, petitioner needed a linotype printing

machine for his printing business, The LM Press at

Bacolod City, and applied for an industrial loan with

the Development Bank of the Philippines. (DBP) for

the purchase thereof. An agent of Smith, Bell and Co.

who is a friend of petitioner introduced the latter to

private respondent, owner of the Diolosa Publishing

House in Iloilo City, who had two available machines.

Thereafter, petitioner went to Iloilo City to inspect the

two machines offered for sale and was informed that

the same were secondhand but functional.

Sometime between April and May, 1977, the machine

was delivered to petitioner's publishing house where it

was installed by an employee of Diolosa. Prior to the

release of the loan, a representative from the DBP,

Bacolod, supposedly inspected the machine but he

merely looked at it to see that it was there . The

inspector's recommendation was favorable and,

thereafter, petitioner's loan of P50,000.00 was

granted and released.

But on November 29, 1977, petitioner wrote private

respondent that the machine was not functioning

properly as it needed a new distributor bar. Private

respondent made no reply to said letter, so petitioner

engaged the services of other technicians. Later, after

several telephone calls regarding the defects in the

machine, private respondent sent two technicians to

make the necessary repairs but they failed to put the

machine in running condition. In fact, since then

petitioner was never able to use the machine.

Petitioner again wrote private respondent, this time

with the warning that he would be forced to seek legal

remedies to protect his interest.

Obviously in response to the foregoing letter, private

respondent decided to purchase a new distributor bar

and private respondent delivered this spare part to

petitioner. However, when thereafter petitioner asked

private respondent to pay for the price of the

distributor bar, the latter asked petitioner to share the

cost with him. Petitioner thus finally decided to

indorse the matter to his lawyer.

An expert witness for the petitioner declared that he

inspected the linotype machine involved in this case

at the instance of petitioner. In his inspection thereof,

he found several defects.


ISSUE/S:

W/N private respondent is bound by an express

warranty.

W/N private respondent’s express warranty was a

mere dealer’s talk.

W/N hidden defects in the machine is sufficient to

warrant a rescission of the contract between the

parties.

HELD: Private respondent is bound by the

express warranty which he executed in favor of

the petitioners.

When an article is sold as a secondhand item, a

question arises as to whether there is an implied

warranty of its quality or fitness. It is generally held

that in the sale of a designated and specific article

sold as secondhand, there is no implied warranty as

to its quality or fitness for the purpose intended, at

least where it is subject to inspection at the time of the

sale. On the other hand, there is also authority to the

effect that in a sale of a secondhand articles there

may be, under some circumstances, an implied

warranty of fitness for the ordinary purpose of the

article sold or for the particular purpose of the buyer.

In a line of decisions rendered by the United States

Supreme Court, it had theretofore been held that

there is no implied warranty as to the condition,

adaptation, fitness, or suitability for the purpose for

which made, or the quality, of an article sold as and

for a secondhand article. Said general rule, however,

is not without exceptions. Article 1562 of our Civil

Code, which was taken from the Uniform Sales Act,

provides:

Art. 1562. In a sale of goods, there is an implied

warranty or condition as to the quality or fitness of the

goods, as follows:

Where the buyer, expressly or by implication, makes

known to the seller the particular purpose for which

the goods are acquired, and it appears that the buyer

relies on the seller's skill or judgment (whether he be

the grower or manufacturer or not), there is an implied

warranty that the goods shall be reasonably fit for

such purpose;

To repeat, in the case before Us, a certification to the

effect that the linotype machine bought by petitioner

was in A-1 condition was issued by private

respondent in favor of the former. This cannot but be

considered as an express warranty. However, it is

private respondent's submission, that the same is not

binding on him, not being a part of the contract of sale

between them.

It must be remembered that the certification was a

condition sine qua non for the release of petitioner's

loan which was to be used as payment for the

purchase price of the machine. Private respondent

failed to refute this material fact. Neither does he

explain why he made that express warranty on the

condition of the machine if he had not intended to be

bound by it. In fact, the respondent court, in declaring

that petitioner should have availed of the remedy of

requiring repairs as provided for in said certification,

thereby considered the same as part and parcel of the

verbal contract between the parties.

Private respondents express warranty as to the A-

1 condition of the machine was not merely

dealer's talk.

Private respondent was not a dealer of printing or

linotype machines to whom could be ascribed the

supposed resort to the usual exaggerations of trade in

said items. His certification as to the condition of the

machine was not made to induce petitioner to

purchase it but to confirm in writing for purposes of

the financing aspect of the transaction his

representations thereon. Ordinarily, what does not

appear on the face of the written instrument should be

regarded as dealer's or trader's talk conversely, what

is specifically represented as true in said document,

as in the instant case, cannot be considered as mere

dealer's talk.

On the question as to whether the hidden defects in

the machine is sufficient to warrant a rescission of the

contract between the parties, we have to consider the

rule on redhibitory defects contemplated in Article

1561 of the Civil Code. A redhibitory defect must be

an imperfection or defect of such nature as to

engender a certain degree of importance. An

imperfection or defect of little consequence does not

come within the category of being redhibitory.

As already narrated, an expert witness for the

petitioner categorically established that the machine

required major repairs before it could be used. This,

plus the fact that petitioner never made appropriate

use of the machine from the time of purchase until an

action was filed, attest to the major defects in said

machine, by reason of which the rescission of the

contract of sale is sought. The factual finding,

therefore, of the trial court that the machine is not

reasonably fit for the particular purpose for which it

was intended must be upheld, there being ample

evidence to sustain the same.

At a belated stage of this appeal, private respondent

came up for the first time with the contention that the

action for rescission is barred by prescription. While it

is true that Article 1571 of the Civil Code provides for

a prescriptive period of six months for a redhibitory

action a cursory reading of the ten preceding articles

to which it refers will reveal that said rule may be

applied only in case of implied warranties. The

present case involves one with and express warranty.

Consequently, the general rule on rescission of

contract, which is four years 27

shall apply.

Considering that the original case for rescission was

filed only one year after the delivery of the subject

machine, the same is well within the prescriptive

period.

Q: What is the nature of the subject matter here?

A: A printing machine.

Q: And wasn’t it considered that it was

secondhand? What is the rule with regard to

secondhand items?

A: There is generally no warranty.

Q: Ok, no warranty. In other words, as is where is.

But in this case, is there a warranty?

A: In this case the Supreme Court held that there was

a warranty since before Moles bought the printer, he

asked Diolosa to issue a certification as to the

condition of the machine and he only bought the

machine because of Diolosa’s convincing that it was


in A-1 condition and that he trusted the person of

Diolosa who was known in the publishing industry.

Q: So would that mean an implied or express

warranty?

A: The Supreme Court here held that it was an

express warranty on the part of Diolosa since he

issued the certification saying that the machine was in

A-1 condition.

Q: Would it not be considered as dealer’s talk or

trader’s talk?

A: No, this cannot be considered as dealer’s talk as

the reason why Moles bought the secondhand

machine was because of the certification made by

Diolosa and because of the trust he put in the word of

Diolosa.

Q: What do you mean by dealer’s talk?

A: It means that the dealer tend to exaggerate on the

certain aspects of the machine or thing in order to sell

it. But it does not mean that there is fraud or

misrepresentation.

Q: How about the issue on prescription? What

was the prescriptive period applied here since it

was an express warranty?

A: Although Article 1570 provides for a prescriptive

period of 6 months, the Court here held the general

rule in the rescission of the contracts which is 4 years.

And in this case since it was still 1 year, so

prescription did not lie.

MOLES VS IAC: So the subject matter here was a

secondhand item, general rule: no warranty. However

in this case there was a certification issued by the

private respondent as to the A-1 condition of the

machine. And therefore, this is considered as an

express warranty. The certification was a condition

sine qua non for the release of the loan to be used as

payment for the purchase price. Now, this was not

considered to be dealer’s talk. Recall dealer’s talk,

usual exaggerations in trade for the seller to make

sale and they do not appear on the face of the

contract and do not bind either parties. Ordinarily,

what does not appear in the written instrument should

be regarded as a dealer’s talk but here, the

representation was made in the document and

therefore it could not be considered as a dealer’s talk.

As to the prescriptive period, what was applied here

was the 4 year prescriptive period, general rule in

rescission as what is involved here is an express

warranty.

October 5, 2015

So we already started our discussion as to the implied warranties. So we have five. The seller must have the right to sell. So that’s under Art. 1547. Also under that is warranty against eviction; that the buyer shall enjoy legal and peaceful possession of the thing, and this is further explained in Art. 1548. Take note of the requisites for the seller to become liable for breach of warranty against eviction. First, there must be deprivation of the vendee of the whole or part of the thing purchased. Second, deprivation must be by final judgment.

Third, deprivation must be based on a right prior to the sale, or an act imputable to the vendor. Fourth, the vendor must be summoned in the suit for eviction at the instance of the vendee. And of course, there must be NO waiver of warranty by the vendee.

POWER COMMERCIAL V. CA (June 20, 1997) FACTS:

Petitioner asbestos manufacturer Power Commercial and industrial corporation bought the property of spouses Reynaldo and Angelita Quiambao located in Makati City. Since there are lessees occupying the subject land, part of the deed of sale is a warranty of respondents that will defend its title and peaceful possession in favor of the petitioners. The property is mortgage to PNP and as such, petitioners filed a request to assume responsibility of the mortgage. Because of petitioners failure to produce the required papers, their petition was denied. Petitioners allege that the contract should be rescinded because of failure of delivery. ISSUE:

WON the contract is recissible due to breach of contract. NO

HELD:

There is no breach of contract in this case since there is no provision in the contract that imposes the obligation to the respondents to eject the people occupying the property. There was also a constructive delivery because the deed of sale was made in a public document. The contention of the petitioners that there could be no constructive delivery because the respondents are not in possession of the property is of no merit. What matters in a constructive delivery is control and not possession. Control was placed in the hands of the petitioners that is why they were able to file an ejectment case. Prior physical delivery or possession is not legally required and the execution of the deed of sale is deemed equivalent to delivery.

Alright. Take note that the requisites for breach of warranty must ALL exist, for the seller to be held liable for such breach. In this case, the SC pointed out the distinction that what we have here is not a condition but only a warranty. It could not be considered as a condition because the parties never agreed that as to the performance of the sale, there was this condition that the present occupants should leave the property. Nothing was stipulated in their contract. Rather what we have here is a warranty against eviction, and not a condition that was not met. However, despite that existence of warranty, there’s no breach of warranty against eviction due to the fact that not all the requisites required under the law are present. Furthermore, it was also emphasized that the deprivation in the public auction is due to petitioner’s fault and not to any act attributable to the vendor spouses.


We have also discussed last time, what can the buyer demand from the seller in case of breach of warranty against eviction? So you have Art. 1555 and 1556. With regard to birth (?), take note of Art. 1553: waiver is void when the same is in bad faith; and Art. 1554: two kinds of waiver – consciente and intencionada. Third kind is WARRANTY AGAINST NON-APPRARENT SERVITUDES under Art. 1560.

Art. 1560.

If the immovable sold should be encumbered with any non-apparent burden or servitude, not mentioned in the agreement, of such a nature that it must be presumed that the vendee would not have acquired it had he been aware thereof, he may ask for the rescission of the contract, unless he should prefer the appropriate indemnity. Neither right can be exercised if the non-apparent burden or servitude is recorded in the Registry of Property, unless there is an express warranty that the thing is free from all burdens and encumbrances. Within one year, to be computed from the execution of the deed, the vendee may bring the action for rescission, or sue for damages. One year having elapsed, he may only bring an action for damages within an equal period, to be counted from the date on which he discovered the burden or servitude.

Let’s proceed to another common warranty which is the WARRANTY AGAINST HIDDEN DEFECTS. We have Art. 1561.

Art. 1561.

The vendor shall be responsible for warranty against the hidden defects which the thing sold may have, should they render it unfit for the use for which it is intended, or should they diminish its fitness for such use to such an extent that, had the vendee been aware thereof, he would not have acquired it or would have given a lower price for it; but said vendor shall not be answerable for patent defects or those which may be visible, or for those which are not visible if the vendee is an expert who, by reason of his trade or profession, should have known them.

Requisites for warranty against hidden defects:

1. It must be serious or important 2. Must be hidden 3. Must exist at the time of the sale 4. The vendee must give notice of defect to the

vendor within a reasonable time 5. The remedies must be brought within 6

months from delivery, or 40 days from delivery in case of animals

6. There must be no waiver of warranty executed by the vendee

Take not, it must be HIDDEN. Not patent, but rather latent defects. Or those which are NOT visible if the vendee is an expert wherein he should have known such defect. We also have Art. 1562.

Art. 1562.

In a sale of goods, there is an implied warranty or condition as to the quality or fitness of the goods, as follows: (1) Where the buyer, expressly or by implication,

makes known to the seller the particular purpose

for which the goods are acquired, and it appears that the buyer relies on the seller's skill or judgment (whether he be the grower or manufacturer or not), there is an implied warranty that the goods shall be reasonably fit for such purpose;

(2) Where the goods are brought by description from a seller who deals in goods of that description (whether he be the grower or manufacturer or not), there is an implied warranty that the goods shall be of merchantable quality.

In relation to this, we have the case of:

NUTRIMIX FEEDS CORP. V. CA

FACTS:

In 1993, private respondent spouses Evangelista procured various animal feeds from petitioner Nutrimix Feeds Corp. the petitioner gave the respondents a credit period of 30-45 days to postdate checks to be issued as payment for the feeds. The accommodation was made apparently because the company’s president was a close friend of Evangelista. The various animal feeds were paid and covered by checks with due dates from July 1993-September 1993. Initially, the spouses were good paying customers. However, there were instances when they failed to issue checks despite the delivery of goods. Consequently, the respondents incurred an aggregate unsettled account with Nutrimix amounting to P766,151 When the checks were deposited by the petitioner, the same were dishonored (closed account). Despite several demands from the petitioner, the spouses refused to pay the remaining balance Thereafter, Nutrimix filed a complaint against Evangelista for collection of money with damages. The respondents admitted their unpaid obligation but impugned their liability. The nine checks issued were made to guarantee the payment of the purchases, which was previously determined to be procured from the expected proceeds in the sale of their broilers and hogs. They contended that inasmuch as the sudden and massive death of their animals was caused by the contaminated products of the petitioner, the nonpayment of their obligation was based on a just and legal ground. The respondents also lodged a complaint for damages against the petitioner, for the untimely and unforeseen death of their animals supposedly effected by the adulterated animal feeds the petitioner sold to them. Nutrimix alleged that the death of the respondents’ animals was due to the widespread pestilence in their farm. The petitioner, likewise, maintained that it received information that the respondents were in an unstable financial condition and even sold their animals to settle their obligations from other enraged and insistent creditors. It, moreover, theorized that it was the respondents who mixed poison to its feeds to make it appear that the feeds were contaminated. The trial court held in favor of petitioner on the ground that it cannot be held liable under Articles 1561 and 1566 of the Civil Code governing “hidden defects” of commodities sold. The trial court is predisposed to believe that the subject feeds were contaminated sometime between their storage at the bodega of the


Evangelistas and their consumption by the poultry and hogs fed therewith, and that the contamination was perpetrated by unidentified or unidentifiable ill-meaning mischief-maker(s) over whom Nutrimix had no control in whichever way. CA modified the decision of the trial court, citing that respondents were not obligated to pay their outstanding obligation to the petitioner in view of its breach of warranty against hidden defects. The CA gave much credence to the testimony of Dr. Rodrigo Diaz, who attested that the sample feeds distributed to the various governmental agencies for laboratory examination were taken from a sealed sack bearing the brand name Nutrimix ISSUE:

WON Nutrimix is guilty of breach of warranty due to hidden defects HELD:

NO. The provisions on warranty against hidden defects are found in Articles 1561 and 1566 of the New Civil Code of the Philippines. A hidden defect is one which is unknown or could not have been known to the vendee. Under the law, the requisites to recover on account of hidden defects are as follows: a) the defect must be hidden; b) the defect must exist at the time the sale was

made; c) the defect must ordinarily have been excluded

from the contract; d) the defect, must be important (renders thing

UNFIT or considerably decreases FITNESS); e) the action must be instituted within the statute of

limitations In the sale of animal feeds, there is an implied warranty that it is reasonably fit and suitable to be used for the purpose which both parties contemplated. To be able to prove liability on the basis of breach of implied warranty, three things must be established by the respondents. The first is that they sustained injury because of the product; the second is that the injury occurred because the product was defective or unreasonably unsafe; and finally, the defect existed when the product left the hands of the petitioner. A manufacturer or seller of a product cannot be held liable for any damage allegedly caused by the product in the absence of any proof that the product in question was defective. The defect must be present upon the delivery or manufacture of the product; or when the product left the seller’s or manufacturer’s control; or when the product was sold to the purchaser; or the product must have reached the user or consumer without substantial change in the condition it was sold. Tracing the defect to the petitioner requires some evidence that there was no tampering with, or changing of the animal feeds. The nature of the animal feeds makes it necessarily difficult for the respondents to prove that the defect was existing when the product left the premises of the petitioner. A review of the facts of the case would reveal that the petitioner delivered the animal feeds, allegedly containing rat poison, on July 26, 1993; but it is astonishing that the respondents had the animal feeds examined only on October 20, 1993, or barely three months after their broilers and hogs had died. A difference of approximately three months enfeebles the respondents’ theory that the petitioner is guilty of breach of warranty by virtue of hidden defects. In a span of three months, the feeds could have already been contaminated by outside factors and subjected

to many conditions unquestionably beyond the control of the petitioner. Even more surprising is the fact that during the meeting with Nutrimix President Mr. Bartolome, the respondents claimed that their animals were plagued by disease, and that they needed more time to settle their obligations with the petitioner. It was only after a few months that the respondents changed their justification for not paying their unsettled accounts, claiming anew that their animals were poisoned with the animal feeds supplied by the petitioner.

So there was no breach of warranty against hidden defects here. Why? First, the SC again pointed out here the requisites to recover on account of hidden defects. It must be hidden, exists at the time of sale, must ordinarily excluded from the contract (?), important, and the action must be instituted within the Statute of Limitations. Under the facts of this case, it was not shown that the defect existed at the time of the sale. In a span of 3 months, the feeds could have easily been contaminated by outside factors and subjected to many conditions unquestionably beyond the control of the petitioner. The SC also pointed out, in relation to Art. 1562, the implied warranty that the product sold would be reasonably fit and suitable to be used for the purpose which the parties contemplated. Because of that period of possible contamination, the SC held that there could be no liability for breach of warranty against hidden defects. Take note under Art. 1562, we have 2 kinds of implied warranties there. This is in connection with the implied warranty against hidden defects. We have the implied warranty as to the MERCHANTABILITY of the goods. When we talk about merchantability: General purpose, that the goods shall be of merchantable quality for the general purpose. And then warranty as to the FITNESS: that the goods that were bought are reasonably fit for such specific purpose.

Art.1563.

In the case of contract of sale of a specified article under its patent or other trade name, there is no warranty as to its fitness for any particular purpose, unless there is a stipulation to the contrary.

So sale under Patent or Tradename: no warranty as to its fitness for any particular purpose unless there is a stipulation to the contrary. Under Art. 1564, implied warranty with regard to the usage of trade.

Art. 1564.

An implied warranty or condition as to the quality or fitness for a particular purpose may be annexed by the usage of trade.

Then Art. 1565, with regard to a sale by sample.

Art. 1565.

In the case of a contract of sale by sample, if the seller is a dealer in goods of that kind, there is an implied warranty that the goods shall be free from any defect rendering them unmerchantable which would not be apparent on reasonable examination of the sample.

Take note of:

Art. 1566.


The vendor is responsible to the vendee for any hidden faults or defects in the thing sold, even though he was not aware thereof. This provision shall not apply if the contrary has been stipulated, and the vendor was not aware of the hidden faults or defects in the thing sold.

Art. 1566 tells us that the good faith on the part of the vendor is not a defense available to him. So whether he had knowledge or not of the said hidden defects, he could still be held liable. However, this do not apply if the contrary has been stipulated and the vendor was not aware of the hidden defaults or defects in the thing sold. In other words, there is a waiver on the part of the vendee, but there is no bad faith on the part of the vendor. But then again, just because the vendor was not aware of the said hidden defects does not necessarily mean that he could not be held liable. Now we have the case of Supercars:

SUPERCARS MANAGEMENT AND DEVELOPMENT CORPORATION v. FLORES

FACTS:

Respondent Flores bought an Isuzu Carter Crew Cab from petitioner. The RCBC financed the balance of the purchase price. Its payment was secured by a chattel mortgage of the same vehicle. However, defects of the car emerged when respondent was using it. These defects persuaded respondent Flores to rescind the contract with petitioner and stop the payment of the balance for the aforesaid car. As a result, RCBC bank opted to file a petition for Extrajudicial Foreclosure of Chattel Mortgage. The car was then sold at a public auction and RCBC acquired the same. It was later sold to a third person. Petitioner contends that respondent has "no right to rescind the contract of sale" because the motor vehicle in question is already in the hands of a third party. Hence, Article 1191 can no longer be availed of by the respondent. ISSUE:

Whether or not Article 1191 can no longer be availed of by respondent Flores. RULING:

Article 1191 is applicable. Rescission is proper if one of the parties to a contract commits a substantial breach of its provision. It creates an obligation to return the object of the contract. It can be carried out only when the one who demands rescission can return whatever he may obliged to restore. Rescission abrogates the contract from its inception and requires a mutual restitution of the benefits received. Respondent is not obliged to return the car; while petitioner is obliged to return what has been paid.

Take note that when we’re talking about hidden defects, of course if you are the buyer, even if there is an implied warranty against hidden defects, before purchase you also check the quality thereof. That’s why we have this Latin maxim: CAVEAT EMPTOR – Buyer Beware. We also have the corresponding principle with regard to the vendor. With regard to warranty against hidden

defects, the good faith on the part of the vendor could not be used as a defense so as not be held liable. So that is CAVEAT VENDITOR. The seller must also be aware of the nature of the property he is selling, because otherwise if there is a hidden defect, he could still be held liable despite good faith.

Art. 1567.

In the cases of Articles 1561, 1562, 1564, 1565 and 1566, the vendee may elect between withdrawing from the contract and demanding a proportionate reduction of the price, with damages in either case.

So you have here 2 remedies in relation to warranty against hidden defects, provided in Art. 1561, 1562, 1564, 1565, and 1566. You have Accion Redhibitoria, and Accion Quanti-minoris. So with regard to remedy drawing from the

sale, we have Accion redhibitoria: proportionate reduction, and accion quanti-minoris: damages in either case.

Art. 1568.

If the thing sold should be lost in consequence of the hidden faults, and the vendor was aware of them, he shall bear the loss, and shall be obliged to return the price and refund the expenses of the contract, with damages. If he was not aware of them, he shall only return the price and interest thereon, and reimburse the expenses of the contract which the vendee might have paid.

You apply Art. 1568 if the reason of the loss is the hidden defects, and the vendor was aware of them. So the vendor shall bear the loss, must return the price, and refund the expenses. If he was not aware of them, but again the loss was due to the hidden faults, his liability is to return the price and interest, and reimburse the expenses.

Art. 1569.

If the thing sold had any hidden fault at the time of the sale, and should thereafter be lost by a fortuitous event or through the fault of the vendee, the latter may demand of the vendor the price which he paid, less the value which the thing had when it was lost.

This time in Art. 1569, the thing was lost NOT due to the hidden defect, but because of a fortuitous event or thru the fault of the vendee. Nevertheless, the said subject matter HAD a hidden defect at the time of its loss. So here the remedy is to demand the vendor the price which was paid, LESS the value which the thing has when it was lost. However, if the vendor is in bad faith, he shall also be liable for damages. So what are the remedies here that we have discussed? The remedies available to the BUYER:

1. Withdraw from the contract with damages (1567)

2. Demand a proportionate reduction of the price with damages (1567)

3. Demand from the seller the return of the price, refund of the expenses with damages, if the thing sold should be lost in consequence of the hidden faults and the seller was aware of such faults (1568)

4. Demand from the seller the return of the price and interest, reimbursement of the expenses of the contract which the buyer might have paid, if the thing sold should be lost in consequence of the hidden faults, and


the seller was NOT aware of such faults (1568)

5. Demand the price, less the value which the thing had when it was lost, if the thing sold had hidden faults at the time of the sale and thereafter lost thru fortuitous event or fault by the buyer (1569)

6. Demand the price paid, less the value which the thing had when it was lost plus damages, if the thing sold had any hidden

fault at the time of the sale and thereafter lost thru fortuitous event or fault by the buyer, AND the seller acted in bad faith (1569)

Art. 1570 and the next articles shall apply to judicial sales except that the judgment debtor should not be

liable for damages.

Prescriptive period –

Art. 1571.

Actions arising from the provisions of the preceding ten articles shall be barred after six months, from the delivery of the thing sold.

Again, 6 months from the delivery of the thing sold.

I would also like to discuss to you very briefly RA 7394 (Consumer Act), because it also discusses the

remedies available under the said special law.

RA 7394 refers to consumer products, goods which are primarily for personal, family, household, or agricultural purposes which shall include but not limited to food, drugs (not the illegal ones), cosmetics and devices. Take note what are the things or goods covered under the said law.

We have under the said law, Art. 68 with regard to warranty.

Art. 68.

a) Terms of express warranty. – Any seller or manufacturer who gives an express warranty shall:

1) set forth the terms of warranty in clear and readily understandable language and clearly identify himself as the warrantor;

2) identify the party to whom the warranty is extended;

3) state the products or parts covered; 4) state what the warrantor will do in the event

of a defect, malfunction of failure to conform to the written warranty and at whose expense;

5) state what the consumer must do to avail of the rights which accrue to the warranty; and

6) stipulate the period within which, after notice of defect, malfunction or failure to conform to the warranty, the warrantor will perform any obligation under the warranty.

Xxx

d) Minimum standards for warranties. – For the warrantor of a consumer product to meet the minimum standards for warranty, he shall:

1) remedy such consumer product within a reasonable time and without charge in case of a defect, malfunction or failure to conform to such written warranty;

2) permit the consumer to elect whether to ask for a refund or replacement without charge of such product or part, as the case may be, where after reasonable number of attempts to remedy the defect or malfunction, the

product continues to have the defect or to malfunction.

The warrantor will not be required to perform the above duties if he can show that the defect, malfunction or failure to conform to a written warranty was caused by damage due to unreasonable use thereof.

By now you very well know that even if stores will post “No return, no exchange” policy, that is not necessarily true. Of course if the good sold has hidden defects, you can return it or have it exchanged. But just because we know that the “No return, no exchange” is not really a policy under our law, it does not necessarily mean that for every contract sale, you can return it. That is with regard to hidden defects. Just because you changed your mind, just like when a girl changes clothes, ay di na diay ko ganahan ani nga color, gwapo lang diay ang suga sa fitting room kaso paglabas iba na pala, pangit pala ang tingin mo sa sarili mo, you cannot return it to the store just because you changed your mind.

Even with regard to sizes, you cannot necessarily say na “ay ipa change kay namali ug size.” That’s not one of those provided under the rule. But if the store is willing to change that, because you miscalculated the size, there's no problem if the store itself will allow that. But you cannot force the store based on the Consumer Act.

What is protected by the law is to return goods bought from a store because of the hidden defects. They cannot say na “wala man gud nimo gitan-aw. So dapat before nimo gitan-aw, Makita nmo na kulang ang butones, may tahi na loose ends, so you can return it based on those kind of defense. In the same law, you have there the period of warranty.

It is also mandated that all written warranties or guarantees issued by a manufacturer, producer, or importer shall be operative from the moment of sale. Nevertheless, the seller and the consumer may stipulate the period within which the express warranty shall be enforceable. If the implied warranty on merchantability accompanies an express warranty, 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 new consumer products.

It is still under art. 68, the period within which the express warranty shall be enforceable, normally yung 7 days, diba within 7 days you can return it or have it exchanged. Because they deem it na if you are going to purchase such goods, this is reasonable time for you to check if these are of good quality or without hidden defects. For any other kinds of implied warranty, not less

than 60 days but not more than 1 year. But again this is with regard to goods that are covered by the Consumer Act. So yung sabi natin na 6 months, those are as to goods that are not covered by the Consumer Act. So that’s the law here in the Philippines. Because in other countries, meron mang “no return, no exchange,


no questions asked”. Sometimes, I think, as long as andiyan pa yung tag. This one, cameras. As long as they take care of it and within the period provided, then ibalik nila basta walang defect, parang brand new pa rin siya. Pwede yun sa States, ditto di yan pwede ha. Now let’s go to HIDDEN DEFECTS ON ANIMALS.

Art. 1572.

If two or more animals are sold together, whether for a lump sum or for a separate price for each of them, the redhibitory defect of one shall only give rise to its redhibition, and not that of the others; unless it should appear that the vendee would not have purchased the sound animal or animals without the defective one. The latter case shall be presumed when a team, yoke pair, or set is bought, even if a separate price has been fixed for each one of the animals composing the same.

Alright, redhibitory defects on animals. It’s not just a hidden defect, this is very particular to animals wherein even in case of professional inspection, it is of such nature that expert knowledge is not sufficient to discover it. Under Art. 1572, yung two or more animals sold together, regardless if lump sum or for a separate price, the redhibitory defect of one shall not give rise to the redhibition of the other that was sold. That’s the general rule. Unless, it should appear that they

wouldn’t have purchased that animal without the defect, without the other one which has a defect. For example, lovebirds. Pair man jud yan ginabili. Makabili k aba ng lovebirds na isa lang? Or lovebird pa rin ba sya kung isa lang? Sabi nila diba na if mamatay yung isang lovebird, mamatay na rind aw yung isa. So if binili mo yung lovebirds, then at the time of sale may sakit na yung isa, so what is the effect? The redhibitory defect applies here. It applies to both. But again, that is only applicable if you wouldn’t have bought the one without the other. Otherwise, the redhibitory effect will not affect the other, where you can apply breach of warranty. So again, presumption applies that the defect of one affects the other when you buy a team, a pair, even if for separate prices.

Art. 1574.

There is no warranty against hidden defects of animals sold at fairs or at public auctions, or of live stock sold as condemned.

You already know that when you bought these animals, they were already sold as such.

Art. 1575.

The sale of animals suffering from contagious diseases shall be void. A contract of sale of animals shall also be void if the use or service for which they are acquired has been stated in the contract, and they are found to be unfit therefor.

So sale of animals suffering from contagious diseases, yung Mad Cow, Bird Flu. The law is very clear, void yung sale. What do we have here? The subject matter is not valid, and the law specifically provides that the sale is VOID. Also void, if the use or service for which they are acquired has been stated in the contract, and they are found to be unfit therefor. For example, you purchase a cow, and you specifically want a breeding cow, so yun yung purpose mo. So what would happen if it turns out that hindi siya maka breed kay lalaki pala. VOID din ang sale.

Art. 1576.

If the hidden defect of animals, even in case a professional inspection has been made, should be of such a nature that expert knowledge is not sufficient to discover it, the defect shall be considered as redhibitory. But if the veterinarian, through ignorance or bad faith should fail to discover or disclose it, he shall be liable for damages.

So as mentioned, the 1st paragraph provides when is the defect considered redhibitory, and the 2

nd

paragraph is the liability of the veterinarian in case of his ignorance or bad faith, he fails to discover or disclose the redhibitory defect. Now prescriptive period, Art. 1577.

Art. 1577.

The redhibitory action, based on the faults or defects of animals, must be brought within forty days from the date of their delivery to the vendee. This action can only be exercised with respect to faults and defects which are determined by law or by local customs.

Alright, so yung 6 months will not apply to animals because when it comes to animals, 40 days from the date of their delivery. Very easy to remember, 40 days animals = 40 days Noah’s ark.

Art. 1578.

If the animal should die within three days after its purchase, the vendor shall be liable if the disease which cause the death existed at the time of the contract.

Art. 1579

If the sale be rescinded, the animal shall be returned in the condition in which it was sold and delivered, the vendee being answerable for any injury due to his negligence, and not arising from the redhibitory fault or defect.

So rescission, ibalik yung animal. But take note that the vendee will still have to exercise diligence. Just because may sakit, ah mamatay na bitaw na, di napud nimo pakaunon. The vendee still has to take care of it because any further injury NOT arising from

the redhibitory defect, the vendee shall be held liable.

Art. 1580.

In the sale of animals with redhibitory defects, the vendee shall also enjoy the right mentioned in article 1567; but he must make use thereof within the same period which has been fixed for the exercise of the redhibitory action.


Art. 1581.

The form of sale of large cattle shall be governed by special laws.

October 6, 2015

PART IX: EXTINGUISHMENT OF SALE

Last stage in a contract of sale – the extinguishment thereof. The grounds in extinguishing a contract of sale is the same as that with what you discussed under your Obligations and Contracts. Take a look at article 1600 wherein it states that Sales are extinguished by the same causes as all other obligations, by those stated in the preceding articles of this Title, and by conventional or legal redemption.In other words we have payment, performance, loss of the thing due, novation, condonation and confusion or merger of rights, as well as the happening of a resolutory condition, prescription, among others. Now, this Chapter 7 in Contract of Sales deals specifically with conventional redemption. These are special modes of extinguishing a contract, specifically applicable to contracts of sale only. There are 2 kinds of redemption that are mentioned here: conventional redemption and legal redemption. Article 1601 – Article 1618 deals with conventional redemption, while the rest of the article, 1619 until 1623 refer to legal redemption. Distinction between these two types of redemption: when you talk about conventional redemption, you already know that when you say conventional, it is by agreement by the parties. Voluntarily agreed upon by the parties. What happens here that yung conventional redemption must be reserved at the time of the perfection of a contract of sale. In other words, the parties must stipulate therein that the right to redeem or the right to repurchase as to the seller is available. With conventional redemption, the right which the vendor reserves to himself to reacquire the property sold must be provided in the contract of sale, provided he returns to the vendee the price of the sale, expenses, other legitimate payments necessary useful expenses and other stipulations as agreed upon by the parties. Take note here, that in a conventional redemption, the right is exercised only by the seller to whom right is recognized in the contract or by any person to whom right was transferred, again, must be in the same contract. The vendor here reserves the right to himself to reacquire the property sold, of course with reimbursement. With the succeeding articles in this chapter, we will also deal with the period when can the seller redeem the said property that he has already sold. To distinguish from legal redemption, legal redemption, certain persons are given the right, under the law, to redeem the property that was already sold. You have here, with regard to co-owners, adjoining co-owners, even co-heirs and as well as sale on credit in obligation. Conventional Redemption

Article 1601. Conventional redemption shall take place when the vendor reserves the right to repurchase the thing sold, with the obligation to comply with the provisions of article 1616 and other stipulations which may have been agreed upon.

This is what I have mentioned to you earlier. Article 1616 refers to those expenses that should be reimbursed by the vendor to the vendee. You have this important provision, Article 1602.

ARTICLE 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases:

(1) When the price of a sale with right to repurchase is unusually inadequate; (2) When the vendor remains in possession as lessee or otherwise; (3) When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed; (4) When the purchaser retains for himself a part of the purchase price; (5) When the vendor binds himself to pay the taxes on the thing sold; (6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation.

In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall be considered as interest which shall be subject to the usury laws.

You have in Article 1602 several instances wherein if any of the following are present, the contract shall be presumed an equitable mortgage. What is an equitable mortgage?

ALUDOS VS SUERTE

FACTS: Lomises acquired from Baguio City

Government the right to occupy two stalls in the Hangar Market in Baguio City. Lomises entered into an agreement with respondent johnnySuerte for the transfer of all improvements and rights over the two market stalls. Suerte gave down payment and there is a receipt. Suerte gave another payment but before the completion of payment, Lomises backed out of the agreement and returned what was paid and there was a receipt for this. Johnny did not want the return of his money and wanted the continuation and enforcement of his agreement. He filed for specific performance with damages. RTC: nullified the agreement between johnny and Lomises for failure to secure the consent of the baguio city government and held that Lomises are merely lessees and the government was the lessor owner of stalls. Lomises appealed to CA: the real agreement between the parties was merely one of loan and not for sale. The load had been extinguished upon the return of amount to Johnny’s mother Domes. CA: there are two agreements entered into between Johnny and Lomises: one for assignment of leasehold rights and the other was for the sale of the improvements on the market stalls. The assignment of leasehold rights was void for lack of consent of the lessor, Baguio government. The sale of improvements


was valid because there were Lomises private properties. Petitioner: agreement was a loan. ISSUE: W/N the CA was correct in characterizing the

agreement between Johnny and Lomises as a sale of improvements and assignment of leasehold rights HELD: What existed was an equitable mortgage, as

contemplated in Article 1602, in relation with Article 1604, of the Civil Code. “An equitable mortgage has been defined ‘as one which although lacking in some formality, or form or words, or other requisites demanded by a statute, nevertheless reveals the intention of the parties to charge real property as security for a debt, there being no impossibility nor anything contrary to law in this intent. Article 1602 of the Civil Code lists down the circumstances that may indicate that a contract is an equitable mortgage: Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases: When the price of a sale with right to repurchase is unusually inadequate; When the vendor remains in possession as lessee or otherwise; When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed; When the purchaser retains for himself a part of the purchase price; When the vendor binds himself to pay the taxes on the thing sold; In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation. In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall be considered as interest. Based on Lomises’ allegations in his pleadings, we consider three circumstances to determine whether his claim is well supported. First, Johnny was a mere college student dependent on his parents for support when the agreement was executed, and it was Johnny’s mother, Domes, who was the party actually interested in acquiring the market stalls. Second, Lomises received only P48,000.00 of the P68,000.00 that Johnny claimed he gave as down payment; Lomises said that the P20,000.00 represented interests on the loan. Third, Lomises retained possession of the market stalls even after the execution of the agreement. Whether separately or taken together, these circumstances do not support a conclusion that the parties only intended to enter into a contract of loan. That Johnny was a mere student when the agreement was executed does not indicate that he had no financial capacity to pay the purchase price. At that time, Johnny was a 26-year old third year engineering student who operated as a businessman as a sideline activity and who helped his family sell goods in the Hangar Market. During trial, Johnny was asked where he was to get the funds to pay the P260,000.00 purchase price, and he said he would get a loan from his grandfather. That he did not have the full amount at the time the agreement was executed does not necessarily negate his capacity to pay the purchase price, since he had 16 months to complete the payment. Apart from Lomises’ bare claim that it was Johnny’s mother, Domes, who was interested in acquiring his market stalls, we find no other evidence supporting the claim that Johnny was merely acting

as a dummy for his mother. Lomises contends that of the P68,000.00 given by Johnny, he only received P48,000.00, with the remaining P20,000.00 retained by Johnny as interest on the loan. However, the testimonies of the witnesses presented during trial, including Lomises himself, negate this claim. Judge Rodolfo Rodrigo (RTC of Baguio City, Branch VII) asked Lomises’ lawyer, Atty. Lockey, if they deny receipt of the P68,000.00; Atty. Lockey said that they were not denying receipt, and added that they had in fact returned the same amount. Judge Rodrigo accurately summarized their point by stating that “there is no need to dispute whether the P68,000.00 was given, because if [Lomises] tried to return that x xx he had received that. Witness Atty. Albert Umaming said he counted the money before he drafted the October 9, 1985 receipt evidencing the return; he said that Lomises returned P68,000.00 in total. Thus, if the transaction was indeed a loan and the P20,000.00 interest was already prepaid by Lomises, the return of the full amount of P68,000.00 by Lomises to Johnny (through his mother, Domes) would not make sense. That Lomises retained possession of the market stalls even after the execution of his agreement with Johnny is also not an indication that the true transaction between them was one of loan. Johnny had yet to complete his payment and, until Lomises decided to forego with their agreement, had four more months to pay; until then, Lomises retained ownership and possession of the market stalls. Lomises cannot feign ignorance of the import of the terms of the receipt of September 8, 1984 by claiming that he was an illiterate old man. A witness (Ana Comnad) testified not only of the fact of the sale, but also that Lomises’ daughter, Dolores, translated the terms of the agreement from English to Ilocano for Lomises’ benefit. Lomises himself admitted this fact. If Lomises believed that the receipt of September 8, 1984 did not express the parties’ true intent, he could have refused to sign it or subsequently requested for a reformation of its terms. Lomises rejected the agreement only after Johnny sought to enforce it. Hence, the CA was correct in characterizing the agreement between Johnny and Lomises as a sale of improvements and assignment of leasehold rights.

What do you mean by an equitable mortgage? Do you have an Equitable Mortgage in this case? What was the contract entered into by the parties in this case? In this case of Aludos vs. Suerte, you have there, as well as in other cases decided by the Supreme Court, the definition of an equitable mortgage. – “one which although lacking in some formality” in other words, lacks the formality of a mortage which we will discuss later on in your credit transactions, “or form or words, or other requisites demanded by a statute, nevertheless reveals the intention of the parties to charge real property as security for a debt,” because that is the purpose of mortgage. It is an accessory contract wherein it secures the principal obligation which is a debt or a loan. But in an equitable mortgage, what the parties executed can be a deed of sale or contracts of sale with a right to repurchase, but the true intention was really to have that document or to have the property covered in that contract as a security for the debt. Here, there being no impossibility nor anything contrary to law in this intent.


In this case it was alleged that there was a loan and what was the intention when they executed the contract, it was merely an equitable mortgage. What were the allegations here? Johnny was just a student and therefore could not afford to pay the purchase price; and that while he received 68 000, 20 000 was only interest and third, retention of the possession by the petitioner as to the market stalls. Under 1602, you have there in (2) When the vendor remains in possession as lessee or otherwise. That was the basis of the allegation here of the petitioner that what they have was an equitable mortgage. But the Supreme Court said “no”. These circumstances will not support a conclusion that the parties only intended to enter into a contract of loan. The mere fact that Johnny was a mere student does not mean that he could not afford to purchase. The fact that it was payable in installment would also mean that he can afford it. Second, It would be impossible to have that 20 000 considered as interest because there was an allegation here that it was the full amount of 68000 was returned. If it was really an interest, why would it be returned to the parents of Johnny? Lastly, the retention of the possession of the market stalls, even after the execution of the contract will not result to an equitable mortgage because here, successive payments is yet to be made by Johnny. So the true intention here was really a contract of sale.

KINGS PROPERTIES CORP., VS. CANUTO A. GALIDO

FACTS: This case involves an action for cancellation

of certificates of title, registration of deed of sale and issuance of certificates of title filed by Canuto A. Galido before the RTC of Antipolo City. On April 18, 1966, the heirs of Eniceo, namely Rufina and Maria Eniceo, were awarded with Homestead Patent consisting of four parcels of land located in San Isidro, Antipolo, Rizal. The Antipolo property with a total area of 14.8882 hectares was registered under OCT No. 535. The issuance of the homestead patent was subject to the following conditions: “To have and to hold the said tract of land, with the appurtenances thereunto of right belonging unto the said Heirs of Domingo Eniceo and to his heir or heirs and assigns forever, subject to the provisions of sections 118, 121, 122 and 124 of Commonwealth Act No. 141, as amended, which provide that except in favor of the Government or any of its branches, units or institutions, the land hereby acquired shall be inalienable and shall not be subject to incumbrance for a period of five (5) years next following the date of this patent, and shall not be liable for the satisfaction of any debt contracted prior to the expiration of that period; that it shall not be alienated, transferred or conveyed after five (5) years and before twenty-five (25) years next following the issuance of title, without the approval of the Secretary of Agriculture and Natural Resources; that it shall not be incumbered, alienated, or transferred to any person, corporation, association, or partnership not qualified to acquire public lands under the said Act and its amendments; x xx” On September 1973, a deed of sale covering the Antipolo property was executed between RufinaEniceo and Maria Eniceo as vendors and respondent as vendee. The property was sold to

respondent for P250,000. A certain Carmen Aldana delivered the owner's duplicate copy of OCT No. 535 to respondent. On 1988, the Eniceo heirs registered with the Registry of Deeds a Notice of Loss of the owner's copy of OCT No. 535. RTC rendered a decision finding that the certified true copy of OCT No. 535 contained no annotation in favor of any person, corporation or entity. The RTC ordered the Registry of Deeds to issue a second owner's copy of OCT No. 535 in favor of the Eniceo heirs and declared the original owner's copy of OCT No. 535 canceled and considered no further value. Petitioner states that as early as 1991, respondent knew of the RTC decision because respondent filed a criminal case against RufinaEniceo and Leonila Bolinas for giving false testimony upon a material fact during the trial. They alleged that sometime in 1995, Bolinas came to the office of Alberto Tronio Jr., petitioner's general manager, and offered to sell the Antipolo property. During an on-site inspection, Tronio saw a house and ascertained that the occupants were Bolina's relatives. Tronio also went to the Registry of Deeds to verify the records on file and ascertained that OCT No. 535 was clean and had no lien and encumbrances. After the necessary verification, petitioner decided to buy the Antipolo property. On March 20, 1995, the Eniceo heirs executed a deed of absolute sale in favor of petitioner covering lots 3 and 4 of the Antipolo property for P500,000.00. On August 17, 1995, the Secretary of Department of Environment and Natural Resources (DENR Secretary) approved the deed of sale between the Eniceo heirs and respondent. On January 1996, respondent filed a civil complaint with the trial court against the Eniceo heirs and petitioner praying for the cancellation of the certificatesof title issued in favor of petitioner, and the registration of the deed of sale and issuance of a new transfer certificate of title in favor of respondent. The trial court rendered its decision dismissing the case for lack of legal and factual basis. However, the CA reversed the trial court's decision. ISSUE: Whether the deed of sale delivered to

respondent should be presumed an equitable mortgage pursuant to Article 1602(2) and 1604 of the Civil Code. HELD: Validity of the deed of sale to respondent

The contract between the Eniceo heirs and respondent executed on 10 September 1973 was a perfected contract of sale. A contract is perfected once there is consent of the contracting parties on the object certain and on the cause of the obligation. In the present case, the object of the sale is the Antipolo property and the price certain is P250,000. The contract of sale has also been consummated because the vendors and vendee have performed their respective obligations under the contract. In a contract of sale, the seller obligates himself to transfer the ownership of the determinate thing sold, and to deliver the same to the buyer, who obligates himself to pay a price certain to the seller. The execution of the notarized deed of sale and the delivery of the owners duplicate copy of OCT No. 535 to respondent is tantamount to a constructivedelivery of the object of the sale.


Petitioner invokes the belated approval by the DENR Secretary, made within 25 years from the issuance of the homestead, to nullify the sale of the Antipolo property. The sale of the Antipolo property cannot be annulled on the ground that the DENR Secretary gave his approval after 21 years from the date the deed of sale in favor of respondent was executed. Equitable Mortgage Petitioner contends that the deed of sale in favor of respondent is an equitable mortgage because the Eniceo heirs remained in possession of the Antipolo property despite the execution of the deed of sale. An equitable mortgage is one which although lacking in some formality, or form or words, or other requisites demanded by a statute, nevertheless reveals the intention of the parties to charge real property as security for a debt, and contains nothing impossible or contrary to law. The essential requisites of an equitable mortgage are: 1. The parties entered into a contract denominated as a contract of sale; and 2. Their intention was to secure existing debt by way of a mortgage. Petitioner claims that an equitable mortgage can be presumed because the Eniceo heirs remained in possession of the Antipolo property. Apart from the fact that the Eniceo heirs remained in possession of the Antipolo property, petitioner has failed to substantiate its claim that the contract of sale was intended to secure an existing debt by way of mortgage. In fact, mere tolerated possession is not enough to prove that the transaction was an equitable mortgage. Furthermore, petitioner has not shown any proof that the Eniceo heirs were indebted to respondent. On the contrary, the deed of sale executed in favor of respondent was drafted clearly to convey that the Eniceo heirs sold and transferred the Antipolo property to respondent. The deed of sale even inserted a provision about defrayment of registration expenses to effect the transfer of title to respondent. The Court notes that the Eniceo heirs have not appealed the CAs decision, hence, as to the Eniceo heirs, the CAs decision that the contract was a sale and not an equitable mortgage is now final. Since petitioner merely assumed the rights of the Eniceo heirs, petitioner is now estopped from questioning the deed of sale dated 10 September 1973.

Among the circumstances in 1602, what was the basis of their allegation of an equitable mortgage? Do we have an equitable mortgage here? What was the reason why this was an equitable mortgage? Just mere tolerance? There was failure to show that there was a principal obligation. They only alleged that there is an equitable mortgage because the vendor is in possession of the said property. But if you are going to allege that there is an equitable mortgage, make sure that you will also allege that there is a principal contract being secured by that alleged mortgage. In this case, wala. Here, you have your essential requisites of an equitable mortgage. The Supreme Court defined what an equitable mortgage is with the following essential requisites:

1. The parties entered into a contract denominated as a contract of sale; and 2. Their intention was to secure existing debt by way of a mortgage.

To apply the presumption of equitable mortgage, there must be: (1) something in the language of the contract; or (2) in the conduct of the parties which shows clearly and beyond doubt that they intended the contract to be a mortgage and not a pacto de retro sale. – Pacto de retro sale, contract of sale with right to repurchase. The presumption under 1602 is not conclusive as it can be rebutted by competent and satisfactory proof to the contrary, which is present in this case. It showed that the parties really had an intention for the said sale. Further, petitioner has failed to substantiate its claim that the sale was intended to secure an existing debt by way of mortgage. In fact, mere tolerated possession is not enough to prove that the transaction was an equitable mortgage. Petitioner has not shown any proof that the heirs were indebted to respondent.

HEIRS OF THE LATE SPOUSES BALITE VS. LIM

FACTS: Spouses Aurelio and Esperanza Balite were

the owners of a parcel of land. When Aurelio died intestate, his wife Esperanza and their children inherited the subject property and became co-owners thereof. Esperanza became ill and was in dire need of money for her hospital expenses. She, through her daughter, Criseta, offered to sell to Rodrigo Lim, her undivided share for the price of P1 mil. Esperanza and Rodrigo agreed that under the Deed of Absolute Sale, it will be made to appear that the purchase price of the property was P150,000 although the actual price agreed upon by them for the property was P1mil. On April 16, 1996, Esperanza executed a Deed of Absolute Sale in favor of Rodrigo. They also executed on the same day a Joint Affidavit under which they declared that the real price of the property was P1mil. payable to Esperanza by installments. Only Esperanza and two of her children Antonio and Criseta knew about the said transaction. When the rest of the children knew of the sale, they wrote to the Register of Deeds saying that their mother did not inform them of the sale of a portion of the said property nor did they give consent thereto. Nonetheless, Rodrigo made partial payments to Antonio who is authorized by his mother through a Special Power of Attorney. Esperanza signed a letter addressed to Rodrigo informing the latter that her children did not agree to the sale of the property to him and that she was withdrawing all her commitments until the validity of the sale is finally resolved. Then Esperanza died intestate and was survived by her children. Meanwhile, Rodrigo caused to be published the Deed of Absolute Sale. Petitioners filed a complaint against Rodrigo for the annulment of sale, quieting of title, injunction and damages. Rodrigo secured a loan from the Rizal commercial Banking Corporation in the amount of P2mil and executed a Real Estate Mortgage over the property as security thereof. On motion of the petitioners, they were granted leave to file an amended complaint impleading the bank as additional party defendant. The court issued an order rejecting the amended complaint of the petitioners. Likewise, the court dismissed the complaint and held that pursuant to Article 493 of the Civil Code, a co-owner is not invalidated by the absence of the consent of the co-owners. Hence, the sale by Esperanza of the property was valid; the excess from her undivided


share should be taken from the undivided shares of Criseta and Antonio, who expressly agreed to and benefited from the sale. The CA likewise held that the sale was valid and binding insofar as Esperanza's undivided share of the property was concerned. It affirmed the RTC ruling that the lack of consent of the co-owners did not nullify the sale. ISSUE: Whether or not the Deed of Absolute Sale

was valid. - Deed of Absolute Sale was merely relatively simulated, it remains valid and enforceable. HELD:

Validity of the Sale We have before us an example of a simulated contract. Article 1345 of the Civil Code provides that the simulation of a contract may either be absolute or relative. In absolute simulation, there is a colorable contract but without any substance, because the parties have no intention to be bound by it. An absolutely simulated contract is void, and the parties may recover from each other what they may have given under the contract. On the other hand, if the parties state a false cause in the contract to conceal their real agreement, such a contract is relatively simulated. Here, the parties’ real agreement binds them. In the present case, the parties intended to be bound by the Contract, even if it did not reflect the actual purchase price of the property. That the parties intended the agreement to produce legal effect is revealed by the letter of Esperanza Balite to respondent dated October 23, 1996 and petitioners admission that there was a partial payment of P320,000 made on the basis of the Deed of Absolute Sale. There was an intention to transfer the ownership of over 10,000 square meters of the property . Clear from the letter is the fact that the objections of her children prompted Esperanza to unilaterally withdraw from the transaction. Since the Deed of Absolute Sale was merely relatively simulated, it remains valid and enforceable. All the essential requisites prescribed by law for the validity and perfection of contracts are present. However, the parties shall be bound by their real agreement for a consideration of P1,000,000 as reflected in their Joint Affidavit. Deed of Sale not an Equitable Mortgage For Articles 1602 and 1604 to apply, two requisites must concur: one, the parties entered into a contract denominated as a contract of sale; and, two, their intention was to secure an existing debt by way of mortgage. In the present case, however, the Contract does not merely purport to be an absolute sale. The records and the documentary evidence introduced by the parties indubitably show that the Contract is, indeed, one of absolute sale. There is no clear and convincing evidence that the parties agreed upon a mortgage of the subject property. Furthermore, the voluntary, written and unconditional acceptance of contractual commitments negates the theory of equitable mortgage. There is nothing doubtful about the terms of, or the circumstances

surrounding, the Deed of Sale that would call for the application of Article 1602. The Joint Affidavit indisputably confirmed that the transaction between the parties was a sale. We find no basis to conclude that the purchase price of the property was grossly inadequate. Petitioners did not present any witness to testify as to the market values of real estate in the subjects locale. They made their claim on the basis alone of the P2,000,000 loan that respondent had been able to obtain from the Rizal Commercial Banking Corporation. This move did not sufficiently show the alleged inadequacy of the purchase price. A mortgage is a mere security for a loan. There was no showing that the property was the only security relied upon by the bank; or that the borrowers had no credit worthiness, other than the property offered as collateral. Co-Ownership The appellate court was correct in affirming the validity of the sale of the property insofar as the pro indiviso share of Esperanza Balite was concerned. Article 493 of the Civil Code gives the owner of an undivided interest in the property the right to freely sell and dispose of such interest. The co-owner, however, has no right to sell or alienate a specific or determinate part of the thing owned in common, because such right over the thing is represented by an aliquot or ideal portion without any physical division. Nonetheless, the mere fact that the deed purports to transfer a concrete portion does not per se render the sale void. The sale is valid, but only with respect to the aliquot share of the selling co-owner. Furthermore, the sale is subject to the results of the partition upon the termination of the co-ownership. Hence, the transaction between Esperanza Balite and respondent could be legally recognized only in respect to the formers pro indiviso share in the co-ownership. As a matter of fact, the Deed of Absolute Sale executed between the parties expressly referred to the 10,000-square-meter portion of the land sold to respondent as the share of Esperanza in the conjugal property. Her clear intention was to sell merely her ideal or undivided share in it. No valid objection can be made against that intent. Clearly then, the sale can be given effect to the extent of 9,751 square meters, her ideal share in the property as found by both the trial and the appellate courts.

What is the basis of their allegation that it was an equitable mortgage? Based on 1602 There are actually 2 issues here: 1) There was relative simulation only. The issue is not gross inadequacy. The gross inadequacy add --- to the equitable mortgage. Looking at the facts, the issue is not really gross inadequacy. The allegation of the heirs herein is that it is undervalued for an unlawful cause. “Under value to avoid payment of higher taxes which should be mean as an unlawful purpose.” But this is really not an unlawful purpose in the sense that what you have here is a relatively simulated contract. They had a real intention, the contract with a price 1 million pesos and this was shown by the joint affidavit which they executed. Even if the deed of sale showed that the price was only for 200 thousand, it did not negate the existence of a valid contract of sale. If the parties state a false cause to conceal their true agreement, such contract is only relatively simulated and the parties shall be


bound by their real agreement which is the price of 1 million pesos. What was concealed was merely the actual price. So the essential requisites are present as in this case and the civil issue only refers to the content of the contract. The agreement is absolutely binding and enforceable between the parties and their successors-in-interest. In fact when you take a look at the case, there was a mention that motive is different from cause because here, the motive may be unlawful when they reduced the price, but again, the cause is still present. It is not an absolutely void or simulated cause or consideration. If ever, then the government discovers the undervalued price to avoid paying higher taxes, then the government can collect additional taxes based on the true price. But again it does not negate the existence of a valid contract of sale. In relation to equitable mortgage, the mere fact that the price was less than the value does not necessarily mean that you have an equitable mortgage. The two requisites were mentioned in this case. It was also emphasized that with regard to 1602, any of the circumstances therein would be sufficient to give rise to the presumption that there is an equitable mortgage. However, what you have here is not an equitable mortgage. It is really a contract of sale. The record of evidence introduced show that the contract is indeed a contract of sale. No clear and convincing evidence that the parties agreed upon a mortgage of the subject property. There is nothing doubtful as to the terms surrounding the deed of sale to apply 1602. And this was confirmed by the joint affidavit executed by the parties to the sale. Petitioners did not present any witness to testify as to market value of the said property. The basis alone of the two million loan that the respondent had been able to obtain. Again, gross inadequacy of the price will not necessarily invalidate the contract. So here, you have a valid contract sale. No equitable mortgage. So again, what are these instances? a) price unusually inadequate; b) vendor remains in possession; c) upon expiration of the right to repurchase, there is an extension wherein no clear is executed; d) purchaser retain for himself part of the purchase price; e) the vendor binds himself to pay the taxes of the thing sold; f) and in any other case wherein it may refer that the intention are really intended of the parties is really to secure the payment of a debt or performance of any other obligation. With this provision and the cases that we have discussed what is the purpose of this provision, the presumption of this equitable mortgage?

HEIRS OF REYES VS. REYES

FACTS: Antonio Reyes and his wife, Leoncia Mag-isa

Reyes (Leoncia), were owners of a parcel of residential land located in Pulilan, Bulacan. On that land they constructed their dwelling. The couple had four children, namely: Jose, Sr., Teofilo, Jose, Jr. and Potenciana. Antonio Reyes died intestate, and was survived by Leoncia and their three sons. Potenciana also died intestate, survived by her children. On July 9, 1955, Leoncia and her three sons executed a deed denominated Kasulatan ng Biling Mabibiling Muli, whereby they sold the land and its

existing improvements to the Spouses Benedicto Francia and Monica Ajoco (Spouses Francia) for P500.00, subject to the vendors right to repurchase for the same amount sa oras na sila'y makinabang. Potencianas heirs did not assent to that deed. Nonetheless, Teofilo and Jose, Jr. and their respective families remained in possession of the property and paid the realty taxes thereon. Leoncia and her children did not repay the amount of P500.00. The Spouses Francia both died intestate. Alejandro, the son of Jose, Sr., first partially paid to the Spouses Francia the amount of P265.00 for the obligation of Leoncia, his uncles and his father. Alejandro later paid the balance of P235.00. Thus, on August 11, 1970, the heirs of Spouses Francia executed a deed entitled Pagsasa-ayos ng Pag-aari at Pagsasalin, whereby they transferred and conveyed to Alejandro all their rights and interests in the property for P500.00. On August 21, 1970, Alejandro executed a Kasulatan ng Pagmeme-ari, wherein he declared that he had acquired all the rights and interests of the heirs of the Spouses Francia, including the ownership of the property, after the vendors had failed to repurchase within the given period. On the basis of the Kasulatan ng Pagmeme-ari, Tax Declaration was issued to Alejandro. From then on, he had paid the realty taxes for the property. Nevertheless, on October 17, 1970, Alejandro, his grandmother (Leoncia), and his father (Jose, Sr.) executed a Magkakalakip na Salaysay, by which Alejandro acknowledged the right of Leoncia, Jose, Jr., and Jose, Sr. to repurchase the property at any time for the same amount of P500.00. On October 22, 1970, Leoncia died intestate. She was survived by Jose, Sr., Teofilo, Jose, Jr. and the heirs of Potenciana. Even after Leonicas death, Teofilo and Jose, Jr., with their respective families, continued to reside in the property. On September 2, 1993, Alejandro also died intestate. Surviving him were his wife, Amanda, and their children. In 1994, respondent Amanda Reyes asked the heirs of Teofilo and Jose, Jr., to vacate the property because she and her children already needed it. After the petitioners refused to comply, she filed a complaint against the petitioners in the barangay, seeking their eviction from the property. When no amicable settlement was reached, the Barangay Lupon issued a certification to file action to the respondents on September 26, 1994. In the interim, petitioner Nenita R. de la Cruz and her brother Romeo Reyes also constructed their respective houses on the property. ISSUE: Whether or not the Court of Appeals erred in

finding that respondents (were) already barred from claiming that the transaction entered into by their predecessors-in-interest was an equitable mortgage and not a pacto de retro sale. RULING: The true agreement of the parties vis--vis

the Kasulatan ng Biling Mabibiling Muli was an equitable mortgage, not a pacto de retro sale. There was no dispute that the purported vendors had continued in the possession of the property even after the execution of the agreement; and that the property had remained declared for taxation purposes under Leoncias name, with the realty taxes due being paid


by Leoncia, despite the execution of the agreement. Such established circumstances are among the badges of an equitable mortgage enumerated in Article 1602, paragraphs 2 and 5 of the Civil Code, to wit: Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases: x x x (2) When the vendor remains in possession as lessee or otherwise; x x x (5) When the vendor binds himself to pay the taxes on the thing sold; x x x The existence of any one of the conditions enumerated under Article 1602 of the Civil Code, not a concurrence of all or of a majority thereof, suffices to give rise to the presumption that the contract is an equitable mortgage. Consequently, the contract between the vendors and vendees (Spouses Francia) was an equitable mortgage. Are the petitioners now barred from claiming that the transaction under the Kasulatan ng Biling Mabibiling Muli was an equitable mortgage by their failure to redeem the property for a long period of time? Considering that sa oras na silay makinabang, the period of redemption stated in the Kasulatan ng Biling Mabibiling Muli, signified that no definite period had been stated, the period to redeem should be ten years from the execution of the contract, pursuant to Articles 1142 and 1144 of the Civil Code. Thus, the full redemption price should have been paid by July 9, 1955; and upon the expiration of said 10-year period, mortgagees Spouses Francia or their heirs should have foreclosed the mortgage, but they did not do so. Instead, they accepted Alejandros payments, until the debt was fully satisfied by August 11, 1970. The acceptance of the payments even beyond the 10-year period of redemption estopped the mortgagees heirs from insisting that the period to redeem the property had already expired. Their actions impliedly recognized the continued existence of the equitable mortgage. The conduct of the original parties as well as of their successors-in-interest manifested that the parties to the Kasulatan ng Biling Mabibiling Muli really intended their transaction to be an equitable mortgage, not a pacto de retro sale. Both the trial court and the CA declared that the Magkasanib na Salaysay, which extended the redemption period of the mortgaged property, was inefficacious, because the period to redeem could no longer be extended after the original redemption period had already expired. The provisions of the Civil Code governing equitable mortgages disguised as sale contracts, like the one herein, are primarily designed to curtail the evils brought about by contracts of sale with right to repurchase, particularly the circumvention of the usury law and pactum commissorium.[29] Courts have taken judicial notice of the well-known fact that contracts of sale with right to repurchase have been frequently resorted to in order to conceal the true nature of a contract, that is, a loan secured by a mortgage. It is a reality that grave financial distress renders persons hard-pressed to meet even their basic needs or to respond to an emergency, leaving no choice to them but to sign deeds of absolute sale of property or deeds of sale with pacto de retro if only to obtain the much-needed loan from unscrupulous money lenders.[30] This reality precisely explains why

the pertinent provision of the Civil Code includes a peculiar rule concerning the period of redemption, to wit: Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases: x x x (3)When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed; x x x Ostensibly, the law allows a new period of redemption to be agreed upon or granted even after the expiration of the equitable mortgagors right to repurchase, and treats such extension as one of the indicators that the true agreement between the parties is an equitable mortgage, not a sale with right to repurchase. It was indubitable, therefore, that the Magkasanib na Salaysay effectively afforded to Leoncia, Teofilo, Jose, Sr. and Jose, Jr. a fresh period within which to pay to Alejandro the redemption price of P500.00.

What were the circumstances under 1602 that were present in this case? In this case, the SC emphasized that the provision governing equitable mortgages disguised as sale contracts are primarily designed to curtail the evils brought about by contract of sale with right to repurchase particularly the circumvention of the usury law as well as pactum commissorium. Pactum commissorium was discussed in your obligations and contracts and it was also discussed in your credit transaction. It must be distinguished from dation en pago because what happens in Pactum Commissorium is that there is an agreement between the parties that in case of failure to pay on part of the debtor, there is automatic appropriation or automatic transfer of the property to the creditor. That is a void situation under article 2088 of the Civil ‘Code. To avoid that, you have this provision. Instead na ipa-sign ang mortgage, kasi yun yung intention ng mga parties, ang ipasign sa debtor is a deed of sale. Courts have taken Judicial Notice of the well known fact that contracts of sale with right to repurchase have been frequently resorted in order to conceal the true intention of the contract – that is a loan secured by a mortgage. It is a reality that great natural distress renders a person hard-pressed to meet even the basic needs or correspond to emergency giving no choice to them but to sign of property or lease sale with pacto de retro, only to obtain the much needed loan from unscrupulous money lenders. This reality precisely explains why the pertinent provisions of the civil code includes a peculiar rule concerning the period of redemption. Extend or a new period is extended. So in this case, it is not really a pacto de retro sale but rather an equitable mortgage and this was evidenced by the continued possession, declaration for tax purposes remained in the vendor’s name and the realty taxes also paid by Leoncia. Again existence of any of the circumstances in 1602 is sufficient to give rise to the presumption that there is an equitable mortgage. Aside from these circumstances, it was also shown that payments were accepted beyond the period for redemption. Their actions implied recognized the continued existence of an equitable mortgage.


1602 is very common. There are a lot of disputes with regard to 1602 and its application. Under 1603, in case of doubt, a contract purporting to be a sale with right to repurchase shall be construed as an equitable mortgage. Take note of the word “doubt”. Just because any of 1602 circumstance or condition is present, hindi automatic na may equitable mortgage. We already discussed the requisites to show 1602 to be applied. 1604 tells us that 1602 also applies to deed of absolute sale. Remedy here? Reformation because, again, the document did not show the true intention of the parties. There was a meeting of the minds, but the document executed did not reflect their true intentions. Therefore reformation is the remedy. Period provided under the law.

Article 1606. The right referred to in article 1601, in the absence of an express agreement, shall last four years from the date of the contract. Should there be an agreement, the period cannot exceed ten years. However, the vendor may still exercise the right to repurchase within thirty days from the time final judgment was rendered in a civil action on the basis that the contract was a true sale with right to repurchase.

Take note, the right to repurchase must already be incorporated in the contract of sale. It must be reduced in a public instrument and covered by the statute of frauds. And also, take note, just because walang nakalagay, Contract of sale. Pag walang nakalagay na right of repurchase is given to the vendor, the vendor is not given sa property. However, if nagalagay doon na vendor is hereby given the right to repurchase the property but there is no period stipulated hanggang kalian nya pwedeng iredeem. Ano’ng nakalagay sa 1606? “Should there be an agreement…” meaning yung agreement yung right to repurchase, “in the absence of express agreement, should last 4 years for the date of the contract.” 4 years. Pagnakalagay lang doon merong right to repurchase granted walang period, 4 years from the date of the contract. Should there be an agreement, it should not exceed 10 years. So kung nakalagay 8 years to redeem, valid. 10 years, valid. 12 years, upto 10 years pa rin. It cannot exceed. However, the vendor may exercise the right within 30 days if it was involved in a civil action. In other words, there was a case filed, naglalis pa kung equitable mortgage or contract of sale. If there is a final decision saying that it was a sale with right to repurchase and not an equitable mortgage, then the period is 30 days from the time the final judgment was rendered. Again, when it was decided and it was a true sale with right to repurchase. Under 1607, in case of real property, consolidation of ownership. So what would happen here? Because If you have that deed of sale with right to repurchase, the register of deeds would annotate/record that right to repurchase and the title will not be automatically transferred to the vendee by virtue of the agreement. So here, consolidation of ownership ma-transfer yung name sa vendee by virtue of the failure of the vendor to comply with the provision in the 1616, yung

expenses, shall not be recorded in the registry of property without a judicial order after the vendor has been duly heard because you cannot just say that you are entitled to repurchase the property without reimbursing the vendee the expenses.

Article 1608. The vendor may bring his action against every possessor whose right is derived from the vendee, even if in the second contract no mention should have been made of the right to repurchase, without prejudice to the provisions of the Mortgage Law and the Land Registration Law with respect to third persons.

Take, note, if it is a true pacto de retro sale and you are the vendor thereof, make sure that you have your right duly registered when you are the vendor of the vendee because subsequent buyers in good faith should not be prejudiced by the absence of that. Kasi nga dito noh, “without prejudice to provision of the mortgage law and land registration law with respect to third persons”.

Article 1609. The vendee is subrogated to the vendor's rights and actions.

Article 1610. The creditors of the vendor cannot make use of the right of redemption against the vendee, until after they have exhausted the property of the vendor.

Remember, the exercise of the vendor to redeem or repurchase the property is a resolutory condition wherein the happening of which will extinguish the obligation arising from the contract of sale. So upon sale and delivery, there is a transfer of ownership to the vendee, subject to the resolutory condition that it will be repurchased by the vendor. Technically, the vendee is the owner thereof and can be redeemed by the vendor, the creditors of the vendor cannot make use of the right of redemption as against the vendee as long as meron pang ibang properties si vendor.

Article 1611. In a sale with a right to repurchase, the vendee of a part of an undivided immovable who acquires the whole thereof in the case of article 498, may compel the vendor to redeem the whole property, if the latter wishes to make use of the right of redemption.

We are talking about conventional redemption here. May nakalagay sa contract na it can be redeemed. The vendee in that contract of sale with right of repurchase can sell it to other persons subject to redemption, provided there is a registration.

Article 1612. If several persons, jointly and in the same contract, should sell an undivided immovable with a right of repurchase, none of them may exercise this right for more than his respective share. The same rule shall apply if the person who sold an immovable alone has left several heirs, in which case each of the latter may only redeem the part which he may have acquired.

Article 1613. In the case of the preceding article, the vendee may demand of all the vendors or co-heirs that they come to an agreement upon the repurchase of the whole thing sold; and should they fail to do so, the vendee cannot be compelled to consent to a partial redemption.


Article 1614. Each one of the co-owners of an undivided immovable who may have sold his share separately, may independently exercise the right of repurchase as regards his own share, and the vendee cannot compel him to redeem the whole property.

We distinguish it sa 1613,. Kasi sa 1612, we were talking about several persons as well as heirs. Here you have co-owners who sold their shares separately.

Article 1615. If the vendee should leave several heirs, the action for redemption cannot be brought against each of them except for his own share, whether the thing be undivided, or it has been partitioned among them. But if the inheritance has been divided, and the thing sold has been awarded to one of the heirs, the action for redemption may be instituted against him for the whole.

Article 1616. The vendor cannot avail himself of the right of repurchase without returning to the vendee the price of the sale, and in addition:

(1) The expenses of the contract, and any other legitimate payments made by reason of the sale; (2) The necessary and useful expenses made on the thing sold.

So there must be a bona fide offer to repurchase the property with of the following: return of the price of the sale, expenses of the contract, and other legitimate payments by reason sale and necessary and useful expenses.

Article 1617. If at the time of the execution of the sale there should be on the land, visible or growing fruits, there shall be no reimbursement for or prorating of those existing at the time of redemption, if no indemnity was paid by the purchaser when the sale was executed. Should there have been no fruits at the time of the sale and some exist at the time of redemption, they shall be prorated between the redemptioner and the vendee, giving the latter the part corresponding to the time he possessed the land in the last year, counted from the anniversary of the date of the sale.

With regard to fruits, when is there reimbursement? When there is a none, no reimbursement; prorating those existing at the time of redemption indemnity was paid. There were fruits at the time of the sale and some exist at the time of redemption you just prorate it giving the vendee the part corresponding the time he possessed the land in the last year up to the anniversary of the deed of sale.

Article 1618. The vendor who recovers the thing sold shall receive it free from all charges or mortgages constituted by the vendee, but he shall respect the leases which the latter may have executed in good faith, and in accordance with the custom of the place where the land is situated.

Here, recovery of the thing free from all charges and mortgages, but again take note, respect the contract of lease. The vendee, prior to redemption or repurchase can actually lease the property to other person. And again take note, the vendor here shall respect the leases but again, free from all charges or mortgages, but we have the vendee mortgage the property prior to repurchase, the vendee has the obligation to have the said mortgages be released

because again the vendor here has the right to recover it, free from all charges or mortgages.

October 12, 2015

LEGAL REDEMPTION

In legal redemption, even if the parties did not

stipulate as to the existence of this right, the law

provides that there are certain individuals who are

entitlted to repurchase a property subject of a CoS.

So you take into consideration here the persons who

are given such right to redeem and what are the

properties that they can redeem. What must be

involved is a CoS and Art 1619 tells us what is “legal

redemption”.

Article 1619. Legal redemption is the right to be

subrogated, upon the same terms and conditions

stipulated in the contract, in the place of one who

acquires a thing by purchase or dation in

payment, or by any other transaction whereby

ownership is transmitted by onerous title.

So the person is given the right to redeem as

provided by law, as long as he is not the vendor.

Legal redemption under this chapter, so we have Art

1619. We also have Art 1620 but before going to Art

1620, we also have right of redemption available to

co-heirs.

Now, in this chapter, you have here instances where

legal redemption is available when there is a contract

of sale. Now, we also have other provisions in the

Civil Code wherein there is also legal redemption.

One of which is among co-heirs under 1088:

Article 1088. Should any of the heirs sell his

hereditary rights to a stranger BEFORE the

partition, any or all of the co-heirs may be

subrogated to the rights of the purchaser by

reimbursing him for the price of the sale, provided

they do so within the period of one month from

the time they were notified in writing of the sale

by the vendor.

So we have here an heir who sells his hereditary

rights to a stranger, to a person who is not an heir,

before partition. Of course we’re not talking about

future inheritance here. Dito, meron na siyang right

because ascendant or parent has already died, so

meron na siyang inheritance. Hindi na siya future pero

di pa nahati. He can sell. The heirs can repurchase

this right from the said stranger however this must be

done within 1 month from the time such co-heirs were

notified IN WRITING of the said sale.

We also have the right of a co-owner to repurchase

the property sold by his co-owner to the same

property:

Article 1620. A co-owner of a thing may exercise

the right of redemption in case the shares of all

the other co-owners or of any of them are sold to

a third person. If the price of the alienation is

grossly excessive, the redemptioner shall pay

only a reasonable one.


Ok here so you have a co-owner who sells his share

to a 3rd

person. The other co-owner may redeem from

the 3rd

person the said property, provided that it is

within the period provided by law. We learned in Art

1623 that it is one month from notice.

So to apply Art 1620, the following requisites

must be present:

a. There must be co-ownership;

b. There must be alienation of any or all of the

shares of one of the co-owners to a third

person;

c. Of course, it must be before partition, kaya

nga sila co-owners kasi wala pang partition.

d. And the redemption must be made under the

period provided by the law; and

e. The one who exercises the redemption must

pay the purchase price.

However if the price is grossly excessive, the

redemptioner shall only pay a reasonable one.

Also if there are 2 or more co-owners desiring to

exercise the right to redeem, they may do so in

proportion to their respective shares. Take note that

this is only applicable if the sale is made to a 3rd

person. Art 1620 is NOT applicable if A would sell his

share to a co-owner.

EXAMPLE: A, B, and C are co-owners. If A sells his

share to X, B and C are given the right to redeem the

property from X. But of course they have to pay the

price. But if both B and C want to exercise their right,

then they can do so proportionately. However if A

sells his share to B, C is not entitled to repurchase

because again the right provided under Art 1620 is

only available if the sale is made to a 3rd

person.

Now, what if A sold his share to X, and B and C want

to redeem the said property? Between these two (2)

co-owners, who shall be preferred? Or is there a

preference? No. They do so in proportion to the

shares they may respectively have in the thing owned

in common. So take note of that and do not confuse

that with the rule we have under 1621:

Article 1621. The owners of adjoining lands shall

also have the right of redemption when a piece of

RURAL land, the area of which does not exceed

one hectare, is alienated, unless the grantee does

not own any rural land.

This right is not applicable to adjacent lands

which are separated by brooks, drains, ravines,

roads and other apparent servitudes for the

benefit of other estates.

If two or more adjoining owners desire to exercise

the right of redemption at the same time, the

owner of the adjoining land of smaller area shall

be preferred; and should both lands have the

same area, the one who first requested the

redemption.

So when do we apply 1621:

a. If what you have is a RURAL land;

b. The right is given to adjacent lot owners;

c. The alienation is made to a 3rd

person;

d. The area involved should not exceed one (1)

hectare unless the grantee does not own

rural land;

e. (Properties are) not separated by brooks,

drains and other apparent servitudes.

EXAMPLE: A owns this parcel of land and B is the

adjacent owner. If A sells his land to X, B is given the

right to redeem provided that all the requisites under

Art 1621 are present.

Now if twe have 2 adjoining owners who want to

exercise the right under Art 1621, take note that the

rule is different here. Because who shall then be

preferred?

THE ONE WHO HAS A SMALLER AREA.

If it turns out that if both lot owners have the

same land area: THE FIRST ONE WHO

REQUESTED SHALL BE PREFERRED.

So what’s the purpose here in 1621? To encourage

MAXIMUM DEVELOPMENT and UTILIZATION of

agricultural lands.

Now, how about urban lands? We have Article 1622:

Article 1622. Whenever a piece of URBAN land

which is so small and so situated that a major

portion thereof cannot be used for any practical

purpose within a reasonable time, having been

bought merely for speculation, is about to be re-

sold, the owner of any adjoining land has the right

of pre-emption at a reasonable price.

If the re-sale has been perfected, the owner of the

adjoining land shall have a right of redemption,

also at a reasonable price.

When two or more owners of adjoining lands wish

to exercise the rights of pre-emption or

redemption, the owner whose intended use of the

land in question appears best justified shall be

preferred.

So notice in 1622, it’s not just redemption, but you

also have therein the right of pre-emption:

Right of Pre-emption Right of Redeption

The right arises before

sale

The right arises after the

sale.

Both are present with regard to right to redeem an

URBAN land as provided under Article 1622.

There could be no

rescission because there

is nothing to rescind. No

sale has happened yet.

But if you would want to

redeem under 1622,

there is rescission of the

original sale.

Pre-emption the action is

the exercise against the

prospective seller.

Redemption is directed

against the buyer.

But when do we apply 1622?


If what we have is a small urban land

Adjacent owners

The major portion thereof cannot be used for

any practical purpose within a reasonable

period

It is only for the purpose of speculation

So what’s the premise behind Art 1622? To

DISCOURAGE SPECULATION in real estate, to hold

property for a period of time for the purposes of

speculation and therefore resulting to the aggravation

of social housing.

Now, assuming urban land ito, we have two or more

owners of adjoining lots desiring to redeem the

property, between the two adjacent owners of urban

land, the owner whose intended use of the land is

best justified shall be preferred. So again, notice the

difference as to the preference as to the co-owners,

adjacent owners sa urban and adjacent owners sa

rural land.

Now also here, you have Article 1634 on the sale of

credit in litigation.

Article 1634. When a credit or other incorporeal

right in litigation is sold, the debtor shall have a

right to extinguish it by reimbursing the assignee

for the price the latter paid therefor, the judicial

costs incurred by him and the interest on the

price from the day on which the same was paid.

A credit or other incorporeal right shall be

considered in litigation from the time the

complaint concerning the same is answered.

The debtor may exercise his right within thirty

days from the date the assignee demands

payment from him.

EXAMPLE: A borrows from B P1,000,000. Then A

fails to pay. B files a case for collection of sum of

money against A so that he could get the payment of

P1,000,000 plus interest. Considering that it takes

time to file a case, so here the creditor may need the

money immediately. So what can he do? He can

assign his right over the said amount, or he can sell it

for a smaller amount. Si B, kelangan na nya ng pera

pero matagal pa ang kaso. So, gi-assign nya yung

rights nya as a creditor to C. So para madaling

mabenta, he would sell his right for P700,000 only.

And then C, now, would have a right in the litigation.

So here, what would happen? The debtor A can now

arrange with C that instead of paying P1,000,000, he

can now only pay just P700,000 because eto yung

binayad ni C. Probably, pwede dagdagan konti. Pero

at the very least, less than na sya sa P1,000,000. So

just take note of that as well, that is with regard to

assignment.

And then we have the period to pre-empt or redeem

the property under 1623:

Article 1623. The right of legal pre-emption or

redemption shall not be exercised except within

thirty days from notice in writing by the

prospective vendor, or by the vendor, as the case

may be. The deed of sale shall not be recorded in

the Registry of Property, unless accompanied by

an affidavit of the vendor that he has given written

notice thereof to all possible redemptioners.

The right of redemption of co-owners excludes

that of adjoining owners.

Ok, so what do we have here? The right to redeem

can be exercised within thirty (30) days from notice in

writing by the prospective vendor. Now the Deed of

Sale shall not be reported to the RoD unless there is

a seller’s affidavit that he sent written notice to all

possible redemptioners. However I don’t think this is

strictly followed… Nonetheless, we have that

provision under the law.

So if you take a look at 1623, even if the adjacent

owners, the co-owners have knowledge of the

sale, if they were not notified of the said sale in

writing, they can still exercise their right to

redeem because the thirty (30) days would only be

counted from the notice in writing by the

prospective vendor in a pre-emption or a vendor

in a redemption.

Take note also of the last paragraph of Art 1623. So

let us say you have here the sale of urban land, Art

1621 is applicable. Let us say you have A, B, and C

as the co-owners. Adjacent co-owners of that urban

land are D and E. If B, C, D, and E would like to

redeem the property sold by A to X. Who are given

such right to redeem, or who shall be preferred? In

this case, it will be the co-owners (B and C), but since

dalawa sila, in their respective proportionate shares.

So the co-owners are preferred over the adjoining

owners.

Any questions regarding redemption?

Q: Ma’am, will it not be unfair for X if other parties will

be allowed to purchase the property?

A: Hindi sya unfair kung alam mo yung law. Just give

them thirty (30) days. Magtakbo man yung 30 days

written notice if they want to redeem. For those who

do not know the law, syempre magsabi sila na unfair.

Pero the law may be harsh, but it is the law. DURA

LEX SED LEX. It is clear that such right is given to co-

owners and adjacent owners of the same parcel of

land.

So for those who would purchase property under

these circumstances, the best thing to do is to give

them notice in writing of the said sale. Kase 30 days

lang. Maglampas yung 30 days, wala na, di na sila

maka redeem. So yun yung advantage on the part of

the buyer of the said property.

It is very easy naman to determine yung co-ownership

diba? With regard to urban lands and rural lands, you

just take note. Yung urban lands baka medyo

alanganin sya i-apply because of yung “speculation”

diba? Then yung irregularly shaped (Haaa? Ummm, i

think yung “small area” ang gina-pertain ni Ma’am ),

yung yun na requirement, that it is for a specific

purpose, and no practical purpose within a

reasonable time. Mahirap kase yan sya i-prove. Most


often than not, yung mga properties dito, meron man

talagang practical purpose. So kaya siguro di

masyado ma-apply yang 1622.

Yung 1621, baka pa noh, with regard to rural land.

But again there is a condition there wherein it does

not exceed one (1) hectare. So dyan mo i-take into

consideration na if you are the vendee, it is to your

advantage if you are aware of these laws.

Kung ikaw naman yung co-owners and adjacent co-

owners, you take into consideration kung mag apply

ba ito so that you can exercise your right to redeem.

PART X: ASSIGNMENT

So, we have assignment of credits and other

incorporeal right. So you have noticed that in some

cases that we have already discussed, the laws on

sale was applied even if what was executed by the

parties by deeds of assignment. Because essentially

what we have here is a sale of credit or the sale of

incorporeal right. We have Art 1624 until 1635. So,

assignment of credit is a contract in which one

person, creditor or assignor, transfer to another his

rights or actions against a third person, who is the

debtor in consideration of a price certain in money or

its equivalent.

So what is an assignment of credit? It is a contract by

which one person transfers to another his rights and

actions against a third person in consideration for a

price certain in money or its equivalent.

Article 1624. An assignment of creditors and other

incorporeal rights shall be perfected in

accordance with the provisions of article 1475

So with that, assignment of rights is a consesual contract perfect by consent. Also it is a bilateral and onerous contract. It is also a commutative or alleatory contract. In an assignment of rights, the In other words, it is also perfected by meeting of the minds, by mere consent between the parties. So just like sale and assignment of credit is a consensual contract. Aside from that, it is also bilateral, onerous and generally commutative in nature. Similar to a sale. The difference however is that unlike in a sale wherein you only have the buyer and the seller. In an assignment of contract, you have here a definite third person which is obliged, you have originally the creditor and the debtor, and the creditor becomes the assignor and assigns his right as to such credit to a third person who will be the assignee.

Article 1625. An assignment of a credit, right or action shall produce no effect as against third persons, unless it appears in a public instrument, or the instrument is recorded in the Registry of Property in case the assignment involves real property. (1526)

Alright so under Art 1624, we already know that an assignment is perfected mere consent. Art 1625 tells us when is that assignment binding as to 3

rd persons.

So Art 1625 tell us that the assignment to bind third persons, the assignment must appear in a public instrument and if it involves real property, it must be registered in the Registry of Deeds.

So as between the parties, it can be valid in writing or even by mere consent. However in order to affect third persons, it must be in a public instrument or it must be recorded in the Registry of Deeds if it involves real property. Also, take note of this: In assignment, the assignee clearly steps into the shoes of the assignor, and therefore the assignee acquires the right and obligations as to the credits that were subject of the said assignment. The assignee is deemed subrogated to the rights as well as to the obligation of the seller and therefore by the term “assignment”, he cannot acquire greaters rights than that of the assignor. This is also relevent when you have your Negotiable Instruments Law because negotiation is different from assignment. You can assign documents of title, you can negotiate it as long as it is negotiable, but take note that there is a difference as to its effects. When you negotiate, the transferee can have better title than the transferor, but when you assign, the assignee merely steps into the shoes of the assignor. Article 1626. The debtor who, before having knowledge of the assignment, pays his creditor shall be released from the obligation. (1527)

This is relevant in relation to your obligations and contracts. When is the obligation extinguished? When there is payment or performance. But when is there a valid payment? Payment must be made to the proper person who must be the creditor at the time the obligation is due, heirs or assignees, or a person authorizes to receive payment. So, you also have there, in the term, assignees or transferees. So what if the person authorized to receive payment is the assignee, and if payment is made to the assignee, does it necessarily mean that the obligation is extinguished? You have to take into consideration whether the debtor was notified of such assignment. Because of the debtor was not notified of such assignment, or had no knowledge of it, and he pays to the original creditor, then the obligation is nevertheless deemed extinguished. The assignee’s remedy here is to go after the creditor. But of course if the debtor had knowledge of the said assignment, or if he is notified, the debtor must be paid to the assignee. If payment is not made to the assignee, then there is no valid payment that will extinguish the obligation. The debtor will not be released even if has paid to the original creditor because he has already been notified and therefore it is just and proper that he should pay to the assignee. Now, this should be taken into consideration by the debtor. If he has already paid to the creditor despite notice of the assignment, that payment will not extinguish the obligation.

Article 1627. The assignment of a credit includes all the accessory rights, such as a guaranty, mortgage, pledge or preference. (1528)

Assignment is a Principal Contract, accessory contract are deemed included, unless otherwise stipulated. Remember, what happens in the assignment is that the assignee is subrogated to the right of the creditor assignor. That is why he is also entitled to go after the debtor in case the debtor fails to pay, foreclose a mortgage in case there has been execution thereof. Also take note of Art 1628.


Article 1628. The vendor in good faith shall be responsible for the existence and legality of the credit at the time of the sale, unless it should have been sold as doubtful; but not for the solvency of the debtor, unless it has been so expressly stipulated or unless the insolvency was prior to the sale and of common knowledge. Even in these cases he shall only be liable for the price received and for the expenses specified in No. 1 of article 1616. The vendor in bad faith shall always be answerable for the payment of all expenses, and for damages. (1529)

You have warranties for documents of title, negotiable instrument and also under assignment. So warranties of the assignor of credit, he warrants the existence of the credit. As well as the legality of the credit at the time the assignment was perfected. Take note, the assignor does not warrant the solvency of the debtor, unless expressly stipulated. Take note insolvency, as a general rule walang liability ang assignor. You will be liable only when: 1. An express stipulation. Express warranty of the solvency of the debtor. 2. The insolvency is in existence at the time of the assignment and of publicknowledge at the time of the said assignment. Only on those instances wherein the assignor can be held liable for breach of warranty as to the solvency of the debtor. Now, for the violation of the warranties as to the existence and legality of the credit:

1. If the vendor is in Good Faith, its

liability shall only be to the extent of the price received and the expenses of the contract in the legitimate payment by reason of the assignment. Basis is Art. 1616

2. If in Bad Faith, payment of the price,

expenses as well as damages. And then we have Art 1629:

Article 1629. In case the assignor in good faith should have made himself responsible for the solvency of the debtor, and the contracting parties should not have agreed upon the duration of the liability, it shall last for one year only, from the time of the assignment if the period had already expired. If the credit should be payable within a term or period which has not yet expired, the liability shall cease one year after the maturity. (1530a)

S you only apply 1629 when there is express warranty of the solvency of the debtor. Now, here, Take note of the period made by the parties. That should be applied. But in the absence of stipulation for the period, say, there is a warranty for the solvency, but there is no period? It shall be one yearfrom the assignment of the credit, with the period for payment of credit has already expired.

So let us say that they entered into an assignment on October 13. The obligation has already expired in September 13. When do you begin to count the one year? From today. However, if, it shall be one year after the maturity, when such period of payment has not yet expired, when the assignment was perfected.So assignment entered into today, October 13, obligation will become due and demandable on October 31. Warranty for solvency will only be from October 31, one year from October 31. So take note of that.

Article 1630. One who sells an inheritance without enumerating the things of which it is composed, shall only be answerable for his character as an heir. (1531)

Can you sell hereditary right? Yes! Because what we are talking of here is not future inheritance. So meron kang right sa properties nung namatay. Pero syempre hereditary rights na in the sense na wala pang extrajudicial settlements. So, the inheritance here may be sold either with specifications of the properties to be alienated or without enumerating the things comprising, but then again to the extent of the hereditary rights of the assignor only. The seller of an inheritance warrants only the facts of his heirship but does not warrant the object which makes up of his inheritance. If for example he sells his inheritance for P 200,000, later on pag hatian na ng mga shares sa heirs ano nalang ang kuha, P100,000 nalang. Walang liabilityang assignor or yung heir na nag benta or nag assign ng kanyang right. Beacause again here what he only warrants is that he is an heir what he sell is only his right without any definite proportion or definite share with regard to the inheritance

Article 1631. One who sells for a lump sum the whole of certain rights, rents, or products, shall comply by answering for the legitimacy of the whole in general; but he shall not be obliged to warrant each of the various parts of which it may be composed, except in the case of eviction from the whole or the part of greater value. (1532a)

Alright, so, totality of such right, credits or products. If you are a partner of a partnership you can sell and you can assign your right of the partnership to other persons. But you cannot make such assignee a partner without the consent of the other partners. Now, in such instance the vendor partner assignor warrants only the legitimacy of whole, his partnership rights and interest and not the various parts of which it may be composed. For example, the partner sold his rights for P 200,000, upon dissolution of the partnership ano na lang nag mabigay sa partner nay un, P100,000. Paano na yung na iwan na 100,000? Kasi una man idistribute sa creditors nung partnership. In that instance still walang breach of warranty on the part of the partner assignor.

Article 1632. Should the vendor have profited by some of the fruits or received anything from the inheritance sold, he shall pay the vendee thereof, if the contrary has not been stipulated. (1533)

So, fruits, soil inheritance are included in the sale. Unless otherwise stipulated.


Article 1633. The vendee shall, on his part, reimburse the vendor for all that the latter may have paid for the debts of and charges on the estate and satisfy the credits he may have against the same, unless there is an agreement to the contrary. (1534)

ARTICLE 1634. When a credit or other incorporeal right in litigation is sold, the debtor shall have a right to extinguish it by reimbursing the assignee for the price the latter paid therefor, the judicial costs incurred by him, and the interest on the price from the day on which the same was paid. A credit or other incorporeal right shall be considered in litigation from the time the complaint concerning the same is answered.

The debtor may exercise his right within thirty days from the date the assignee demands payment from him. (1535)

Right to redeem, legal redemption in sale of credit or other right in obligation. So here, the right available in 1634 is only available when the following requisites are present:

1. There is a sale or assignment of credit. 2. There is a pending litigation at the time of assignment. 3. The debtor must pay the assignee, the price paid, the judicial cost as well as the interest. Also take note of the period. Within 30 days of the date the assignee demands payment come in. Example: A borrowed money from B in the amount of P100, 000,000. B filed a case against A. Pending litigation, B assigned his right to C, who will be now the assignee. A, can exercise his redemption as against C, wherein he can pay for a lower amount. Because, when B assigned his credit to C, pwede niyang sabihin na dugay pa man ning kaso so 100 million, benta ko nalang sayo or assign ko sayo for 700. So C would be willing to do that, so sayo nalang yan, asi kung maka ginansay man ko, at least meron parin siyang maginansya kahit na konti.

Now, if A, the debtor would be interested to redeem it,

he has to reimburse to the assignee the price, the judicial cost as well as the interest. So again, merong legal redemption available.

Now, with this instance, it gives an advantage to the debtor. Because of course he will be able to pay less than the value of the credit assigned. Again that is if he chooses the right to redeem under 1634. The objective of the law is to avoid the purchase of a third person of the credit in litigation, merely for speculation. And then lastly, in relation to 1634 we also have 1635.

Article 1635. From the provisions of the preceding article shall be excepted the assignments or sales made: (1) To a co-heir or co-owner of the right assigned; (2) To a creditor in payment of his credit; (3) To the possessor of a tenement or piece of land which is subject to the right in litigation assigned. (1536)

Okay, so these are the exceptions to 1634. So there

is no right of legal redemption under the instances mentioned in 1635. Take note to apply this one, the credit must be under pending litigation. So for number 1, To a co-heir or co-owner of the right assigned: Let us say B borrowed from D and C. D, demanded payment from B and then filed a case. Pending litigation B will assign his right to C. D is not entitled to redeem from C.

Number 2, To a creditor in payment of his credit. Here the basis is that the assignee cannot be consideredof a vendee of a right to litigation and as a speculator. What you here can be considered as dacion ne pago under 1245: Example: D naghiram kay B, si B nag hiram din siya ng pera kay C. So when the obligation becomes due and demandable B sued D. Pending litigation B assigns his right to C. D cannot redeem from C.

And then number 3, Sale to possessor of property in question. This it to preserve the property and not to speculate at the expense of the debtor. This usually happens when a vendee-assignee of a property subject to a mortgage requires the mortgage credit of the assignor against the vendor: Example: Let us say here, D owes B money and D also secured a mortgage. If D sells the land subject of the mortgage to C and B assigns his credit to litigation to C. The debtor D is not allowed to redeem. Take

note of those instances where the right to redeem is not available.

LEASE Lease may either be of Things or of Service.

Art. 1643. In the lease of things, one of the parties

binds himself to give to another the enjoyment or use of a thing for a price certain, and for a period which may be definite or indefinite. However, no lease for more than ninety-nine years shall be valid. (1543a)

Art. 1644. In the lease of work or service, one of the

parties binds himself to execute a piece of work or to render to the other some service for a price certain, but the relation of principal and agent does not exist between them. (1544a)

But take note: - there’s no contract of Agency - Different from a piece of work

Characteristics: Same with sales – Bilateral and Commutative. Object is to use subject matter.

Art. 1645. Consumable goods cannot be the subject

matter of a contract of lease, except when they are merely to be exhibited or when they are accessory to an industrial establishment. (1545a)

Distinguish commodatum with lease – Consideration In lease, the lessor need not be the owner of the thing leased.

Art. 1648. Every lease of real estate may be recorded in the Registry of Property. Unless a lease is recorded, it shall not be binding upon third persons. (1549a)

Rights and Obligations of Lessor

Art. 1654. The lessor is obliged:


(1) To deliver the thing which is the object of the contract in such a condition as to render it fit for the use intended; (2) To make on the same during the lease all the necessary repairs in order to keep it suitable for the use to which it has been devoted, unless there is a stipulation to the contrary; (3) To maintain the lessee in the peaceful and adequate enjoyment of the lease for the entire duration of the contract. (1554a)

Art. 1655. If the thing leased is totally destroyed by a fortuitous event, the lease is extinguished. If the destruction is partial, the lessee may choose between a proportional reduction of the rent and a rescission of the lease. (n)

Art. 1659. If the lessor or the lessee should not comply with the obligations set forth in Articles 1654 and 1657, the aggrieved party may ask for the rescission of the contract and indemnification for damages, or only the latter, allowing the contract to remain in force. (1556)

Art. 1661. The lessor cannot alter the form of the thing leased in such a way as to impair the use to which the thing is devoted under the terms of the lease. (1557a)

Art. 1653. The provisions governing warranty, contained in the Title on Sales, shall be applicable to the contract of lease. In the cases where the return of the price is required, reduction shall be made in proportion to the time during which the lessee enjoyed the thing. (1553)

Lessor is also liable for warranty against eviction and hidden defects.

Art. 1673. The lessor may judicially eject the lessee for any of the following causes: (1) When the period agreed upon, or that which is fixed for the duration of leases under Articles 1682 and 1687, has expired; (2) Lack of payment of the price stipulated; (3) Violation of any of the conditions agreed upon in the contract; (4) When the lessee devotes the thing leased to any use or service not stipulated which causes the deterioration thereof; or if he does not observe the requirement in No. 2 of Article 1657, as regards the use thereof. The ejectment of tenants of agricultural lands is governed by special laws. (1569a)

Limitations, Rights and Obligations of Lessee

Art. 1646. The persons disqualified to buy referred to in Articles 1490 and 1491, are also disqualified to become lessees of the things mentioned therein. (n)

Art. 1647. If a lease is to be recorded in the Registry of Property, the following persons cannot constitute the same without proper authority: the husband with respect to the wife's paraphernal real estate, the father or guardian as to the property of the minor or ward, and the manager without special power. (1548a)

Art. 1650. When in the contract of lease of things there is no express prohibition, the lessee may sublet the thing leased, in whole or in part, without prejudice to his responsibility for the performance of the contract toward the lessor. (1550)

Art. 1651. Without prejudice to his obligation toward the sublessor, the sublessee is bound to the lessor for all acts which refer to the use and preservation of the thing leased in the manner stipulated between the lessor and the lessee. (1551)

Art. 1652. The sublessee is subsidiarily liable to the lessor for any rent due from the lessee. However, the sublessee shall not be responsible beyond the amount of rent due from him, in accordance with the terms of the sublease, at the time of the extrajudicial demand by the lessor. Payments of rent in advance by the sublessee shall be deemed not to have been made, so far as the lessor's claim is concerned, unless said payments were effected in virtue of the custom of the place. (1552a)

Art. 1657. The lessee is obliged: (1) To pay the price of the lease according to the terms stipulated; (2) To use the thing leased as a diligent father of a family, devoting it to the use stipulated; and in the absence of stipulation, to that which may be inferred from the nature of the thing leased, according to the custom of the place; (3) To pay expenses for the deed of lease. (1555)

Art. 1658. The lessee may suspend the payment of the rent in case the lessor fails to make the necessary repairs or to maintain the lessee in peaceful and adequate enjoyment of the property leased. (n)

Art. 1662. If during the lease it should become necessary to make some urgent repairs upon the thing leased, which cannot be deferred until the termination of the lease, the lessee is obliged to tolerate the work, although it may be very annoying to him, and although during the same, he may be deprived of a part of the premises. If the repairs last more than forty days the rent shall be reduced in proportion to the time - including the first forty days - and the part of the property of which the lessee has been deprived. When the work is of such a nature that the portion which the lessee and his family need for their dwelling becomes uninhabitable, he may rescind the contract if the main purpose of the lease is to provide a dwelling place for the lessee. (1558a)

Art. 1660. If a dwelling place or any other building intended for human habitation is in such a condition that its use brings imminent and serious danger to life or health, the lessee may terminate the lease at once by notifying the lessor, even if at the time the contract was perfected the former knew of the dangerous condition or waived the right to rescind the lease on account of this condition. (n)

Art. 1657. The lessee is obliged: (1) To pay the price of the lease according to the terms stipulated; (2) To use the thing leased as a diligent father of a family, devoting it to the use stipulated; and in the absence of stipulation, to that which may be inferred from the nature of the thing leased, according to the custom of the place; (3) To pay expenses for the deed of lease. (1555)

Remedies of Lessor(Art 1954) and Lessee(Art 1957) in case of breach in their obligation:

1. Judicial Rescission plus damages; or


2. Damages only.

Art. 1663. The lessee is obliged to bring to the knowledge of the proprietor, within the shortest possible time, every usurpation or untoward act which any third person may have committed or may be openly preparing to carry out upon the thing leased. He is also obliged to advise the owner, with the same urgency, of the need of all repairs included in No. 2 of Article 1654. In both cases the lessee shall be liable for the damages which, through his negligence, may be suffered by the proprietor. If the lessor fails to make urgent repairs, the lessee, in order to avoid an imminent danger, may order the repairs at the lessor's cost. (1559a)

Art. 1664. The lessor is not obliged to answer for a mere act of trespass which a third person may cause on the use of the thing leased; but the lessee shall have a direct action against the intruder. There is a mere act of trespass when the third person claims no right whatever. (1560a)

Art. 1665. The lessee shall return the thing leased, upon the termination of the lease, as he received it, save what has been lost or impaired by the lapse of time, or by ordinary wear and tear, or from an inevitable cause. (1561a)

Art. 1666. In the absence of a statement concerning the condition of the thing at the time the lease was constituted, the law presumes that the lessee received it in good condition, unless there is proof to the contrary. (1562)

Art. 1667. The lessee is responsible for the deterioration or loss of the thing leased, unless he proves that it took place without his fault. This burden of proof on the lessee does not apply when the destruction is due to earthquake, flood, storm or other natural calamity. (1563a) Art. 1668. The lessee is liable for any deterioration caused by members of his household and by guests and visitors. (1564a)

Art. 1669. If the lease was made for a determinate time, it ceases upon the day fixed, without the need of a demand. (1565)

Art. 1251. Payment shall be made in the place designated in the obligation. There being no express stipulation and if the undertaking is to deliver a determinate thing, the payment shall be made wherever the thing might be at the moment the obligation was constituted. In any other case the place of payment shall be the domicile of the debtor. If the debtor changes his domicile in bad faith or after he has incurred in delay, the additional expenses shall be borne by him. These provisions are without prejudice to venue under the Rules of Court. (1171a)

Take Note: Art. 1649. The lessee cannot assign the lease without the consent of the lessor, unless there is a stipulation to the contrary. (n) Take note of Sublease: Art 1650 -1652 (Supra)

Expiration of lease

Art. 1669. If the lease was made for a determinate time, it ceases upon the day fixed, without the need of a demand. (1565)

Art. 1670. If at the end of the contract the lessee should continue enjoying the thing leased for fifteen days with the acquiescence of the lessor, and unless a notice to the contrary by either party has previously been given, it is understood that there is an implied new lease, not for the period of the original contract, but for the time established in Articles 1682 and 1687. The other terms of the original contract shall be revived. (1566a)

Art. 1671. If the lessee continues enjoying the thing after the expiration of the contract, over the lessor's objection, the former shall be subject to the responsibilities of a possessor in bad faith. (n)

When is this relevant? In relation to Property ;) Now with regard to renewal of the lease, option to renew the contract of lease is valid and binding even if it is stipulated in the contract that only the vendee(vendee jud giingon ni maam) can exercise such renewal. Where the renewal of the lease is subject to the conditions stipulated by the parties, renewal is not automatic. Still have to follow agreement.

Tacita recunduccion or Implied renewal

Art. 1672. In case of an implied new lease, the obligations contracted by a third person for the security of the principal contract shall cease with respect to the new lease. (1567)

VIEGELY SAMELO vs MANOTOK SERVICES, INC. G.R. NO. 170509 – June 27, 2012

FACTS: On January 31, 1997, the respondent

entered into a contract with the petitioner for the lease of a portion of the lot for a period of 1 year. Upon the expiration of the lease contract on December 31, 1997, the petitioner continued occupying the subject premises without paying the rent. On August 5, 1998, the respondent sent a letter to the petitioner demanding that she vacate the subject premises and pay compensation for its use and occupancy however, petitioner refused to heed these demands. On November 18, 1998, the respondent filed a complaint for unlawful detainer against the petitioner befor the MeTC praying that the petitioner be ordered to vacate the subject premises and to pay compensation for its use and occupancy. In her answer, the petitioner alleged that the respondent had no right to collect rentals because the subject premises are located inside the property of the Philippine national Railways (PNR). She also added that the petitioner had no certificate of title over the subject premises and further claimed that her signature in the contract of lease was obtained through respondent’s misrepresentation and likewise maintained that she is now the owner of the subject premises as she had been in possession since 1944. The MeTC decided in favor of the respondent and held that the only issue to be resolved in an unlawful detainer case is physical possession or possession de facto, and that the respondent had established its right of possession over the subject premises. It added that the petitioner’s right under the lease contract already ceased upon the expiration of the said contract. It further ruled that the petitioner is


already stopped from questioning the right of the respondent over the subject premises when she entered into a contract of lease with the respondent. On appeal, the RTC set aside the decision of the MeTC and dismissed the complaint for unlawful detainer. The RTC held that the respondent had no right to collect rentals as it failed to show that it had authority to administer subject premises and to enter into a contract of lease with the petitioner. Aggrieved by the reversal, the respondent filed a petition for review with the CA which reversed and set aside the RTC decision and reinstated the MeTC judgment. The CA held that the petitioner is now estopped from questioning the right of the respondent over the subject property. It explained that in an action involving the possession of the subject premises, a tenant cannot controvert the title of his landlord or assert any right adverse to that title, without first delivering to the landlord the premises acquired by virtue of the agreement between themselves. It further held that the only issue in an ejectment suit is physical or material possession. The issue of ownership is not required to determine the issue of possession since the petitioner tacitly admitted that she is a lessee of the subject premises. Petitioner moved for reconsideration but the CA denied her in its motion, hence this petition. ISSUE: The ejectment suit is physical or material

possession. (The issue of ownership is not required to determine the issue of possession since the petitioner tacitly admitted that she is a lessee of the subject premises.) RULING: The SC held that an action for unlawful

detainer exists when a person unlawfully withholds possession of any land or building against or from a lessor, vendor, vendee or other persons, after the expiration or termination of the right to hold possession, by virtue of any contract, express or implied. The only issue to be resolved in an unlawful detainer case is physical or material possession of the property involved, independent of any claim of ownership by any of the parties involved. Thus, any attempt of the parties to inject the question of ownership into the case is futile, except insofar as it might throw light on the right of possession. In the instant case, the lease contract was for the period of one year with a monthly rental of P3,960 commencing on January 31, 1997 and expiring on December 31, 1997. It bears emphasis that it was only on August 5, 1998 that a notice to vacate was sent and the petitioner continued enjoying the subject premises for more than 15 days, without objection from the respondent. By the inaction of the respondent as lessor, there can be no inference that it intended to discontinue the lease contract, therefore, an implied new lease was therefore created pursuant to Article 1670 of the Civil Code which provides: Article 1670. If at the end of the contract of lease the lessee should continue enjoying the thing leased for 15 days with the acquiescence of the lessor, and unless a contrary by either party has previously been given, it is understood that there is implied new lease, not for the period of the original contract, but for the time established in Articles 1682 and 1687. The other terms of the original contract shall be revived. An implied new lease or tacita reconduccion will set in when the following requisites are found to exist:

(a) The term of the original contract of lease has expired; (b) The lessor has not given the lessee a demand to vacate; and (c) The lessee continued enjoying the thing leased for 15 days with the acquiescence of the lessor. Article 1687 of the CC on implied new lease provides: Article 1687. If the period for the lease has not been fixed, it is understood to be from year to year, if the rent is to be paid annual; from month to month if it is monthly; from week to week, if the rent is weekly; and from day to day, if the rent id to be paid daily. However, even though a monthly rent is paid, and no period for the lease has been set, the court may fix a longer term for the lease after the lessee has occupied the premises for over one year. If the rent id weekly, the court may likewise determine a longer period after the lessee has been in possession for over 6 months. In case of daily rent, the courts may fix a longer period after the lessee has stayed in the place for over one month. Since the rent was paid on a monthly basis, the period of lease is considered to be from month to month. A lease from month to month is considered to be one with a definite period, which expires at the end of each month upon a demand to vacate by the lessor. When the respondent sent a letter to vacate to the petitioner on August 5, 1998, the tacita reconduccion was aborted, and the contract of lease is deemed to have expired at the end of that month. A notice to vacate constitutes an express act on the part of the lessor that it no longer consents to the continued occupation by the lessee of its property. After such notice, lessee’s right to continue in possession ceases and her possession becomes one of detainer. Wherefore, petition was denied and the decisions of CA were affirmed with modification on the unpaid rentals due.

An implied new lease or tacita reconduccion will set in when the following requisites are found to exist: (a) The term of the original contract of lease has expired; (b) The lessor has not given the lessee a demand to vacate; and (c) The lessee continued enjoying the thing leased for 15 days with the acquiescence of the lessor. Principle of Estoppel is applied against Samelo

Ma’am: Tingnan naten sino matawag. O, Kim Lorenzo! (The lucky winner – Congratulations, besh!

hihi)

REGINA DIZON ET AL V. CA AND OVERLAND EXPRESS LINES, INC.

G.R. No. 122544 January 28, 1999 FACTS: Overland Express Lines, Inc. entered into a

Contract of Lease with Option to Buy with petitioners involving a 1,755.80 square meter parcel of land situated at Diliman, Quezon City. The term of the lease was for 1 year commencing from May 16,1974 up to May 15, 1975. During this period, Overland Express Lines was granted an option to purchase for the amount of P3,000.00 per square meter. Thereafter, the lease shall be on a per month basis with a monthly rental of P3,000.00.


For failure of Overland Express Lines to pay the increased rental of P8,000.00 per month effective June 1976, petitioners filed an action for ejectment against it. Overland Express Lines were ordered to vacate the leased premises and to pay the sum of P624,000.00 representing rentals in arrears and/or as damages in the form of reasonable compensation for the use and occupation of the premises during the period of illegal detainer from June 1976 to November 1982. Overland Express Lines Inc. then endorsed P300,000.00 as partial payment for the leased property and as an attempt to resurrect the lapsed option of purchasing the property, which petitioners accepted (through Alice A. Dizon,) with the issuance of an official receipt. ISSUES:

1. Whether Alice Dizon was authorized to receive the sum of P300,000.00 on behalf of petitioners and validly consider it as the partial payment of the property to be purchased by the respondent(Overland Express Lines, Inc.). 2. Whether there was a perfected contract of sale between the parties. HELD:

1. Alice Dizon is not authorized to receive the sum of P300,000.00 on behalf of petitioners, therefore will not validly bind the petitioners with the private respondents to a contract of sale. Article 1874 of the Civil Code is explicit that: "When a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void." There was no written proof and valid consent by the petitioners (as co-owners of the leased premises) on the supposed sale entered into by Alice A. Dizon, as petitioners’ alleged agent, and Overland Express Lines. The sum of P300,000.00 received by Alice Dizon cannot be considered as partial payment for the purchase of the property for the reason that the option given to the private respondent in purchasing the property as an added condition in the contract of lease already expired on May 1975. As provided in Art 1670 of the Civil Code, the provision entitling the lessee the option to purchase the leased premises is not deemed incorporated in the impliedly renewed contract because it is alien to the possession of the lessee. Private respondent's right to exercise the option to purchase expired with the termination of the original contract of lease for one year. 2. There was no perfected contract of sale in the first place because Alice Dizon was not an authorized agent of petitioner, therefore she cannot do any legal transactions with the respondent. As enshrined in Art 1868, “By the contract of agency a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter.

In this case, there was a contract of lease for one (1) year with option to purchase. The contract of lease expired without the private respondent, as lessee, purchasing the property but remained in possession thereof. Hence, there was an implicit renewal of the contract of lease on a monthly basis. The other terms of the original contract of lease which are revived in

the implied new lease under Article 1670 of the New

Civil Code are only those terms which are germane to the lessees right of continued enjoyment of the property leased. Therefore, an implied new lease does not ipso facto carry with it any implied revival of private respondent's option to purchase (as lessee thereof) the leased premises. The provision entitling the lessee the option to purchase the leased premises is not deemed incorporated in the impliedly renewed contract because it is alien to the possession of the lessee. Private respondents’ right to exercise the option to purchase expired with the termination of the original contract of lease for one year. Is this an option contract? No. Right of first refusal Effect of continued possession: Possessor in Bad Faith – they can be ejected. As to payment of rentals: in the lease contract, they are to pay monthly. Also, in addition to the requisites mentioned in the case of Manotok, the following must also be considered:

1. Notice to the contrary by either party should not have been previously given; and

2. No express contract has been entered into after the first contract has ended.

Period of time fixed by law

Rural Land

Art. 1682. The lease of a piece of rural land, when its duration has not been fixed, is understood to have been for all the time necessary for the gathering of the fruits which the whole estate leased may yield in one year, or which it may yield once, although two or more years have to elapse for the purpose. (1577a)

Urban Land

Art. 1687. If the period for the lease has not been fixed, it is understood to be from year to year, if the rent agreed upon is annual; from month to month, if it is monthly; from week to week, if the rent is weekly; and from day to day, if the rent is to be paid daily. However, even though a monthly rent is paid, and no period for the lease has been set, the courts may fix a longer term for the lease after the lessee has occupied the premises for over one year. If the rent is weekly, the courts may likewise determine a longer period after the lessee has been in possession for over six months. In case of daily rent, the courts may also fix a longer period after the lessee has stayed in the place for over one month. (1581a)

Take note of the PAYMENT METHOD or term , that’s the basis for implied new lease. Ex. Year to Year - Contract of Lease from January 1 to December 31, 2015 for Php1,000,000.00. Lease which cannot be terminated under specific provisions of law (Long term lease)

Art. 1676. The purchaser of a piece of land which is under a lease that is not recorded in the Registry of Property may terminate the lease, save when there is a stipulation to the contrary in the contract of sale, or when the purchaser knows of the existence of the lease. If the buyer makes use of this right, the lessee may demand that he be allowed to gather the fruits of the harvest which corresponds to the current agricultural year and that the vendor indemnify him for damages suffered.


If the sale is fictitious, for the purpose of extinguishing the lease, the supposed vendee cannot make use of the right granted in the first paragraph of this article. The sale is presumed to be fictitious if at the time the supposed vendee demands the termination of the lease, the sale is not recorded in the Registry of Property. (1571a)

Art. 1677. The purchaser in a sale with the right of redemption cannot make use of the power to eject the lessee until the end of the period for the redemption. (1572)

SPS. MAMARIL VS. BOY SCOUT OF THE PHILIPPINES

G.R. NO. 179382 | JANUARY 14, 2013 FACTS: PUJ operators Sps. Mamaril would park their

6 passenger jeepneys every night at BSP’s compound in Malate, Manila for a fee of P300.00 per month for each unit. One day, one of the vehicles was missing and was never recovered. According to the security guards Peña and Gaddi of AIB Security Agency with whom BSP had contracted for its security and protection, a male person who looked familiar to them took the subject vehicle out of the compound. Sps. Mamaril prayed that Peña and Gaddi, together with AIB and BSP, be held liable for: (a) the value of the subject vehicle; (b) amount representing daily loss of income/boundary reckoned from the day the vehicle was lost; (c) exemplary damages; (d) moral damages; (e) attorney's fees; and (f) cost of suit. BSP denied any liability contending that not only did Sps. Mamaril directly deal with AIB with respect to the manner by which the parked vehicles would be handled, but the parking ticket itself expressly stated that the "Management shall not be responsible for loss of vehicle or any of its accessories or article left therein." It also claimed that Sps. Mamaril erroneously relied on the Guard Service Contract. Apart from not being parties thereto, its provisions cover only the protection of BSP's properties, its officers, and employees. ISSUE: Whether or not BSP may be held liable for the

loss of the vehicle caused by the negligence of its security guards. NO HELD: The proximate cause of the loss of Sps.

Mamaril's vehicle was the negligent act of security guards Peña and Gaddi in allowing an unidentified person to drive out the subject vehicle.

The records are bereft of any finding of negligence on the part of BSP. Neither will the vicarious liability of an employer under Article 2180 of the Civil Code apply in this case. Peña and Gaddi were assigned as security guards by AIB to BSP pursuant to the Guard Service Contract. No employer-employee relationship existed between BSP and the security guards assigned in its premises. Sps. Mamaril are not parties to the Guard Service Contract. Guard Service Contract between defendant-appellant BSP and defendant AIB Security Agency is purely between the parties therein. Contracts take effect only between the parties, their assigns and heirs, except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. The heir is not liable beyond the value of the property he received from the decedent. If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment

provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person. Thus, in order that a third person benefited by the second paragraph of Article 1311, referred to as a stipulation pour autrui, may demand its fulfillment, the following requisites must concur: (1) There is a stipulation in favor of a third person; (2) The stipulation is a part, not the whole, of the contract; (3) The contracting parties clearly and deliberately conferred a favor to the third person - the favor is not merely incidental; (4) The favor is unconditional and uncompensated; (5) The third person communicated his or her acceptance of the favor before its revocation; and (6) The contracting parties do not represent, or are not authorized, by the third party. However, none of the foregoing elements obtains in this case. There is absolutely nothing in the said contract that would indicate any obligation and/or liability on the part of the parties therein in favor of third persons such as herein plaintiffs-appellees. Moreover, the Court concurs with the finding of the CA that the contract between the parties herein was one of lease as defined under Article 1643 of the Civil Code. It has been held that the act of parking a vehicle in a garage, upon payment of a fixed amount, is a lease. A lessor-lessee relationship existed between Spouses Mamaril and BSP. Article 1664 of the same Code states that the lessor is not obliged to answer for a mere act of trespass which a third person may cause on the use of the thing leased; but the lessee shall have a direct action against the intruder. Here, BSP was not remiss in its obligation to provide Spouses Mamaril a suitable parking space for their jeepneys as it even hired security guards to secure the premises; hence, it should not be held liable for the loss suffered by Spouses Mamaril. The agreement with respect to the ingress and egress of Sps. Mamaril's vehicles were coordinated only with AIB and its security guards, without the knowledge and consent of BSP. Accordingly, the mishandling of the parked vehicles that resulted in herein complained loss should be recovered only from the tort feasors (Peña and Gaddi) and their employer, AIB; and not against the lessor, BSP.

Is it possible that the lessor will be liable? Yes, if he is negligent. Take note of Rent Control Law (RA 9341), effectivity of which has been extended by the Housing and Urban Development Coordinating Council (HUDCC) until 31 December 2015. It covers residential units.

Under Section 5 of the Rent Control Act of 2009, the law covers only certain residential units:

(a) when the total monthly rent does not exceed P10,000 in the National Capital Region and other highly urbanized cities; and (b) when the total monthly rent does not exceed P5,000 in all other areas. Monthly rent in this case does not include utilities and other charges.

Residential units which fall under R.A. No. 9653’s coverage have limits on annual rent increases. Under Section 4 of the law, the monthly rent shall not be


increased by more than seven (7%) percent annually for the same lessee.

Example: If a condominium unit located in Paranaque City, which is within the National Capital Region, charges a rent which does not exceed P10,000, the lessor may not increase the rent by more than 7% annually. However, if the monthly rent exceeds P10,000, the lessor may increase the rent by ten (10%) percent annually. Also, the law provides that the lessor cannot demand more than one month advance and two months deposit. Also, as in the civil code, the rent control law provides that assignment without the written consent of the lessor is prohibited. Here, subleasing without the written consent is prohibited, unlike in the civil code wherein it is allowed as long as there is no stipulation to the contrary. Also, assignment is considered as void.

FINIS

“The race is not always

to the swift, but to those

who keep on running.”

~ Anonymous

sales - 1st exam

Documents

contract of sale

apparent owner of goods

true owner

statutory power of sale

perfected contract

contract of agency

better title

voidable title ownership