Sales - Lecture

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SALES – ATTY ZARAH VILLANUEVA CASTROSan Beda College of Law, Mendiola

JOHN C. ICALIA

SALESI. CONCEPTS; CONTRACT OF SALE (Art. 1458)

By the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefore a price certain in money or its equivalent.

A. Characteristics:1. Consensual (Art. 1475) – perfected by mere consent.2. Bilateral (Art. 1458) – imposes obligation on both parties; obligation to

transfer ownership and deliver on the part of the seller and to pay the price on the part of the buyer.

3. Onerous (Art. 1350) – with valuable consideration.4. Commutative (Art. 2010) – each party gives and receives an equivalent.5. Nominate (Art. 1458) – has given a special name or designation in the Civil

Code.6. Principal – can stand on its own and does not depend on other contracts

for its existence and validity.

Essential Requisites/Elements:1. Consent of the contracting parties 2. Subject matter (things and rights) 3. Cause (price)

-------------------------------------------Jurisprudence: G.R. No. L-41847 December 12, 1986LEABRES vs. COURT OF APPEALS

DOCTRINE: An examination of the receipt reveals that the same can neither be regarded as a contract of sale or a promise to sell.

The requisites of a valid contract of sale namely: (1) consent or meeting of the minds of the parties; (2) determinate subject matter; (3) price certain in money or its equivalent; - are lacking in said receipt and therefore the "sale" is not valid nor enforceable.

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B. Distinguished from other contracts:1. Barter (Art. 1468, 1638, 1954)

- In barter, the consideration is the giving of a thing; In sale, it is giving of money as payment. - Both are governed by law on sales.

- If consideration consists partly in money and partly by thing, look at manifest intention.- Depends on the intention of the parties if they consider their transaction as barter or sale.- If the value of thing is equal or less than amount of money, it is sale.- If the value of thing is more than amount of money, it is barter.

2. Donation (Art 725) - Donation is gratuitous while sale is onerous.- Donation is formal contract; sale is consensual.- Donation is governed by law on donation; sale is governed by law on

sales.

3. Contract for a Piece of Work (Art. 1467) - Also known as Massachusetts Rule.- If the contract for delivery of an article which the vendor in the ordinary

course of business manufactures or procures for general market, whether on hand or not, it is a sale.

- If goods are to be manufactured especially for a customer and upon special order and not for the general market, it is a contract for piece of work.

-------------------------------------------Jurisprudence:G.R. No. L-8506 August 31, 1956CO vs. CIR

The important thing to remember is that Celestino Co & Company habitually makes sash, windows and doors, as it has represented in its stationery and advertisements to the public. That it "manufactures" the same is practically admitted by appellant itself. The fact that windows and doors are made by it only when customers place their orders, does not alter the nature of the establishment, for it is obvious that it only accepted such orders as called for the employment of such material-moulding, frames, panels-as it ordinarily manufactured or was in a position habitually to manufacture.

GR No. 71122, 25 March 1988CIR vs. Arnoldus Carpentry Shop

DOCTRINE: Based on Article 1467, what determines whether the contract is one of work or of sale is whether the thing has been manufactured specially for the customer and “upon his special order.” Thus, if the thing is specially done at the order of another, this is a contract for a piece of work. If, on the other hand, the thing is manufactured or procured for the general market in the ordinary course of one’s business, it is a contract of sale. The distinction between a contract of sale and one for work, labor and materials are tested by the inquiry whether the thing transferred is one not in existence and which never would have existed but for the order of the party desiring to acquire it, or a thing which would

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have existed and has been the subject of sale to some other persons even if the order had not been given. The one who has ready for the sale to the general public finished furniture is a manufacturer, and the mere fact that he did not have on hand a particular piece or pieces of furniture ordered does not make him a contractor only. A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business manufactures or procures for the – general market, whether the same is on hand at the time or not, is a contract of sale, but if the goods are to be manufactured specially for the customer and upon his special order, and not for the general market, it is a contract for a piece of work.

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4. Agency to sell (Art. 1466) - In agency to sell, agent is not obliged to pay for price but merely obliged

to deliver price received from buyer; in sale, the buyer pays for the price of the object.

- In agency, the principal remains the owner even if object is delivered to agent; in sale, buyer becomes owner of thing.

- In agency, agent assumes no risk/liability as long as within the authority given; In sale, seller warrants.

- In agency, may be revoked unilaterally because fiduciary and even revoked it without ground; in sale, not unilaterally revocable.

- In agency, agent is not allowed to profit; in sale, seller receives profit.- Agency is a personal contract; sale is a real contract (to give),

rescission is not available in agency.

-------------------------------------------Jurisprudence:G.R. No. L-11491, 23 August 1918Quiroga vs. Parsons

RULING: The Court ruled that the contract by and between the plaintiff and the defendant was one of purchase and sale, and that the obligations the breach of which is alleged as a cause of action are not imposed upon the defendant, either by agreement or by law.

In order to classify a contract, due attention must be given to its essential clauses. In the contract in question, what was essential, as constituting its cause and subject matter, is that:

(1) The plaintiff was to furnish the defendant with the beds which the latter might order, at the price stipulated, and that the defendant was to pay the price in the manner stipulated.

(2) Payment was to be made at the end of sixty days, or before, at the plaintiff’s request, or in cash, if the defendant so preferred, and in these last two cases an additional discount was to be allowed for prompt payment.

These are precisely the essential features of a contract of purchase and sale. There was the obligation on the part of the plaintiff to supply the beds, and, on the part of the defendant, to pay their price. These features exclude the legal conception of an agency or order to sell whereby the mandatory or agent received the thing to sell it, and does not pay its price, but delivers to the principal the price he obtains from the sale of the thing to a third person, and if he does not succeed in selling it, he returns it.

By virtue of the contract between the plaintiff and the defendant, the latter, on receiving the beds, was necessarily obliged to pay their price within the term fixed, without any other consideration and regardless as to whether he had or had not sold the beds. In respect to the defendant’s obligation to order by the dozen, the only one expressly imposed by the contract, the effect of its breach would only entitle the plaintiff to disregard the orders which the defendant might place under other conditions; but if the plaintiff consents to fill them, he waives his right and cannot complain for having acted thus at his own free will.

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5. Lease - In sale, obligation is to absolutely transfer ownership of thing; in lease,

use of thing is for a specified period only with an obligation to return.- In sale, consideration is price; in lease, consideration is rent.- In sale, seller needs to be the owner of the thing to transfer ownership;

in lease, lessor need not be the owner for ownership does not pass to the lessee.

Contract of Lease with Option to Buy (Art. 1485)- Really a contract of sale but designated as lease in name only.- It is a lease of personal property where rents are considered as payment

on installments.

C. Kinds of Sale1. Absolute – seller does not reserve his title over the thing sold and thus,

upon delivery, ownership passes regardless of WON buyer has paid.2. Conditional – condition/s are imposed by the seller before ownership will

pass.

CONDITION – An event may may give rise or extinguish and obligation as agreed by the contracting parties.

May be a past event if the knowledge there of is unknown yet.

Contract to Sell – ownership is reserved by the seller despite delivery; considered as a special kind of conditional sale; the buyer has the right to compel the seller to execute a final deed of sale.

A preparatory stage before the perfection of Contract of sale.

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Jurisprudence:G.R. No. L-59266Dignos vs. CA

Held: The Court ruled that there is an absolute contract of sale. That a deed of sale is absolute in nature although denominated as a “Deed of Conditional Sale” where nowhere in the contract in question is a proviso or stipulation to the effect that title to the property sold is reserved in the vendor until full payment of the purchase price , nor is there a stipulation giving the vendor the right to unilaterally rescind the contract the moment the vendee fails to pay within a fixed period.

G.R. No. 135528, 14 July 2004 Rayos vs. CA

Held: The Court ruled that the parties executed a contract to sell and not a contract of sale.

The petitioners retained ownership without further remedies by the respondents until the payment of the purchase price of the property in full. Such payment is a positive suspensive condition, failure of which is not really a breach, serious or otherwise, but an event that prevents the obligation of the petitioners to convey title from arising, in accordance with Article 1184 of the Civil Code.

The non-fulfillment by the respondent of his obligation to pay, which is a suspensive condition to the obligation of the petitioners to sell and deliver the title to the property, rendered the contract to sell ineffective and without force and effect. The parties stand as if the conditional obligation had never existed

G.R. NO. 137845 : September 9, 2004Clemeno, Jr. vs. Lobregat

Held: The Court ruled that the contract between the parties was a perfected verbal contract of sale and not a contract to sell over the subject property, with the petitioner as vendor and the respondent as vendee.

Sale is a consensual contract and is perfected by mere consent, which is manifested by a meeting of the minds as to the offer and acceptance thereof on three elements: subject matter, price and terms of payment of the price.

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II. OBJECT OF SALE (Art. 1306)A. Must be LICIT (Art. 1459) – within the commerce of man.

Illicit per se – refers to its nature. Illicit per accidens – made illegal by provisions of law. Illicit contracts are null and void.

B. Must be DETERMINATE (Art. 1460) – not essential at the time of perfection; particularly designated or physically segregated from all others of the same class.

The requisite that a thing must be determinate is satisfied if at the time the contract is entered into, the thing is capable of being made determinate without the necessity of a new further agreement between the parties.

C. Must be having POTENTIAL EXISTENCE (Art. 1461) – animals not yet born, fruits of trees, rice to be harvested.

D. Hope or expectancy (Art. 1461) Emptio rae speratae - sale of an expected thing; if does not materialize, the

sale is not effective (future thing).o Depends on the existence.

Emptio spei – sale of mere hope; does not matter whether it materializes or not, as long as the hope itself validly existed (present thing).

o Example: Lotto ticket, Raffle ticketo It is the “chance” which the buyer actually buys

Mere hope or expectancy – VALID, as long as it will come into existence. Vain hope or expectancy - VOID.

E. Sale of Existing and future goods Art. 1462. The goods which form the subject of a contract of sale may be

either existing goods, owned or possessed by the seller, or goods to be manufactured, raised, or acquired by the seller after the perfection of the contract of sale, in this Title called "future goods."

There may be a contract of sale of goods, whose acquisition by the seller depends upon a contingency which may or may not happen. (n)

This is an EXECUTORY contract – already perfected but to be performed or complied with by the seller.

F. Sale of Undivided Interest. Art 1463 A sole owner of a thing may sell an undivided interest.

Almendra VS IAC

The owner of a thing may sell his interest in the land but with now specification as to what specific part since the property is still not yet partitioned. Thus, the sale is valid as regard 50% of the property and the rights therein.

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III. PRICE (Art. 1350, 1352-53)A. Certain in money (Art. 1469)

Failure to pay the agreed price does not cancel a sale for lack of consideration, for the consideration is still there, even if paid with counterfeit money.

With reference to another thing certain - tuition fee.

B. Who may determine the price (Art. 1469, 1473-74) Determination of price may be left to the judgment of a third person. If third person is unable or unwilling to fix it, the contract has no effect,

unless the parties later on agree as to the price. Cannot be left to the will of one of the parties.

C. Effect of Gross Inadequacy (Art. 1470) Must be proven as a fact. Does not affect a contract of sale EXCEPT if consent is vitiated. In execution of judicial sale, mere inadequacy will not affect the sale,

except if there is grossly inadequate as to shock the conscience of the Court, it will be set aside.

D. Effect when price is simulated (Art. 1471) If price is simulated, contract is void, unless shown it was really a donation.

Absolutely Simulated – parties do not intend to be bound at all.- Purpose: to defraud creditors.

Relatively Simulated – sale where they actually intended another contract in which normally would be a donation.- Purpose: (1) to minimize tax liabilities; (2) to circumvent the

provisions on legitimes and collation under succession.

JurisprudencePayongayong vs CA

Doctrine: Simulation occurs when an apparent contract is a declaration of fictitious will deliberately made by agreement of the parties in order to produce, for the purpose of deception, the appearance of juridical act which does not exist or is different from which was really executed.

Requirements:1. Outward declaration of will of the parties2. False appearance intended by mutual agreement3. Purpose: deceive third persons

E. Certainty of price of securities, grains, liquids, etc. (Art. 1472) The price is certain when:

- the price fixed is that which the thing sold would have on a definite day, or a particular exchange or market; or

- an amount is fixed above or below the price on such day or in such exchange or market.

F. Effect of failure to determine price (Art. 1474) The contract is inefficacious. However, if delivered to and appropriated by the buyer, he must pay a

reasonable price which depends on different circumstances of each case. Art. 1474. Where the price cannot be determined in accordance with the

preceding articles, or in any other manner, the contract is inefficacious. However, if the thing or any part thereof has been delivered to and appropriated by the buyer he must pay a reasonable price therefor. What is a reasonable price is a question of fact dependent on the circumstances of each particular case.

G. Meeting of the minds as to price

-------------------------------------------JurisprudenceG.R. Nos. L-21489 and L-21628, 19 May 1966, 17 SCRA 114Mapalo vs. Mapalo

RULING: The Court ruled that a contract of purchase and sale is null and void and produces no effect whatsoever where the same is without cause or consideration in that the purchase price which appears in a contract as paid where in fact never been paid by the purchaser to the vendor.

Starting with fundamentals, under the Civil Code, either the old or the new, for a contract to exist at all, three essential requisites must concur: (1) consent, (2) object, and (3) cause or consideration. The Court of Appeals is right in that the element of consent is present. For consent was admittedly given, albeit obtained by fraud. Accordingly, said consent, although defective, did exist. In such case, the defect in the consent would provide a ground for annulment of a voidable contract, not a reason for nullity ab initio.

The parties are agreed that the second element of object is likewise present namely, the parcel of land subject matter of the same.Not so, however, as to the third element of cause or consideration

G.R. No. 128120, 20 October 2004Sweldish Match vs. CA

RULING: An offer would require, among other things, a clear certainty on both the object and the cause or consideration of the envisioned contract. Consent in a contract of sale should be manifested by the meeting of the offer and the acceptance upon the thing and

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the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer.

As a consensual contract, a contract of sale becomes a binding and valid contract upon the meeting of the minds of the parties as to the price, despite the manner of payment, or even the breach of that manner of payment. It is not the act of payment of price that determines the validity of a contract of sale.

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http://en.wikipedia.org/wiki/Contract_of_sale

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IV. FORMATION/PERFECTION OF A CONTRACT OF SALE (Art. 1475)

Perfected at the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the price.

Upon that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing forms of contracts.

FORM:General Rule: A COS may be in any form. Article 1483 provides that a COS may be in writing, partly in writing xxx. This provision is exactly the same as Article 1356 in contracts which provides that contracts may be obligatory in whatever form they may have been entered into provided all the essential requisites are present. But then again even Article 1356 just like Article 1475 would provide for exceptions.

Exceptions: The law may require a particular form for its validity. The Cattle Registration Decree is an example - where the law itself provides for a particular form for the validity of the sale. But the law may require particular form for its enforceability of the sale and that would be 1403 or the statute of frauds. Concretely, the sale of a parcel of land if not in writing is valid but unenforceable. It is not void. Note that the price of the land is irrelevant if immovable.

Example: Before, the sale of a land for P300 is valid and enforceable even if not in writing. But presently, it has to be in writing to be enforceable. The price is still irrelevant.

If the object of the sale is movable, you have to consider not the value of the thing but the price agreed upon. The value may be different from the price. You can sell a thing worth P1,000 for P400 but the law provides for the price. If the price is at least P500 and the sale is not in writing, it will be unenforceable.

A. Option Contract (Art. 1479) A promise to buy and sell a determinate thing for a price certain is

reciprocally demandable.

-------------------------------------------Jurisprudence:G.R. No. 111238, 25 January 1995Adelfa Properties vs. CA

RULING: The Court ruled that the agreement between the parties is a contract to sell, and not an option contract or a contract of sale.

The distinction between the two is important for:

1. In contract of sale, the title passes to the vendee upon the delivery of the thing sold; whereas in a contract to sell, by agreement the ownership is reserved in the vendor and is not to pass until the full payment of the price.

2. In a contract of sale, the vendor has lost and cannot recover ownership until and unless the contract is resolved or rescinded; whereas in a contract to sell, title is retained by the vendor until the full payment of the price, such payment being a positive suspensive condition and failure of which is not a breach but an event that prevents the obligation of the vendor to convey title from becoming effective. Thus, a deed of sale is considered absolute in nature where there is neither a stipulation in the deed that title to the property sold is reserved in the seller until the full payment of the price, nor one giving the vendor the right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed period.

Article 1478 of the civil code does not require that such a stipulation be expressly made. Consequently, an implied stipulation to that effect is considered valid and, therefore, binding and enforceable between the parties. It should be noted that under the law and jurisprudence, a contract which contains this kind of stipulation is considered a contract to sell.

G.R. No. L-9871, 31 January 1958Atkins, Kroll & Co. vs. Cua Hian Tek

Held: The argument, manifestly assumes that only a unilateral promise arose when the offeree accepted. Such assumption is a mistake, because a bilateral contract to sell and to buy was created upon acceptance.

So much so that Cua Hian Tek could be sued, he had backed out after accepting, by refusing to get the sardines and/or to pay for their price. Indeed, the word "option" is found neither in the offer nor in the acceptance. On the contrary, Cua Hian Tek accepted "the firm offer for the sale" and adds, "the undersigned buyer has immediately filed an application for import license . . ."

It can be taken for granted, as contended by the defendants, that the option contract was not valid for lack of consideration. But it was, at least, an offer to sell, which was accepted by letter, and of this acceptance, the offerer had knowledge before said offer was withdrawn. The concurrence of both acts—the offer and the acceptance—could at all events have generated a contract; it was therefore a contract of sale.

SANCHEZ V RIGOS: NOTE: The significance of this ruling is that it shows that the only importance of a consideration for an option is that the option cannot be withdrawn by the grantor during the stipulated period

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Sanchez vs. Rigos

Facts: Mrs. Rigos offered to sell her land to Sanchez for a certain price. Rigos gave Sanchez 2 years within which to decide. (Note: The optionee or promisee or offeree is not bound to purchase but he has the option to buy or purchase). In this case, Sanchez has the option. Before the lapse of 2 years, Sanchez told Rigos that he is buying and offered the price agreed upon but Rigos refused claiming that she was not bound by the written option agreement because no option money (consideration) was given by Sanchez. According to Rigos, the option contract is void.

Held: Since Sanchez accepted the offer and decided to buy within the period before the offer was withdrawn, a perfected COS was created even without option money. In this case, there was no option contract because it was merely an option agreement. Therefore, there was merely an offer on the part of Rigos and once the offer was accepted before it was withdrawn, regardless of whether option money was given and in this case no option money was given, a perfected COS was created.

G.R. No. 109125, 2 December 1994Ang Yu Ascuncion vs CA

RULING: An accepted unilateral promise which specifies the thing to be sold and the price to be paid, when coupled with a valuable consideration distinct and separate from the price, is what may properly be termed a perfected contract of option. This contract is legally binding, and in sales, it conforms with the second paragraph of Article 1479 of the Civil Code, viz:

An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price.

Observe, however, that the option is not the contract of sale itself. The optionee has the right, but not the obligation, to buy. Once the option is exercised timely, i.e., the offer is accepted before a breach of the option, a bilateral promise to sell and to buy ensues and both parties are then reciprocally bound to comply with their respective undertakings.

A negotiation is formally initiated by an offer. An imperfect promise (policitacion) is merely an offer. Public advertisements or solicitations and the like are ordinarily construed as mere invitations to make offers or only as proposals. These relations, until a contract is perfected, are not considered binding commitments. Thus, at any time prior to the perfection of the contract, either negotiating party may stop the negotiation. The offer, at this stage, may be withdrawn; the withdrawal is effective immediately after its manifestation, such as by its mailing and not necessarily when the offeree learns of the withdrawal.

Where a period is given to the offeree within which to accept the offer, the following rules generally govern:

(1) If the period is not itself founded upon or supported by a consideration, the offeror is still free and has the right to withdraw the offer before its acceptance, or, if an acceptance has been made, before the offeror's coming to know of such fact, by communicating that withdrawal to the offeree. The right to withdraw, however, must not be exercised whimsically or arbitrarily; otherwise, it could give rise to a damage claim under Article 19 of the Civil Code which ordains that "every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith."

(2) If the period has a separate consideration, a contract of "option" is deemed perfected, and it would be a breach of that contract to withdraw the offer during the agreed period. The option, however, is an independent contract by itself, and it is to be distinguished from the projected main agreement (subject matter of the option) which is obviously yet to be concluded. If, in fact, the optioner-offeror withdraws the offer before its acceptance (exercise of the option) by the optionee-offeree, the latter may not sue for specific performance on the proposed contract ("object" of the option) since it has failed to reach its own stage of perfection. The optioner-offeror, however, renders himself liable for damages for breach of the option. In these cases, care should be taken of the real nature of the consideration given, for if, in fact, it has been intended to be part of the consideration for the main contract with a right of withdrawal on the part of the optionee, the main contract could be deemed perfected; a similar instance would be an "earnest money" in a contract of sale that can evidence its perfection (Art. 1482, Civil Code).

G.R. No. 126454, 26 November 2004Bible Baptist Church vs. CA

An option contract, to be valid and binding, needs to be supported by a separate consideration. The consideration need not be monetary but could consist of other things or undertakings. However, if the consideration is not monetary, these must be things or undertakings of value, in view of the onerous nature of the contract of option. Furthermore, when a consideration for an option contract is not monetary, said consideration must be clearly specified as such in the option contract or clause.

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B. Mutual Promise to Buy and Sell (Art. 1479)

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An accepted unilateral promise to buy and sell a determinate thing for a price certain is promising upon the promisor if the promise is supported by a consideration distinct from the price. “Option Money”

C. Status of Advertisement (Art. 1325-26) Unless it appears otherwise, business advertisements of things for sale

are not definite offers, but mere invitations to make an offer. Advertisements for bidders are simply invitations to make proposals, and

the advertiser is not bound to accept the highest or lowest bidder, unless the contrary appears.

D. Acceptance by Letter or Telegram (Art. 1319) Acceptance made by letter or telegram does not bind the offerer except

from the time it came to his knowledge. The contract, in such a case, is presumed to have been entered into in the place where the offer was made.

E. Perfection of Sale by Auction (Art. 1476) Where goods are put up for sale by auction in lots, each lot is the subject of

a separate contract of sale. A sale by auction is perfected when the auctioneer announces its

perfection by the fall of the hammer, or in other customary manner. Until such announcement is made, any bidder may retract his bid; and the auctioneer may withdraw the goods from the sale unless the auction has been announced to be without reserve.

Q: Can the auctioneer withdraw the goods before the fall of the hammer?A: As a rule, yes because the sale has not been perfected at the moment unless the bidding or auction has been announced to be without reserve.

A right to bid may be reserved expressly by or on behalf of the seller, unless otherwise provided by law or by stipulation.- If auction is announced to be “without reserve,” goods cannot be

withdrawn from the sale after the bid is made. Where notice has not been given that a sale by auction is subject to a right

to bid on behalf of the seller, it shall not be lawful for the seller to bid himself or to employ or induce any person to bid at such sale on his behalf or for the auctioneer, to employ or induce any person to bid at such sale on behalf of the seller or knowingly to take any bid from the seller or any person employed by him. Any sale contravening this rule may be treated as fraudulent by the buyer.

- By taking part in the auction and offering bidding, the buyer voluntarily submitted to the terms and conditions of the auction sale announced in the notice.

- Puffing/by-bidding – means employed by owner to increase the price of the bids; illegal.

F. Earnest Money (Art. 1482)

When given in a contract of sale, it shall be considered as part of the price and as proof of the perfection of the contract.

-------------------------------------------Jurisprudence:G.R. No. 135929, 20 April 2001Limson vs. CAFacts: Petitioner Lourdes Ong Limson alleged that in July 1978 respondent spouses Lorenzo de Vera and Asuncion Santos-de Vera, through their agent Marcosa Sanchez, offered to sell to petitioner a parcel of land situated in Barrio San Dionisio, Parañaque, Metro Manila; that respondent spouses informed her that they were the owners of the subject property; that on 31 July 1978 she agreed to buy the property at the price of P34.00 per square meter and gave the sum of P20,000.00 to respondent spouses as "earnest money;" that respondent spouses signed a receipt therefor and gave her a 10-day option period to purchase the property; that respondent Lorenzo de Vera then informed her that the subject property was mortgaged to Emilio Ramos and Isidro Ramos; that respondent Lorenzo de Vera asked her to pay the balance of the purchase price to enable him and his wife to settle their obligation with the Ramoses.

Petitioner also averred that she agreed to meet respondent spouses and the Ramoses on 5 August 1978 at the Office of the Registry of deeds of Makati, Metro Manila, to consummate the transaction but due to the failure of respondent Asuncion Santos-de Vera and the Ramoses to appear, no transaction was formalized. In a second meeting scheduled on 11 August 1978 she claimed that she was willing and ready to pay the balance of the purchase price but the transaction again did not materialize as respondent spouses failed to pay the back taxes of subject property. Subsequently, on 23 August 1978 petitioner allegedly gave respondent Lorenzo de Vera three (3) checks in the total amount of P36, 170.00 for the settlement of the back taxes of the property and for the payment of the quitclaims of the three (3) tenants of subject land. The amount was purportedly considered part of purchase price and respondent Lorenzo de Vera signed the receipts therefore.

Petitioner alleged that on 5 September 1978 she was surprised to learn from the agent of respondent spouses that the property was the subject of a negotiation for the sale to respondent Sunvar Realty Development Corporation (SUNVAR). Respondent spouses prayed for actual damages for the unjustified filling of the Cross-Claim, moral damages for the mental anguish and similar injuries they suffered by reason thereof, exemplary damages "to prevent others from emulation the bad example" of respondents SUNVAR and Cuenca, plus attorney’s fees. The Regional Trial Court rendered its decision in favor of petitioner. On appeal, the Court of Appeals completely reversed the decision of the trial court.

Issue: WON there was an earnest money given.

Held: The Court ruled that the consideration of P20,000.00 paid by petitioner to respondent spouses was referred to as "earnest money" was not an earnest money but option money.

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A scrutiny of the facts as well as the evidence of the parties overwhelmingly leads to the conclusion that the agreement between the parties was a contract of option and not a contract to sell.

"Earnest money" and "option money" are not the same but distinguished thus: (a) Earnest money is part of the purchase price, while option money is the money given as a distinct consideration for an option contract; (b) Earnest money given only where there is already a sale, while option money applies to a sale not yet perfected; and, (c) When earnest money is given, the buyer is bound to pay the balance, while when the would-be buyer gives option money, he is not required to buy, but may even forfeit it depending on the terms of the option.

There is nothing in the Receipt which indicates that the P20,000.00 was part of the purchase price.

G.R. No. 137290, 31 July 2000San Miguel Properties vs. Huang

Facts: Petitioner San Miguel Properties Philippines, Inc. is a domestic corporation engaged in the purchase and sale of real properties. Part of its inventory are two parcels of land were offered for sale for P52,140,000.00 in cash. The offer was made to Atty. Helena M. Dauz who was acting for respondent spouses as undisclosed principals. In a letter dated March 24, 1994, Atty. Dauz signified her clients’ interest in purchasing the properties for the amount for which they were offered by petitioner, under the following terms: the sum of P500,000.00 would be given as earnest money and the balance would be paid in eight equal monthly installments from May to December, 1994. However, petitioner refused the counter-offer.On March 29, 1994, Atty. Dauz wrote another letter proposing the following terms for the purchase of the properties.

Atty. Helena M. Dauz who was acting for respondent spouses as undisclosed principals. In a letter dated March 24, 1994, Atty. Dauz signified her clients’ interest in purchasing the properties for the amount for which they were offered by petitioner, under the following terms: the sum of P500,000.00 would be given as earnest money and the balance would be paid in eight equal monthly installments from May to December, 1994. However, petitioner refused the counter-offer.

On March 29, 1994, Atty. Dauz wrote another letter proposing the following terms for the purchase of the properties.

Isidro A. Sobrecarey, petitioner’s vice-president and operations manager for corporate real estate, indicated his conformity to the offer by affixing his signature to the letter and accepted the "earnest-deposit" of P1 million. Upon request of respondent spouses,

Sobrecarey ordered the removal of the "FOR SALE" sign from the properties. On April 25, 1994, Atty. Dauz asked for an extension of 45 days from April 29, 1994 to June 13, 1994 within which to exercise her option to purchase the property, adding that within that period, "[we] hope to finalize [our] agreement on the matter." Her request was granted. On July 7, 1994, petitioner, through its president and chief executive officer, Federico Gonzales, wrote Atty. Dauz informing her that because the parties failed to agree on the terms and conditions of the sale despite the extension granted by petitioner, the latter was returning the amount of P1 million given as "earnest-deposit."

On July 20, 1994, respondent spouses, through counsel, wrote petitioner demanding the execution within five days of a deed of sale covering the properties. Respondents attempted to return the "earnest-deposit" but petitioner refused on the ground that respondents’ option to purchase had already expired.On August 16, 1994, respondent spouses filed a complaint for specific performance against petitioner before the RTC of Pasig City.Petitioner filed a motion to dismiss the complaint alleging that (1) the alleged "exclusive option" of respondent spouses lacked a consideration separate and distinct from the purchase price and was thus unenforceable and (2) the complaint did not allege a cause of action because there was no "meeting of the minds" between the parties and, therefore, no perfected contract of sale.

The trial court granted petitioner’s motion and dismissed the action. Respondents filed a motion for reconsideration, but it was denied by the trial court. They then appealed to the Court of Appeals which, on April 8, 1997, rendered a decision reversing the judgment of the trial court.

Held: In the present case, the P1 million "earnest-deposit" could not have been given as earnest money as contemplated in Art. 1482 because, at the time when petitioner accepted the terms of respondents’ offer of March 29, 1994, their contract had not yet been perfected. This is evident from the following conditions attached by respondents to their letter, to wit:

(1) that they be given the exclusive option to purchase the property within 30 days from acceptance of the offer;

(2) that during the option period, the parties would negotiate the terms and conditions of the purchase; and

(3) petitioner would secure the necessary approvals while respondents would handle the documentation.

The first condition for an option period of 30 days sufficiently shows that a sale was never perfected. As petitioner correctly points out, acceptance of this condition did not give rise to a perfected sale but merely to an option or an accepted unilateral promise on the part of respondents to buy the subject properties within 30 days from the date of acceptance of the offer. Such option giving respondents the exclusive right to buy the properties within the period agreed upon is separate and distinct from the contract of sale which the parties may enter. All that respondents had was just the option to buy the properties

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which privilege was not, however, exercised by them because there was a failure to agree on the terms of payment. No contract of sale may thus be enforced by respondents.Furthermore, even the option secured by respondents from petitioner was fatally defective.

Under the second paragraph of Art. 1479, an accepted unilateral promise to buy or sell a determinate thing for a price certain is binding upon the promisor only if the promise is supported by a distinct consideration. Consideration in an option contract may be anything of value, unlike in sale where it must be the price certain in money or its equivalent. There is no showing here of any consideration for the option. Lacking any proof of such consideration, the option is unenforceable.

It is not the giving of earnest money, but the proof of the concurrence of all the essential elements of the contract of sale which establishes the existence of a perfected sale.

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G. Form of Sales (Art. 1403 [2, a,d,e], 1483, 1581, 1874) The following contracts are unenforceable, unless they are ratified:

(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum, thereof, be in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement cannot be received without the writing, or a secondary evidence of its contents:

(a) An agreement that by its terms is not to be performed within a year from the making thereof;

(d) An agreement for the sale of goods, chattels or things in action, at a price not less than five hundred pesos, unless the buyer accept and receive part of such goods and chattels, or the evidences, or some of them, of such things in action or pay at the time some part of the purchase money; but when a sale is made by auction and entry is made by the auctioneer in his sales book, at the time of the sale, of the amount and kind of property sold, terms of sale, price, names of the purchasers and person on whose account the sale is made, it is a sufficient memorandum;

e) An agreement of the leasing for a longer period than one year, or for the sale of real property or of an interest therein.

Subject to the provisions of the Statute of Frauds and of any other applicable statute, a contract of sale may be made in writing, or by word of mouth, or partly in writing and partly by word of mouth, or may be inferred from the conduct of the parties.

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

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V. PARTIES TO A CONTRACT OF SALE

The following cannot give consent to a contract:(1) Unemancipated minors; (Exception: Necessaries)

(2) Insane or demented persons, and deaf-mutes who do not know how to write.

1. All persons who are authorized to obligate themselves, may enter into a contract of sale, saving modifications contained in the following articles.

Kind of Incapacity

1) Absolute Incapacity – the party cannot give consent to any and all contracts. (Ex. Civil interdiction, (1) & (2) Above)

2) Relative Incapacity – the party is prohibited from entering sometimes with specific persons and sometimes over specific things. (Ex. Married person, Special Incapacity (See Part V Sub C)

Kind of Capacity

1. Juridical Capacity – it is the fitness to be the subject of legal relations. If a party to a sale has no juridical capacity, the contract is void. Note that all natural living persons have juridical capacity. Even if he is a 1 day old baby, he has juridical capacity. The baby can be the subject of donation. Even if he is conceived, he has provisional personality.

Example: One example of a party to a sale without juridical capacity would be a corporation not registered with the SEC. The contract entered by this corporation is a void contract because one of the parties has no juridical capacity to enter into that contract.

2. Capacity to Act – it is the power to do acts with legal effects. If the incapacity only pertains to capacity to act, the contract would normally be voidable. Without capacity to act or there are restrictions with one’s capacity to act such as minority, insanity, deaf mute and does not know how to write and civil interdiction.

Note: Under R.A. 6809 (December 1989) there is no more creature known as “unemancipated minor”. Before 1989, the age of majority was 21.

A. Sale by a Minor (Art. 1489)2. Where necessaries are those sold and delivered to a minor or other person

without capacity to act, he must pay a reasonable price therefore.

Necessaries - are those indispensable for sustenance, clothing, dwelling, education, and medical treatment.

Q: What if one of the parties in a COS is a minor and the minor actively misrepresented as to his age?A: The SC said that the minor will be bound to such contract under the principle of estoppel.

B. Sale between Spouses (Art. 1490)3. General Rule: The husband and the wife cannot sell property to each other4. Exception:

1) When a separation of property was agreed upon in the marriage settlements; or

2) When there has been a judicial separation or property under Article 191.

Every donation or grant of gratuitous advantage, direct or indirect, between the spouses during the marriage shall be void, except moderate gifts which the spouses may give each other on the occasion of any family rejoicing. The prohibition shall also apply to persons living together as husband and wife without a valid marriage.

CALIMLIM-CANULLAS V. FORTUN: …if transfers or conveyances between spouses were allowed during marriage, that would destroy the system of conjugal partnership. It was also designed to prevent the exercise of undue influence by one spouse over the other, as well as to protect the institution of marriage, which is the cornerstone of family law. The prohibitions apply to a couple living as husband and wife without benefit of marriage, otherwise, "the condition of those who incurred guilt would turn out to be better than those in legal union."

Contract of sale of married person to third parties The administration and enjoyment of the community property shall belong to

both spouses jointly. In case of disagreement, the husband's decision shall prevail, subject to recourse

to the court by the wife for proper remedy, which must be availed of within five years from the date of the contract implementing such decision.

In the event that one spouse is incapacitated or otherwise unable to participate in the administration of the common properties, the other spouse may assume sole powers of administration. These powers do not include disposition or encumbrance without authority of the court or the written consent of the other spouse. In the absence of such authority or consent, the disposition or encumbrance shall be void. However, the transaction shall be construed as a continuing offer on the part of the consenting spouse and the third person, and may be perfected as a binding contract upon the acceptance by the other spouse or authorization by the court before the offer is withdrawn by either or both offerors.

-------------------------------------------Jurisprudence:G.R. No. L-28771, 31 March 1971Matabuena vs. Cervantes

Facts: Felix Matabuena cohabitated with respondent. During this period, Felix Matabuena donated to respondent a parcel of land. Later the two were married. After the death of Felix Matabuena, his sister, Petitioner, sought the nullification of the donation citing Art. 133 of the Civil Code “Every donation between the

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spouses during the marriage shall be void.” The trial court ruled that this case was not covered by the prohibition because the donation was made at the time the deceased and Respondent were not yet married and were simply cohabitating.

Issue: WON the prohibition applies to donations between live-in partners.

Held: Yes. It is a fundamental principle in statutory construction that what is within the spirit of the law is as much a part of the law as what is written. Since the reason for the ban on donations between spouses during the marriage is to prevent the possibility of undue influence and improper pressure being exerted by one spouse on the other, there is no reason why this prohibition shall not apply also to common-law relationships. The court, however, said that the lack of the donation made by the deceased to Respondent does not necessarily mean that the Petitioner will have exclusive rights to the disputed property because the relationship between Felix and Respondent were legitimated by marriage..

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C. Special Incapacity (Art. 1491)5. The following persons cannot acquire by purchase, even at a public or

judicial auction, either in person or through the mediation of another:1. A guardian cannot buy the property of the ward. The guardian is

not actually prohibited from entering into any and all contracts. It is just that he cannot be the buyer of a property of his ward.

2. An agent cannot buy without the consent of the principal a property which he was supposed to sell or administer.

3. The executors and administrators of the estate cannot buy a property which is part of the estate.

4. Public officers, judges, their staff, clerk of court, stenographers and lawyers are prohibited from buying those properties which are the subject of litigation during the pendency of the case

Q: What is the status of the contracts under 1491?A: Prof. Tolentino – voidable

Justice Vitug & Prof. Baviera – voidProf. Pineda & Prof. de Leon – the first 3 are voidable and the last 3 are void.

The better answer is void because these persons are prohibited from entering into these contracts. Under Article 1409, if the contract is prohibited, it is void.

Generally: Aliens are prohibited from acquiring by purchase private lands – Take note “acquiring” which means buying not selling. They can sell. Exceptions / when aliens can buy:

a. Former natural born Filipino citizen. Under the Constitution they are allowed to buy small land which they can use for residential purpose.

b. Another way of acquiring is by succession but this is not a sale

ADDITIONAL NOTES:1) It is immaterial that no damage is suffered by the owner. The contract is void as the law

seeks to prevent said persons from being tempted to take advantage of their position.

They occupy a position of trust and confidence in relation to the property under their administration or jurisdiction.

2) Agents cannot buy the property of their principal without the consent of the latter. BROKERS, however, do not come within the prohibition, as their authority consists merely in looking for a buyer or seller, and to bring the latter and his principal together to consummate the transaction. Of course, after the agency is terminated, the agent can buy the property of the principal, which was formerly under his administration.

3) Although executors and administrators cannot buy the property under their administration, an executor may buy the hereditary rights of an heir to the estate under his administration, because the buyer, in such case, cannot get the share of the heir in the estate until after the administration is ended.

4) With regard to the lawyers, the prohibition does not apply to other properties of the client, nor to assignments of the property formerly in litigation when such assignment will take effect only after final judgment (compensation of lawyers payable on a contingent basis, unless unconscionable).

5) Examples of other persons especially disqualified by law are: (1) aliens purchasing private agricultural lands (Art XII, Secs 3 & 7, Consti); (2) an unpaid seller having a right of lien…(Art 133 par 5) (Baviera)

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G.R. No. 158907, 12 February 2007Olaguer vs. Purugganan

Facts: Petitioner Eduardo B. Olaguer alleges that he was the owner of 60,000 shares of stock of Businessday Corporation (Businessday) with a total par value of P600,000.00. At the time he was employed with the corporation as Executive Vice-President of Businessday, and President of Businessday Information Systems and Services and of Businessday Marketing Corporation, petitioner, together with respondent Raul Locsin (Locsin) and Enrique Joaquin (Joaquin), was active in the political opposition against the Marcos dictatorship. Anticipating the possibility that petitioner would be arrested and detained by the Marcos military, Locsin, Joaquin, and Hector Holifeña had an unwritten agreement that, in the event that petitioner was arrested, they would support the petitioner’s family by the continued payment of his salary. Petitioner also executed a Special Power of Attorney (SPA), on 26 May 1979, appointing as his attorneys-in-fact Locsin, Joaquin and Hofileña for the purpose of selling or transferring petitioner’s shares of stock with Businessday. During the trial, petitioner testified that he agreed to execute the SPA in order to cancel his shares of stock, even before they are sold, for the purpose of concealing that he was a stockholder of Businessday, in the event of a military crackdown against the opposition. The parties acknowledged the SPA before respondent Emilio Purugganan, Jr., who was then the Corporate Secretary of Businessday, and at the same time, a notary public for Quezon City.

On 24 December 1979, petitioner was arrested by the Marcos military by virtue of an Arrest, Search and Seizure Order and detained for allegedly committing arson. During the petitioner’s detention, respondent Locsin ordered fellow respondent Purugganan to

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cancel the petitioner’s shares in the books of the corporation and to transfer them to respondent Locsin’s name.

Petitioner also agreed to stipulate that from 1980 to 1982, Businessday made regular deposits, each amounting to P10,000.00, to the Metropolitan Bank and Trust Company accounts of Manuel and Genaro Pantig, petitioner’s in-laws. The deposits were made on every 15th and 30th of the month. Petitioner alleged that these funds consisted of his monthly salary, which Businessday agreed to continue paying after his arrest for the financial support of his family. After receiving a total of P600,000.00, the payments stopped. Thereafter, respondent Locsin and Fernando went to ask petitioner to endorse and deliver the rest of his stock certificates to respondent Locsin, but petitioner refused.

On 16 January 1986, petitioner was finally released from detention. He then discovered that he was no longer registered as stockholder of Businessday in its corporate books. He also learned that Purugganan, as the Corporate Secretary of Businessday, had already recorded the transfer of shares in favor of respondent Locsin, while petitioner was detained. When petitioner demanded that respondents restore to him full ownership of his shares of stock, they refused to do so.

Petitioner filed a Complaint before the trial court against respondents Purugganan and Locsin to declare as illegal the sale of the shares of stock, to restore to the petitioner full ownership of the shares, and payment of damages. The trial court dismissed the Complaint filed by the petitioner. It ruled that the sale of shares between petitioner and respondent Locsin was valid. On appeal, the Court of Appeals affirmed the Decision of the trial court that there was a perfected contract of sale.

Issue: WON there was a perfected sale.

Held: It is, indeed, a familiar and universally recognized doctrine that a person who undertakes to act as agent for another cannot be permitted to deal in the agency matter on his own account and for his own benefit without the consent of his principal, freely given, with full knowledge of every detail known to the agent which might affect the transaction.

The prohibition against agents purchasing property in their hands for sale or management is, however, clearly, not absolute. It does not apply where the principal consents to the sale of the property in the hands of the agent or administrator.

A.M. Nos. 1302, 1391 and 1543, 26 April 1991Valencia vs. Cabinting

Facts: In 1933, petitioner Paulino Valencia and his wife Romana allegedly bought a parcel of land, where they built their residential house from a certain Serapia Raymundo, an heir of Pedro Raymundo, the original owner of the parcel of land. However, they failed to register the sale or secure a transfer certificate of title in their names. Then, a conference was held in the house of Atty. Jovellanos to settle the dispute between Serapia and the

Sps. Valencia. As a result, Serapia was willing to relinquish her ownership if the Valencias could show documents evidencing ownership. Paulino presented a deed of sale written in Ilocano. Serapia claimed that the deed covered a different property. Thus, the parties were not able to settle their differences. Assisted by Atty. Cabanting, Serapia filed a complaint against Paulino for the recovery of possession with damages. The Valencias, on the other hand, engaged the services of Atty. Antiniw, who advised them to present a notarized deed of sale instead of the document in Ilocano. For the amount of P200 paid by Paulino to Atty. Antiniw, the latter paid a person who would forge the signature of the alleged vendor. The Pangasinan CFI favored Serapia. While the petition was of appeal, Serapia sold 40 sq. m. to Atty. Jovellanos and the remaining was also sold to her counsel, Atty. Cabanting.

Issue: WON Atty. Cabanting purchased the subject property in violation of Art. 1491 of the Civil Code.

Held: The Court ruled in the affirmative. Art. 1491, NCC, prohibiting the sale to counsel concerned, applies only while the litigation is pending. The thing is said to be in litigation not only if it there is some contest or litigation over it in court, but also from the moment that it becomes to the judicial action of the judge.

In the case at bar, while it is true that Atty. Cabanting purchased the lot after finality of judgment, there was still a certiorari proceeding.In certiorari proceedings, the appellate court may either grant or dismiss the petition. Thus, it is not safe to conclude, for purposes under Art. 1491, NCC, that litigation has terminated when the judgment of the trial court become final while certiorari connected therewith is still in progress. Thus, the purchase of the property by Atty. Cabanting in this case constitutes malpractice in violation of Art. 1491 of the Civil Code and the Canons of Professional Ethics.

A.C. No. 6210, 9 December 2004Ramos vs. Ngaseo

Facts: Sometime in 1998, complainant Federico Ramos went to respondent Atty. Patricio Ngaseo's Makati office to engage his services as counsel in a case involving a piece of land in San Carlos, Pangasinan. On September 16, 1999, complainant went to the respondent's office to inquire about the status of the case. Respondent informed him that the decision was adverse to them because a congressman exerted pressure upon the trial judge. Respondent however assured him that they could still appeal the adverse judgment and asked for the additional amount of P3,850.00 and another P2,000.00 on September 26, 2000 as allowance for research made. Although an appeal was filed, complainant however charges the respondent of purposely failing to submit a copy of the summons and copy of the assailed decision. Subsequently, complainant learned that the respondent filed the notice of appeal 3 days after the lapse of the reglementary period.

On January 29, 2003, complainant received a demand-letter from the respondent asking for the delivery of the 1,000 sq. m. piece of land which he allegedly promised as payment

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for respondent's appearance fee. In the same letter, respondent also threatened to file a case in court if the complainant would not confer with him and settle the matter within 30 days.

Complainant filed a complaint before the IBP charging his former counsel, respondent Atty. Ngaseo, of violation of the Code of Professional Responsibility for demanding the delivery of 1,000 sq. m. parcel of land which was the subject of litigation.

In a report dated July 18, 2003, IBP Commissioner Rebecca Villanueva-Maala found the respondent guilty of grave misconduct and conduct unbecoming of a lawyer in violation of the Code of Professional Responsibility and recommended that he be suspended from the pr;actice of law for 1 year.

Respondent argues that he did not violate Article 1491 of the Civil Code because when he demanded the delivery of the 1,000 sq. m. of land which was offered and promised to him in lieu of the appearance fees, the case has been terminated, when the appellate court ordered the return of the 2-hectare parcel of land to the family of the complainant.

Issue: WON the respondent violated the prohibition under Article 1491 (5) of the Civil Code.

Held: The Court ruled that even assuming arguendo that such demand for delivery is unethical, respondent's act does not fall within the purview of Article 1491.

Under Article 1491(5) of the Civil Code, lawyers are prohibited from acquiring either by purchase or assignment the property or rights involved which are the object of the litigation in which they intervene by virtue of their profession. The prohibition on purchase is all embracing to include not only sales to private individuals but also public or judicial sales. The rationale advanced for the prohibition is that public policy disallows the transactions in view of the fiduciary relationship involved, i.e., the relation of trust and confidence and the peculiar control exercised by these persons. It is founded on public policy because, by virtue of his office, an attorney may easily take advantage of the credulity and ignorance of his client and unduly enrich himself at the expense of his client. However, the said prohibition applies only if the sale or assignment of the property takes place during the pendency of the litigation involving the client's property. Consequently, where the property is acquired after the termination of the case, no violation of paragraph 5, Article 1491 of the Civil Code attaches.

In the instant case, there was no actual acquisition of the property in litigation since the respondent only made a written demand for its delivery which the complainant refused to comply. Mere demand for delivery of the litigated property does not cause the transfer of ownership, hence, not a prohibited transaction within the contemplation of Article 1491.

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VI. OBLIGATIONS OF THE VENDOR (Art. 1495)The vendor is bound to:

- Transfer ownership; and- Deliver; as well as- Warrant the thing which is the object of the sale.- Obligation to take care of the thing sold with the diligence of a good

father of a family prior to delivery.- From the time of the perfection up to the time of delivery then there

would be obligation to pay for the expenses for the execution and registration of the sale and obligation to pay the capital gains tax would be on the seller as a rule.

- Obligation to deliver the fruits which is related to the obligation to deliver the thing

1) To preserve the object of sale (Art. 1163)- Every person obliged to give something is also obliged to take care of

it with the proper diligence of a good father of a family, unless the law or the stipulation of the parties requires another standard of care.

NOTE: The thing sold should be determinate because if generic (1460, 2nd paragraph) then there is nothing to be taken care of. It will become determinate only upon delivery.Exceptions: There are sales transactions wherein the vendor would not have this obligation:

a. Constructive delivery - brevi manu – There would be no obligation on the part of the seller to take care of the thing from the time of perfection because at the time of perfection, the buyer was already in possession of the thing. Maybe he borrowed the thing. Example: he borrowed the car and he decided to buy it – the thing was already in his possession.

OBLIGATION TO PAY EXPENSES / TAXESThese obligations may be the subject of stipulation. By agreement, it would be the buyer

who will pay xxx Normally, dito hindi natutuloy ang sale dahil hindi magkasundo kung sino magbabayad ng tax.

2) Transfer of Ownership and delivery of the object

To transfer ownership; who can transfer ownership?- Only those who have the right to sell (lis dispodenti).

- Owner- Agent – because of the authority given.- Notary public

in pledge- Guardian- Liquidators- Receivers- Sheriff – because of the authority of the court.

because of the authority of the law to sell; statutory power to sell.

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Q: May a person sell something which does not belong to him? Would the sale be valid? Would the buyer acquire ownership over the thing sold, if seller does not own the thing?A: Yes. Ownership over the thing sold is not an essential requisite for the sale to be valid. But if the seller does not own the thing, he may have a problem on his obligation to transfer ownership. The problem would be whether or not the buyer would acquire ownership over the thing sold if the person who sold the thing is not the owner.

Q: Who would have the right to sell and therefore they can transfer ownership by way of sale?A: First, is the owner. Even if he is not the owner, he may have the right to sell because:

(1) He was given the authority by the owner. Example: Agent(2) He may be the owner but he may have the authority of the law to sell, known as

“Statutory Power to Sell” (Article 1505). Examples: Notary public in pledge, liquidators, guardians and receivers.

(3) Those who have the authority of the court. Example: Sheriff. Note: it is as if they have the authority of law because not even the judge can validly sell something if it is not consistent with the law.

Q: May a buyer acquire ownership over the thing sold if the seller has no right to sell?A: The answer by way of exception is yes. But the general rule here is under 1505 – the buyer acquires no better title than what the seller had. If the seller is neither the owner nor does he have the authority to sell, the buyer acquires no better title than what the seller had. If his right is only as a lessee that is the most that can be transferred to the buyer. If he has no title then no title can be transferred to the buyer.

Exceptions: (When the buyer can acquire a better title than what the seller had. Even if the seller does not have the right to sell, the buyer may acquire ownership over the thing sold because the law so provides and not because the seller was able to transfer ownership to the buyer.)

1. By Estoppel2. Estoppel by Deed3. Estoppel by Record4. Sale by an Apparent Owner5. Negotiable Document of Title6. Purchases from a Merchant’s Store xxx

a. General rule (Art. 1505-1506, 1547)- When the seller is neither the owner nor does he have the authority to sell, the

buyer acquires no better title than what the seller had.

b. Exceptions (where a third person may acquire ownership on the thing he bought even though the seller is not the owner nor does he have the authority to sell)- The buyer buys them in good faith for value and without notice of the seller’s

defect of title (Art. 1505).

- By Equitable Estoppel (estoppels in pais) – a person is precluded from denying that a third person has authority to sell because of the owner’s acts (Art. 1433).1

1 SIY CONG BIEN V. HSBC: Since plaintiff had voluntarily clothed the person who negotiated the quedans with all the

attributes of ownership and upon which the bank relied, it is estopped to deny that the bank had a valid title to the quedans;JALBUENZA V. LIZARRAGA: Bigelow on Estoppel says: ". . . it is now a well established principle that where the true owner of property, for however short a time, holds out another, or, with knowledge of his own right, allows another to appear, as the owner of or as having full power of disposition over the property, the same being in the latter's actual possession, and innocent third parties are thus led into dealing with some [such] apparent owner, they will be protected." (as cited in Hernaez vs. Hernaez)

- Estoppel by deed (technical estoppel) – when the seller who was not the owner at the time of the sale and later acquires title thereto, ownership passes by operation of law (Art. 1434).

Q: A and B co-owners of land sold (sale is verbal) to X their land. X subsequently sold the land to Y. Would Y be considered to have acquired ownership over the land?

A: Under 1434 which is considered as “Estoppel by Deed” (technical estoppel) – when the seller who was not the owner at the time of the sale, acquires ownership, automatically, ownership passes to the buyer by operation of law. However, Article 1434 requires delivery to the buyer. And under the facts, 1434 would not apply because:

a) There was no showing there was payment b) No showing that there was delivery of the land to X.It cannot be said that by operation of law, Y likewise acquired ownership by way of estoppel by deed.

- Estoppel by record – in case of any testimony given in court.

Jurisprudence: Sale by nephew of the owner of the land. Since the nephew could not deliver the land, the buyer sued the nephew for estafa. For the accused to be acquitted, he asked his uncle to testify that he actually had the authority to sell. When the uncle testified in court, the nephew is acquitted. After acquittal, the buyer demanded from the uncle the delivery of the land. The uncle refused, claiming that “sa totoo land, I did not authorized my nephew”.

Q: Case was filed against the uncle, would that action prosper?

A: SC said yes because he cannot be allowed now to claim that his nephew was not authorize to sell after he testified in court that he gave such authority.

6. This is estoppel by record which is considered a technical estoppel.

- Sale by an apparent owner – a person who disposed the thing as if it was owned by him. Factor’s act – an old name for agent; a third person may acquire ownership

because he may rely on the power of attorney as written. Recording laws – may be a root of a valid title; Cattle Registration Decree, Land

Registration, Property Registration Decree (PD 529). By other provision of law enabling the apparent owner of the goods to dispose

of them as if he was really the owner.

- Negotiable Document of Title If goods are covered by a negotiable document of title and it was thereafter negotiated. If the buyer bought it in good faith and for value, he will rotected under the law. He will acquire ownership even if the seller did not have the right to sell.

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Example: The seller may have acquired title by violence. Binugbog nya yung owner ng goods. Pero kung negotiable document of title yan and properly negotiated, lalo na kung bearer document of title, then the buyer may acquire ownership even if the seller has no right to sell.

- Purchases from a merchant’s store, markets, and fairs -There is no right to recover as long as the buyer bought it in good faith from a merchant’s store (Art 1505)2

Purpose of the exception: 1) To protect innocent purchasers who buy at merchant stores,

market or fair2) To facilitate commercial sales in movables3) To give stability to business transactions

Q: F lost her diamond ring in a hold-up. Later on, this ring was an object of a public sale of one pawnshop. Can F recover the ring from the buyer in that public sale?A: Yes, Article 559 provides that even if the buyer is in good faith so long as the true owner is willing to reimburse the buyer of the price paid in that sale.

Note: Again in 1505, there is no right to recover as long as the buyer bought it in good faith from a merchant’s store, there can be no recovery as a matter of right.

ANLABO NU? Sabi nga ni Atty Zarah, sinadaya na malabo mga provisions para may trabaho ang mga lawyers. So Reconcile 559 and 1505. Sabi ng 1505, Valid sale kapag nabili sa public market and in good faith si buyer. Pero may right din na binibigay si 559 sa true owner (naunlawfully nadprive sa kanyang movable property) which is to recover yun. Pero since in nasa possession na yung ng buyer in good faith, marerecover lang yun ni true owner by reimbursing si buyer. So parang bibilhin ulit yun ni true owner.3

2 SUN BROTHERS V. VELASCO: The policy of the law has always been that, where the rights and interests of a vendor come into clash with that of an innocent buyer for value, the latter must be protected. The rule appears to be a wise and necessary rule not only to facilitate commercial sales on movables but to give stability to business transactions. MASICLAT V. CENTENO: The transaction between Ramon Masiclat and his unknown seller took place on Miranda Street and not in the public market and this is . . . conclusive. Hence, Art. 1505 CC, invoked by the petitioners, has no application.3 DE GARCIA V. CA: Respondent Angelina D. Guevara, having been unlawfully deprived of the diamond ring in question, was entitled to recover it from petitioner Consuelo S. de Garcia who was found in possession of the same. The only exception the law allows is when there is acquisition in good faith of the possessor at a public sale, in which case the owner cannot obtain its return without reimbursing the price. (Cruz v. Pahati; Aznar v. Yapdiangco);REBULLIDA V. BUSTAMANTE: It appearing that the ring in question was lost or was stolen from the place where the lawful owner deposited it, the case squarely falls under Art. 464 of the Civil Code, which provides that the “one who has lost personal property or who has been unlawfully deprived of it may recover it from whoever is possessing it.” The mere fact that the possessor, even in good faith, ad purchased the ring from another person would not bar the right of the owner to recover it once the identity and the owner’s deprivation are established.

3) To deliver the object; how ownership is effected?- Effected by delivery, whether actual of constructive (Art. 1477)- There can be no transfer of ownership without delivery.

Notes:(a) There may be a period agreed upon by the parties within which the buyer would have to

decide. Even if he failed to signify his acceptance by the mere lapse of the period, he is deemed to have accepted (impliedly accepted) hence, ownership passes to him.

(b) Even before the lapse of the period, he may be considered to have accepted if he did an act wherein he would be considered to have adopted the transaction then ownership passed to him.Example: Even if he has 10 days within which to decide but on the 2nd day, he sold the car to another. Obviously, he is deemed to have accepted the thing because he did an act which is inconsistent with the ownership of the seller like he donated or destroyed the thing.

(c) If there is no period agreed upon, the law says if he did not signify his acceptance he will be considered to have accepted after the lapse of a reasonable time. Reasonable time will depend on the circumstances of the sale, purpose of the sale, nature of the thing sold. Example: Perishable goods.

“Delivered” – when placed in the control and possession of the vendee; conveyance of ownership without prejudice to the right of vendor to claim payment of the price4

a) Ways of effecting delivery (Arts. 1494-1501)- Actual/real (Art. 1497) – the thing is placed in the control and possession of the

buyer.

- Constructive/legal

Tradition instrumental (by public instrument) – execution thereof is equivalent to delivery (Art. 1498 (1)).5

- operates as formal/symbolic delivery- authorizes buyer to use such document as proof of ownership- Symbolic delivery may produce the effect of tradition if

vendor have had such control over the thing sold that at the moment of the sale, its material delivery could have been made

- GENERAL RULE: he who purchases through a public instrument should be deemed a “possessor in fact” and this presumption should give way before proof to the contrary

4 BEAN V. CADWALLER: Actual manual delivery of an article sold is not essential to the passing of the title thereto (art 1450, Civil Code) unless made so by the terms of the contract or by an understanding of the parties. The parties to the contract may agree when and on what conditions the property in the subject of the contract was passed to the prospective owner5 MASALLO V. CESAR: As Matea Crispino admits, however, that she did not have possession of the land when she executed and delivered her deed to plaintiff, the mere execution and delivery of the deed did not constitute a delivery of possession

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- A person must be in ACTUAL POSSESSION to be able to transfer CONSTRUCTIVE POSSESSION through public instrument

Tradition symbolical (by delivery of the keys or certain symbols representing the thing or where goods are kept) (Art. 1498 (2)).

Tradition longa manu – there is delivery by mere consent or agreement of the parties (Art. 1499).

If at the time of the sale, possession to the goods cannot be transferred to the buyer. There must be a reason why it cannot be transferred at the time of the sale. This is also known as tradition longa manu.

Example 1: The thing was the subject matter of a lease with a 3 rd person until the expiration of the lease, the thing cannot be delivered.

Example 2: The thing was the subject matter of commodatum. As a rule, period of commodatum has to be respected

Tradition brevi manu – the BUYER was already in possession of the thing sold at the time of the perfection of the sale so he will continue to be in possession after the sale; eg. Property subject to lease was bought by the lessee (Art. 1499).

So dati lessee lang sya that is why he was in possession or maybe depositary lang sya or maybe he was the agent at the time prior to the sale.

Tradition constitutum possessorium – the SELLER will continue to be in the possession of the thing after the sale but no longer as an owner but in another capacity like lessee (Art. 1500).

Dito naman, kabaliktaran ng brevi manu, yung ownership malilipat sa buyer pero possession magtutuloy pa din kay seller.Level down kung baga.Si A may house na inioccupy niya, binenta kay B. Si B na may ari. Pero pinalease ni B kay A, so magtutuloy pa din na doon titira si A, kaso nga lang hindi na as owner kundi lessee na lang. Haaayyy ang sad. Hahaha.

Quasi-tradition (Art. 1501) – delivery of rights, credits or incorporeal property, made by:

o Placing titles of ownership in the hands of the buyer; Example: delivery of the certificate of shares of stocks.

o Allowing buyer to make use of the rights.Example: Sale of shares of stocks → the vendee may not always have the right to exercise his rights under the shares of stocks. Concretely, if there is a stockholders’ meeting, the books of the corporation will be closed for 30 days before the meeting. Thus, if the sale occurred when the books are already closed, no one will be recognized except those registered owners. So if you are the buyer of those stocks, you can only use your right with the consent of the vendor.

-------------------------------------------Jurisprudence:G.R. No. L-19545, 18 April 1975Phil. Suburban Development Corp. vs. Auditor General

Facts: On June 8, 1960, at a meeting with the Cabinet, the President of the Philippines approved in principle the acquisition by the People's Homesite and Housing Corporation (PHHC) of the unoccupied portion of the Sapang Palay Estate in Sta. Maria, Bulacan for relocating the. The Board of Directors of the PHHC passed Resolution No. 700 authorizing the purchase of the unoccupied portion of the Sapang Palay Estate at P0.45/sqm. On December 29,1960, after an exchange of communications, Petitioner Philippine Suburban Development Corporation (PSDC), as owner of the unoccupied portion of the Sapang Palay Estate and the PHHC, entered into a contract embodied in a public instrument entitled "Deed of Absolute Sale”.

It appears that as early as the first week of June, 1960, prior to the signing of the deed by the parties, the PHHC acquired possession of the property, with the consent of petitioner, to enable the said PHHC to proceed immediately with the construction of roads. The Provincial Treasurer of Bulacan requested the PHHC to withhold the amount of P30,099.79 from the purchase price to be paid by it to the Philippine Suburban Development Corporation. Said amount represented the realty tax due on the property involved for the calendar year 1961.

Petitioner claimed that it ceased to be the owner of the land in question upon the execution of the Deed of Absolute Sale. It is now claimed in this appeal that the Auditor General erred in disallowing the refund of the real estate tax because aside from the presumptive delivery of the property by the execution of the deed of sale , the possession of the property was actually delivered to the vendee prior to the sale, and, therefore, by the transmission of ownership to the vendee, petitioner has ceased to be the owner of the property involved, and, consequently, under no obligation to pay the real property tax for the year 1961.

Issue: WON the vendor (PSDC) placed the vendee (PHHC) in possession and control over the thing sold even before the date of the sale.

Held: The Court ruled that the vendor (PSDC) placed the vendee (PHHC) in possession and control over the thing sold even before the date of the sale. Under the civil law, delivery (tradition) as a mode of transmission of ownership may be actual (real tradition) or constructive (constructive tradition). When the sale of real property is made in a public instrument, the execution thereof is equivalent to the delivery of the thing object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred.

In other words, there is symbolic delivery of the property subject of the sale by the execution of the public instrument, unless from the express terms of the instrument, or

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by clear inference therefrom, this was not the intention of the parties. Such would be the case, for instance, when a certain date is fixed for the purchaser to take possession of the property subject of the conveyance, or where, in case of sale by installments, it is stipulated that until the last installment is made, the title to the property should remain with the vendor, or when the vendor reserves the right to use and enjoy the properties until the gathering of the pending crops, 4 or where the vendor has no control over the thing sold at the moment of the sale, and, therefore, its material delivery could not have been made.

In the case at bar, there is no question that the vendor had actually placed the vendee in possession and control over the thing sold, even before the date of the sale. The condition that petitioner should first register the deed of sale and secure a new title in the name of the vendee before the latter shall pay the balance of the purchase price, did not preclude the transmission of ownership. In the absence of an express stipulation to the contrary, the payment of the purchase price of the good is not a condition, precedent to the transfer of title to the buyer, but title passes by the delivery of the goods.

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b) Special rules on:- Sale or return (Art. 1502 (1)) – ownership passes to the buyer on delivery but,

he may revest the ownership in the seller by returning or tendering the goods within the time fixed in the contract or within a reasonable time.

7. As opposed to a Conditional Sale (where title passes upon full payment or satisfaction of condition passing of legal title), in sale on return, title passes on delivery

Q: Ownership passes upon delivery?A: Yes. However, the buyer is given the right to revest the title back to the seller normally within a certain period.

Example: Clauses in subscription magazine which says that you can return within 30 days without payment.

- Sale on approval or trial (Art. 1502 (2)) – ownership passes to the buyer when:- he signifies his approval to the seller or does any other act adopting the

transaction; or- if he retains the goods without giving notice of rejection, if a time has

been fixed for such return, at the expiration of such time or of a reasonable time.

- Sale of specific goods with reserved title/conditional sales (Art. 1503 (1)) – the seller may reserve the right of possession or ownership in the goods until certain conditions have been fulfilled. Ownership is reserved by the seller notwithstanding delivery.

- Delivery to carrier; shipping terms -General rule: Delivery to carrier is delivery to the buyer.Exception: Contrary intention appears; implied reservation of ownership under Art. 1503 (1), (2), (3).

COD (Collect On Delivery) – the carrier acts for the seller in collecting the purchase price, which the buyer must pay to obtain possession of the goods.

FOB (Free On Board) – when goods are delivered at the point of shipment, delivery to carrier by placing the goods on vessel is delivery to buyer.

CIF (Cost, Insurance, Freight) – When seller pays for services of the carrier, delivery to

carrier is delivery to the buyer. From the moment the vessel is at the port of to the

goods, there is already delivery to the buyer.

These terms may be used only in connection with fixing the price and will not be construed as fixing the place of delivery to the buyer

Best indication of the intention of parties as to the place of delivery is the manner and place of payment agreed upon by the parties Where price is payable upon proof of shipment, then the buyer agrees to accept

delivery at the point of shipment Where the price is payable only upon arrival of the goods at the point of

destination, then that is the place of delivery to the buyer

- Seller not the owner (Art. 1505) – the buyer acquires no better title than the seller had.

- Seller’s title is voidable (Art. 1506) – 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.

-----------------------------------------

JURISPRUDENCEEdu vs.Gomez, 129 SCRA 601;

Duran vs. IAC, 138 SCRA 489

-----------------------------------c) When obligation to deliver arises

The vendor shall not be bound to deliver the thing sold, if the vendee has not paid him the price, or if no period for the payment has been fixed in the contract

-------------------------------------------Jurisprudence:38 Phil. 404, August 1918

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Addison vs. Felix

Facts: The defendants-appellees spouses Maciana Felix and Balbino Tioco purchased from plaintiff-appellant A.A. Addison four parcels of land to which Felix paid, at the time of the execution of the deed, the sum of P3,000 on account of the purchase price. She likewise bound herself to the remainder in installments, the first of P,2000 on July 15, 1914, the second of P5,000 thirty days after the issuance to her of a certificate of title under the Land Registration Act, and further, within ten years from the date of such title, P10 for each cocoanut tree in bearing and P5 for each such tree not in bearing that might be growing on said parcels of land on the date of the issuance of title to her, with the condition that the total price should not exceed P85,000. It was further stipulated that Felix was to deliver to the Addison 25% of the value of the products that she might obtain from the four parcels "from the moment she takes possession of them until the Torrens certificate of title be issued in her favor," and that within 1 year from the date of the certificate of title in her favor, Marciana Felix may rescind the contract of purchase and sale.

In January 1915, Addison , filed suit in the CFI of Manila to compel Felix to pay the first installment of P2,000, demandable, in accordance with the terms of the contract of sale. The defendants Felix and her husband Tioco contended that Addison had absolutely failed to deliver the lands that were the subject matter of the sale, notwithstanding the demands they made upon him for this purpose. The evidence adduced shows Addison was able to designate only two of the four parcels, and more than 2/3 of these two were found to be in the possession of one Juan Villafuerte, who claimed to be the owner of the parts he so occupied. The trial court held the contract of sale to be rescinded and ordered Addison to return to Felix the P3,000 paid on account of the price, together with interest thereon at the rate of 10% per annum.

Issue: WON there is delivery made and a transfer of ownership.

Held: The Court ruled that that the mere execution of the instrument was not a fulfillment of the vendor's obligation to deliver the thing sold, and that from such non-fulfillment arises the purchaser's right to demand, as she has demanded, the rescission of the sale and the return of the price.

The thing is considered to be delivered when it is placed "in the hands and possession of the vendee." It is true that the same article declares that the execution of a public instrument is equivalent to the delivery of the thing which is the object of the contract, but, in order that this symbolic delivery may produce the effect of tradition, it is necessary that the vendor shall have had such control over the thing sold that, at the moment of the sale, its material delivery could have been made. Symbolic delivery through the execution of a public instrument is sufficient when there is no impediment whatever to prevent the thing sold passing into the tenancy of the purchaser by the sole will of the vendor. But if, notwithstanding the execution of the instrument, the purchaser cannot have the enjoyment and material tenancy of the thing and make use of it himself or through another in his name, because such are opposed by a third person’s will, then the delivery has not been effected.

G.R. No. L-21998, 10 November 1975Pasagui vs. Villablanca

Facts: Petitioner-appellants Calixto Pasagui and Fausta Mosar filed a complaint with the CFI at Tacloban City, alleging that for and in consideration of P2,800.00 they bought from appellees Eustaquia Bocar and Catalina Bocar a parcel of agricultural land situated in Hamindangon, Pastrana, Leyte; that the corresponding document of sale was executed, notarized on the same date, and recorded in the Registry of Deeds; that during the first week of February, 1963, defendant spouses Ester T. Villablanca and Zosimo Villablanca, "illegally and without any right, whatsoever, took possession of the above property harvesting coconuts from the coconut plantation thereon, thus depriving plaintiffs" of its possession; that despite demands made by the plaintiffs upon the above-mentioned defendants "to surrender to them the above-described property and its possession" the latter failed or refused to return said parcel of land to the former, causing them damage; and that Eustaquia and Catalina Bocar, vendors of the property, are included defendants in the complaint by virtue of the warranty clause contained in the document of sale.

The trial court issued an order dismissing the complaint for lack of jurisdiction, it appearing from the allegations in the complaint that the case is one for forcible entry which belongs to the exclusive jurisdiction of the Justice of the Peace (now Municipal Court) of Pastrana, Leyte.

Issue: WON petitioner was illegally deprived of his possession of the subject land.

Held: The Court ruled that the complaint does not allege that the plaintiffs were in physical possession of the land and have been deprived of that possession through force, intimidation, threat, strategy, or stealth.

It is true that the execution of the deed of absolute sale in a public instrument is equivalent to delivery of the land subject of the sale. This presumptive delivery only holds true when there is no impediment that may prevent the passing of the property from the hands of the vendor into those of the vendee. It can be negated by the reality that the vendees actually failed to obtain material possession of the land subject of the sale. It appears from the records of the case at bar that plaintiffs-appellants had not acquired physical possession of the land since its purchase on November 12, 1962. As a matter of fact, their purpose in filing the complaint in Civil Case No. 3285 is precisely to "get the possession of the property."

In the case at bar, no such inference could be made as plaintiffs-appellants had not claimed that they were in actual physical possession of the property prior to the entry of the Villablancas. Moreover, it is evident that plaintiffs-appellants are not only seeking to get the possession of the property, but as an alternative cause of action, they seek the return of the price and payment of damages by the vendors "in case of eviction or loss of ownership" of the said property. It is, therefore, not the summary action of forcible entry within the context of the Rules.

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G.R. No. L-31789, 29 June 1972Banzon vs. Cruz

Facts: Sometime in 1952, Maximo Sta. Maria obtained crop loans from the Philippine National Bank (hereinafter referred as the bank). Respondent Associated Insurance & Surety Co., Inc. (hereinafter referred to as Associated) acted as surety of Sta. Maria, filing surety bonds in favor of the bank to answer for prompt repayment of the loans. Petitioner Antonio R. Banzon and Emilio Ma. Naval in turn acted as indemnitors of Associated and were obligated to indemnify and hold harmless Associated from any liability thus acting as surety of the loan. Sta. Maria failed to pay his obligations to the bank, which accordingly demanded payment from Associated as surety. Instead of paying the bank, Associated filed a complaint with the CFI of Manila against debtor Sta. Maria and indemnitors Banzon and Naval. The CFI rendered judgment ordering Sta. Maria, Banzon and Naval "to pay jointly and severally unto plaintiff for the benefit of the Philippine National Bank".

According to the Banzons' petition at bar, sometime in 1965, even before ownership over the two parcels of land belonging to the Banzons could be consolidated in the name of Associated "in clear collusion and confederation with (respondent) Pedro Cardenas, allowed and permitted the latter to execute and levy one of the two parcels of land for a judgment debt of P5,100.00 (of Associated in favor of Cardenas) 8 notwithstanding that the property in question was worth P130,000.00 more or less, and further notwithstanding the fact that said respondent (Associated) knew the property was merely being held in trust by it for the benefit of the Philippine National Bank and therefore, not being the legal owner thereof, it cannot validly dispose of it in any manner." The Cardenas spouses thereafter filed with the CFI of Rizal a case to secure possession from the Banzons of the lot. The CA rendered judgment dismissing the petition because it found the same to be allegedly "merely a device to prevent the execution of a final judgment by the filing of a new suit based upon the same grounds which have already been interposed and passed upon in the case where the final judgment had already been rendered".

Issue: WON the petitioners are entitled to the possession of the property.

Held: The Court ruled that the petitioners are entitled to a writ restoring the status quo ante. A mandatory writ shall therefore issue commanding respondent court to forthwith restore petitioners to their possession of the lot from which they have been removed by enforcement of said respondent court's enjoined order of demolition and writ of possession.

When Associated nevertheless prematurely and contrary to the intent and condition of the basic 1957 judgment levied in execution on the two Caloocan City lots of Banzon the interest it acquired was clearly impressed with a trust character. Such acquisition of Banzon's properties by Associated was effected, if not through fraud on Associated's part, certainly through mistake and there Associated was "by force of law, considered a trustee of implied trust for the benefit of the person from whom the property comes" by virtue of Article 1456 of the Code — since Associated not having paid nor having been compelled to pay the bank had no right in law or equity to so execute the judgment against Banzon as indemnitor. Had there been no fraudulent concealment or suppression of the fact of

such non-payment by Associated or a mistaken notion just assumed without factual basis that Associted had paid the bank and was thus entitled to enforce its judgement against Banzon as indemnitor, the writ for execution of the judgment against Banzon's properties would not been issued.

Furthermore, Associated's conduct, upon being sued by the Philippine National Bank directly with the principal debtor Sta. Maria for collection of the debt 23e and sentenced by the Pampanga court of first instance in 1963 (which it did not appeal) to pay the debt in the much lesser amount of only P15,446.44, excluding interests, in not so discharging its liability notwithstanding that it had already executed its 1957 judgment against Banzon as indemnitor and taken in execution Banzon's two properties, was indeed rank fraud. Associated therefore stands legally bound by force of law to now discharge its implied trust and return Banzon's properties to him as their true and rightful owner.

G.R. No. 80298, 26 April 1990EDCA Publishing & Distributing Corp. vs. Santos

Facts: On October 5, 1981, a person identifying himself as Professor Jose Cruz placed an order by telephone with the petitioner company for 406 books, payable on delivery. EDCA prepared the corresponding invoice and delivered the books as ordered, for which Cruz issued a personal check covering the purchase price of P8,995.65. On October 7, 1981, Cruz sold 120 of the books to private respondent Leonor Santos who, after verifying the seller's ownership from the invoice he showed her, paid him P1,700.00. Meanwhile, EDCA having become suspicious over a second order placed by Cruz even before clearing of his first check, made inquiries with the De la Salle College where he had claimed to be a dean and was informed that there was no such person in its employ. Further verification revealed that Cruz had no more account or deposit with the Philippine Amanah Bank, against which he had drawn the payment check. EDCA then went to the police, which set a trap and arrested Cruz. On the night of the same date, EDCA sought the assistance of the police which forced their way into the store of the private respondents and threatened Leonor Santos with prosecution for buying stolen property.

It is the contention of the petitioner that the private respondents have not established their ownership of the disputed books because they have not even produced a receipt to prove they had bought the stock.

Issue: WON the petitioner was unlawfully deprived of its movable property.

Held: The Court ruled against the petitioner. The argument that the private respondents did not acquire the books in good faith has been dismissed by the lower courts, and the Court agrees. Leonor Santos first ascertained the ownership of the books from the EDCA invoice showing that they had been sold to Cruz, who said he was selling them for a discount because he was in financial need. Private respondents are in the business of buying and selling books and often deal with hard-up sellers who urgently have to part with their books at reduced prices. To Leonor Santos, Cruz must have been only one of the many such sellers she was accustomed to dealing with. It is hardly bad faith for

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anyone in the business of buying and selling books to buy them at a discount and resell them for a profit.

The petitioner argues that it was, because the impostor acquired no title to the books that he could have validly transferred to the private respondents. 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.

The contract of sale is consensual and is perfected once agreement is reached between the parties on the subject matter and the consideration. According to the Civil Code:

Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price.

From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts.

xxx xxx xxxArt. 1477. The ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof.

Art. 1478. The parties may stipulate that ownership in the thing shall not pass to the purchaser until he has fully paid the price.

It is clear from the above provisions, particularly the last one quoted, that 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.

One may well imagine the adverse consequences if the phrase "unlawfully deprived" were to be interpreted in the manner suggested by the petitioner. A person relying on the seller's title who buys a movable property from him would have to surrender it to another person claiming to be the original owner who had not yet been paid the purchase price therefore. The buyer in the second sale would be left holding the bag, so to speak, and would be compelled to return the thing bought by him in good faith without even the right to reimbursement of the amount he had paid for it. It would certainly be unfair now to make the private respondents bear the prejudice sustained by EDCA as a result of its

own negligence. We cannot see the justice in transferring EDCA's loss to the Santoses who had acted in good faith, and with proper care, when they bought the books from Cruz. It is clear that its remedy is not against the private respondents but against Tomas de la Peña, who has apparently caused all this trouble. The private respondents have themselves been unduly inconvenienced, and for merely transacting a customary deal not really unusual in their kind of business. It is they and not EDCA who have a right to complain.

G.R. No. L-66944, 13 November 1989Alliance Tobacco Corporation vs. Philippine Virginia Tobacco

Facts: In June 1963, PVTA entered into a merchandising loan agreement with the petitioner in the amount of P25,500.00 for the purchase of flue-cured Virginia tobacco from bona fide Virginia tobacco former-producers. The following month, petitioner shipped to the Farmers’ Virginia Tobacco Redrying (FVTR) 96 bales of tobacco weighing 4,800 kilos covered by Guia No. 1 and 167 bales weighing 8,350 kilos covered by Guia No. 2. After several days, the grading of the plaintiffs tobacco took place but only 89 bales from Guia No. 2 were graded, weighed and accepted. The remaining bales of tobacco in Guia No. 2 and the whole of Guia No. 1 were not graded and weighed because after grading and weighing 89 bales of Guia No. 2, some officers and employees in the premises of defendant FVTR asked money for the separate grading and weighed of the un-graded and un-weighed tobacco bales. Unfortunately, the remaining un-graded and un-weighed 174 bales with a total value of P28,382 were lost while they were in the possession of the FVTR. Having learned of such loss in 1965, petitioner demanded for its value and the application of the same to its merchandising loan with PVTA but both the latter and the FVTR refused to heed said demands.

Consequently, petitioner filed in the then Court of First Instance of La Union a complaint against PVTA and FVTR praying that the two defendants be ordered to pay it P4,443 representing the value of the 89 bales which were weighed, graded and accepted by the defendants, P28,382.00 representing the value of the lost bales of tobacco and/or that the said amount be applied to its loan with PVTA. The CFI ruled that the PVTA should not be held responsible for the lost bales of tobacco because they were not yet properly graded and weighed and the IAC affirmed.

Issue: WON there is delivery of the goods to the vendee which will result in a perfected contract of sale.

Held: The Court ruled that since PVTA had virtual control over the lost tobacco bales, delivery thereof to the FVTR should also be considered effective delivery to the PVTA.

The Civil Code provides that ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof. 19 There is delivery when the thing sold is placed in the control and possession of the vendee. 20 Indeed, in tobacco trading, actual delivery plays a pivotal role.

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The Court would have found merit in respondent PVTA's contention that the contract of sale could not have been perfected pursuant to Article 1475 of the Civil Code because to determine the price of the tobacco traded, the shipment should first be inspected, graded and weighed, we find said contention misplaced herein. A strict interpretation of the provision of Article 1475 may result in adverse effects to small planters who would not be paid for the lost products of their toil. Such situation was what the ruling in PVTA vs. De los Angeles sought to avoid.

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C) Other rules on delivery:- Sale of real property by unit of measure or number (Art. 1539-

1541) – obligation to deliver the thing sold includes that of placing in the control of the vendee all that is mentioned in the contract.

1. If the sale of real estate should be made with a statement of its area at the rate of a certain price for a unit of measure or number, the vendor shall be obliged to deliver to the vendee all that may have been stated in the contract if the vendee should demand.

If not possible, the vendee may choose either to reduce the price proportionally or to rescind the contract provided that the lack in the area be not less than 1/10 of that stated.

2. If there is a greater area of immovable than that stated in the contract, the vendee may accept the area included in the contract and reject the rest.

-------------------------------------------Jurisprudence:G.R. No. L-16394, 17 December 1966Sta. Ana, Jr. vs. Hernandez

Facts: The petitioners herein, spouses Jose Santa Ana, Jr. and Lourdes Sto. Domingo, owned a parcel of land. On 28 May 1954, they sold two (2) separate portions of the land for P11,000.00 to the herein respondent Rosa Hernandez. After the sale, the petitioners-spouses caused the preparation of a subdivision plan which was approved by the Director of Lands. Rosa Hernandez, however, unlike the previous vendees, did not conform to the plan and refused to execute an agreement of subdivision and partition for registration with the Register of Deeds of Bulacan and she, likewise, refused to vacate the areas that she had occupied. Instead, she caused the preparation of a different subdivision plan, which was approved by the Director of Lands. Herein petitioners-spouses filed suit against respondent Rosa Hernandez in the CFI of Bulacan claiming that said defendant was occupying an excess of 17,000 square meters in area of what she had bought from them.

Defendant Rosa Hernandez, on the other hand, claimed that the alleged excess was part of the areas that she bought.

The CFI ordered Hernandez to vacate the excess portions. On appeal, the CA dismissed petitioner’s complaint and ruled that Hernandez owned the excess portions. It based its decision on the description of the land on the contract as well as to the lump sum price indicated.

Issue: WON the defendant owns the excess portion when the description of the land in the contract was not specific and definite.

Held: The Court ruled that the sale was made by unit of measure at a definite price for each unit.

The ruling of the Supreme Court of Spain, in construing Article 1471 of the Spanish Civil Code is highly persuasive that as between the absence of a recital of a given price per unit of measurement, and the specification of the total area sold, the former must prevail and determines the applicability of the norms concerning sales for a lump sum.

-------------------------------------------

- Sale of real estate made for a lump sum (Art. 1542) – there shall be no increase or decrease of the price, although there be a greater or lesser areas or number than that stated in the contract.

1. Same rule shall be applied when 2 or more immovables are sold for a single price

2. If besides the boundaries, its area or number is designated in the contract, the vendor shall be bound to deliver all that is included within said boundaries even when it exceeds the area or number specified in the contract.

3. Reduction of the price in proportion to what is lacking in the area or number

4. Rescission of the contract.

-------------------------------------------.R. No. 108515, 16 October 1995Balantakbo vs. Court of Appeals

Facts: The land in question had been purchased by the Sumaya spouses (predecessor of private respondent Laguna Agro-Industrial Coconut Cooperative, Inc./LAGUNA) from Consuelo Vda. de Balantakbo (mother of petitioner Luis Balantakbo and Sancho Balantakbo), the sale being evidenced by a deed and that some 20 years later, or on March 8, 1975, the seller's heirs, intruded into the land and harvested the coconuts found

Remedies of the vendee for the failure of the vendor to deliver what was stipulated.

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therein. In their answer, the Balantakbos denied knowledge of the sale and alleged that the land claimed sued for was different from that owned and held by them.

The RTC rendered judgment in favor of the Balantakbos. dismissing LAGUNA's complaint, upholding the former's theory of the case and ruling that what was contemplated in the descriptive words "more or less" immediately following the stated area of 2,000 square meters in the description of the land was construable as referring only to a "slight difference" in said area, 2 not to a difference as large as 4,870 square meters, or more than double the 2,000 square meters actually stated and intended to be sold. The CA, however, declared LAGUNA the owner of the entire land.

Issue: Whether the area described or the actual boundaries of the land prevail in case of conflict.

Held: The Court ruled, citing the case of Dichoso, that in a contract of sale of land in mass, it is well established that the specific boundaries stated in the contract must control over any statement with respect to the area contained within its boundaries. It is not of vital consequence that a deed or contract of sale of land should disclose the area with mathematical accuracy. It is sufficient that its extent is objectively indicated with sufficient precision to enable one to identify it. An error as to the superficial area is immaterial.

-------------------------------------------

- Rules in case of double sale (Art. 1544) –1. If the same thing be sold to different vendees,

ownership shall be transferred to the one who may have first taken possession in good faith if it should be a movable property.

2. If it is an immovable, to the one who first recorded the sale in the Registry of Property in good faith.

3. Should there be no inscription, ownership shall pertain to the person who in good faith was first in the possession; and in the absence thereof, one who presents the oldest title in good faith.

-------------------------------------------Jurisprudence:G.R. No. L-20046, 27 March 1968Paylago vs. Jarabe

Facts: The entire lot involved in this suit was originally covered by Homestead Patent issued on June 7, 1920 under Act No. 926 and later under OCT No. 251 of the Registry of Deeds of Mindoro, issued on June 22, 1920 in the name of Anselmo Lacatan. After the death of Anselmo Lacatan, TCT No. T-728 (which cancelled OCT No. 251) was issued in the name his two sons and heirs, Vidal and Florentino Lacatan. Vidal Lacatan died on August

27, 1950. Vidal Lacatan's heirs, namely, Maximo, Tomas and Lucia Lacatan, executed a deed of sale in favor of the spouses Romeo Paylago and Rosario Dimaandal, plaintiffs-petitioners herein, over a portion of the entire lot under TCT No. T-728. When Florentino Lacatan also died, leaving as his heirs his widow and three children, the said children of Florentino Lacatan likewise executed a deed of sale in favor of the same vendees over another portion of the same lot. By virtue of the registration of the two deeds of sale, a new TCT No. T-4208 covering the total area of 6.7908 hectares was issued in favor of plaintiffs-petitioners, the Paylago spouses. A subsequent subdivision survey for the purpose of segregating the two aforementioned portions of land described in the deeds as well as in the new TCT No. T-4208, however, disclosed that a portion of the total area purchased by plaintiffs-petitioners and indicated in the sketch at a point marked was being occupied by defendant-respondent. Hence, the action to recover possession and ownership of the said portion.

The lower court held that plaintiffs-petitioners were not purchasers in good faith and, accordingly, rendered judgment in favor of defendant-respondent, declaring the latter as owner of the land in question with the right to retain possession of the same. The decision was affirmed in toto by the Court of Appeals.

Issue: Whether the registered buyer or the prior but unregistered purchaser has the better right over the real property.

Held: The Court ruled that as between two purchasers, the one who has registered the sale in his favor, in good faith, has a preferred right over the other who has not registered his title, even if the latter is in the actual possession of the immovable property. Indeed, the foregoing principle finds concrete bases in the pertinent provisions of the New Civil Code, Article 1544, providing that if the same immovable property should have been sold to different vendees, "the ownership shall belong to the person acquiring it who in good faith first recorded it in the registry of property."

There is no question that the sales made in favor of plaintiffs-petitioners were registered while the alleged sale executed in favor of defendant-respondent was not. Applying the foregoing principle of law to the instant case, it is now contended by plaintiffs-petitioners that their certificate of title must prevail over defendant-respondent, and that the courts below correspondingly committed error in deciding the case to the contrary.

But there is more than meets the eye in the case at bar. While plaintiffs-petitioners have a registered title, it cannot be denied that their acquisition and subsequent registration were tainted with the vitiating element of bad faith. It was so found by both the Court of First Instance and the Court of Appeals, and their finding is conclusive upon us.

G.R. No. L-19248, 28 February 1963Hanopol vs. Pilapil(Art. 1544 do not apply to unregistered lands)

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Facts: Appellant Hanopol claims ownership of the unregistered land by virtue of a series of purchases effected in 1938 by means of private instruments, executed by the former owners Teodora, Lucia, Generosa, Sinforosa and Isabelo, all surnamed Siapo. Additionally, he invokes in his favor a decision rendered by the CFI of Leyte on a complaint he filed on June 16, 1948, against the same vendors, who, according to his own averments, took possession of the said property in December, 1945 through fraud, threat and intimidation, pretending falsely to be the owners thereof and ejecting the tenants of Hanopol thereon, and since then had continued to possess the land. On the other hand, appellee Pilapil asserts title to the property on the strength of a duly notarized deed of sale executed in his favor by the same owners which deed of sale was registered in the Registry of Deeds of Leyte under the provisions of Act No. 3344.

Issue: WON the right of the first buyer who did not register the sale cannot be prejudiced by the registration of the second sale.

Held: The Court ruled that the proviso in Act No. 3344 does not seem to justify Hanopol’s contention. If his theory is correct, then the second paragraph of Article 1544 of the New Civil Code (formerly Article 1473 of the old Code) would have no application at all except to lands or real estate registered under the Spanish Mortgage Law or the Land Registration Act. Such a theory would thus limit the scope of that codal provision. But even if the Court adopt this latter view, that is, that Article 1544 (formerly Article 1473) only applies to registered land, the Court still do not agree with the appellant that by the mere fact of his having a previous title or deed of sale, he has acquired thereby what is referred to in Act No. 3344 as the "better right" that would be unaffected by the registration of a second deed of sale under the same law. Under such theory, there would never be a case of double sale of the same unregistered property.

G.R. No.109410, 28 August 1996Balatbat vs. Court of Appeals

Facts: Aurelio A. Roque filed a complaint for partition against Corazon Roque, Alberto de los Santos, Feliciano Roque, Severa Roque and Osmundo Roque before the then CFI of Manila where the said court rendered a decision in favor of plaintiff Aurelio A. Roque. Aurelio A. Roque sold his 6/10 share in T.C.T. No. 135671 to spouses Aurora Tuazon-Repuyan and Jose Repuyan as evidenced by "Deed of Absolute Sale" where the latter caused the annotation of her affidavit of adverse claim on the Transfer Certificate of Title No. 135671. On August 20, 1980, Aurelio A. Roque filed a complaint for "Rescission of Contract" against spouses Aurora Tuazon-Repuyan and Jose Repuyan before the CFI of Manila. The complaint is grounded on spouses Repuyan's failure to pay the balance of P45,000.00 of the purchase price.

Meanwhile, a deed of absolute sale was executed on February 4, 1982 between Aurelio S. Roque, Corazon Roque, Feliciano Roque, Severa Roque and Osmundo Roque and Clara Balatbat, married to Alejandro Balatbat. Clara Balatbat filed a motion for the issuance of a writ of possession which was granted by the trial court on September 14, 1982 "subject, however, to valid rights and interest of third persons over the same portion thereof,

other than vendor or any other person or persons privy to or claiming any rights or interests under it".

Petitioner Clara Balatbat and her husband, Alejandro Balatbat filed the instant complaint for delivery of the owners duplicate copy of T.C.T. No. 135671 against private respondents Jose Repuyan and Aurora Repuyan. The RTC rendered a decision dismissing the complaint and the CA affirmed the decision appealed from but with modifications.

Issue: WON there is a double sale.

Held: The Court ruled that this is a case of double sale contemplated under Article 1544 of the New Civil Code.

This is an instance of a double sale of an immovable property hence, the ownership shall vests in the person acquiring it who in good faith first recorded it in the Registry of Property. Evidently, private respondents Repuyan's caused the annotation of an adverse claim on the title of the subject property denominated as Entry No. 5627/T-135671 on July 21, 1980. The annotation of the adverse claim on TCT No. 135671 in the Registry of Property is sufficient compliance as mandated by law and serves notice to the whole world.

Petitioner filed a notice of lis pendens only on February 2, 1982. Accordingly, private respondents who first caused the annotation of the adverse claim in good faith shall have a better right over herein petitioner. Moreover, the physical possession of herein petitioners by virtue of a writ of possession issued by the trial court on September 20, 1982 is "subject to the valid rights and interest of third persons over the same portion thereof, other than vendor or any other person or persons privy to or claiming any rights to interest under it." As between two purchasers, the one who has registered the sale in his favor, has a preferred right over the other who has not registered his title even if the latter is in actual possession of the immovable property. Further, even in default of the first registrant or first in possession, private respondents have presented the oldest title. Thus, private respondents who acquired the subject property in good faith and for valuable consideration established a superior right as against the petitioner.

Caram vs. LauretG.R. No. L-28740

FACTS: On June 10, 1945, Marcos Mata conveyed a large tract of agricultural land covered by OCT No. 3019 in favor of Claro Laureta, plaintiff, the respondent herein. The deed of absolute sale in favor of the plaintiff was not registered because it was not acknowledged before a notary public or any other authorized officer. Since June 10,1945, the plaintiff Laureta had been and is in continuous, adverse and notorious occupation of said land, without being molested, disturbed or stopped by any of the defendants or their representatives. In fact, Laureta had been paying realty taxes due thereon and had introduced improvements worth not less than P20,000.00 at the time of the filing of the complaint. On May 5, 1947, the same land covered by OCT No. 3019was sold by Marcos Mata to defendant Fermin Z. Caram, Jr., petitioner herein. The deed of

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sale in favor of Caram was acknowledged before Atty. Abelardo Aportadera. On December 9, 1947, the second sale between Marcos Mata and Fermin Caram, Jr. was registered with the Register of Deeds. On the same date, Transfer Certificate of Title No.140 was issued in favor of Fermin Caram Jr.The defendant Fermin Caram Jr. claimed that he has no knowledge or information about the previous encumbrances, transactions, and alienations in favor of plaintiff until the filing of the complaints.

ISSUE: Whether or not the knowledge petitioner of a prior unregistered sale of a titled property attributable to petitioner and equivalent in law of registration of sale.

HELD: Yes. There is no doubt then that Irespe and Aportadera, acting as agents of Caram, purchased the property of Mata in bad faith. Applying the principle of agency, Caram as principal, should also be deemed to have acted in bad faith. Since Caram was a registrant in bad faith, the situation is as if there was no registration at all. A possessor in good faith is one who is not aware that there exists in his title or mode of acquisition any flaw which invalidates it. Laureta was first in possession of the property. He is also a possessor in good faith. It is true that Mata had alleged that the deed of sale in favor of Laureta was procured by force. Such defect, however, was cured when, after the lapse of four years from the time the intimidation ceased, Marcos Mata lost both his rights to file an action for annulment or to set up nullity of the contract as a defense in an action to enforce the same

Tañedo vs. CA, January 22, 1996

FACTS: Lazaro Tañedo executed a deed of absolute sale in favor of Ricardo Tañedo and Teresita Barrera in which he conveyed a parcel of land which he will inherit. Upon the death of his father he executed an affidavit of conformity to reaffirm the said sale. He also executed another deed of sale in favor of the spouses covering the parcel of land he already inherited. Ricardo registered the last deed of sale in the registry of deeds in their favor.

Ricardo later learned that Lazaro sold the same property to his children through a deed of sale.

ISSUE: WON the Tañedo spouses have a better right over the property against the children of Lazaro Tañedo.

HELD: Since a future inheritance generally cannot be a subject of a contract, the deed of sale and the affidavit of conformity made by Lazaro has no effect. The subject of dispute therefore is the deed of sale made by him in favor of spouses Tañedo and another to his children after he already legally acquired the property.

Thus, although the deed of sale in favor of private respondents was later than the one in favor of petitioners, ownership would vest in the former because of the undisputed fact of registration. On the other hand, petitioners have not registered the sale to them at all.

Petitioners contend that they were in possession of the property and that private respondents never took possession thereof. As between two purchasers, the one who registered the sale in his favor has a preferred right over the other who has not registered his title, even if the latter is in actual possession of the immovable property.

Tanongon vs. Samson382 SCRA 130

FACTS: Felicidad Samson, Casiano A. Osin, Alberto Belbes and Luisito Venus were employees of CAYCO Marine Service, which is engaged in the business of hauling oil, owned and operated by Iluminada Cayco OLIZEN. They filed a complaint against CAYCO and OLIZON for illegal dismissal, underpayment of wages, non-payment of holiday pay,rest day pay and leave pay. The labor arbiter dismissed the complaint for lack of merit, but was reversed by the NLRC on appeal. CAYCO andOLIZON sought reconsideration of the NLRC’s decision but it was denied. Likewise, on appeal to the SupremeCourt through a petition for certiorari was likewise denied for failure to establish grave abuse of discretion on thepart of NLRC. The decision of the NLRC became final and executory on April 29, 1997. A writ of execution wasissued directing the NLRC sheriff to collect from CAYCO and OLIZON the amount computed by the NLRC Research and Investigation Unit to be awarded to the complainants. A notice of levy/sale on execution of personal property was issued and thereafter, on August 8, 1997 the motor tanker of CAYCO and OLIZEN was seized to be sold at public auction. However, Dorotea TANONGON filed a third-party claim before the labor arbiter alleging that she was the owner of the subject motor tanker for having acquired the same from OLIZEN on July 29, 1997 for a consideration of 1,100,000. The labor arbiter dismissed such claim for lack of merit. It was found that the Deed of Absolute Sale was executed on July 29, after the decision became final and executor on April 29. The sale had been entered into to defraud them. But on appeal to NLRC, such decision was reversed because on two grounds: (1) the power of the NLRC sheriff to execute judgments extended only to properties unquestionably belonging to the judgment debtor. In this case, the ownership of the property was in the name of TANONGAN. Hence, the vessel was questionably the property of CAYCO; (2) Under Article 1387 of the Civil Code, alienations of property in the fraud of creditors would give rise only to rescissible contracts. Thus, a judicial rescission was required to disregard such third-party complaint. The decision of the NLRC was reversed by the Court of Appeals ruling that judicial recission was not necessary. It is evident that such sale was done to defraud, to overcome the enforcement of the Writ of Execution, such sale was simulated or a fictitious transfer, in which no independent judicial action was necessary to invalidate the sale. TANONGAN is not a buyer in good faith for the sale was hastily concluded and the tanker and the necessary documents were immediately delivered to the new owner. Such circumstances should put a reasonable person on guard. Also, such power of the NLRC to enforce its final judgment, order or

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award and to take such measures under extant laws as may be necessary to ensure compliance with its decision was authorized under the provisions of Article 224 (a & b)

ISSUES:(1) Whether or not Dorotea M. TANONGAN is a buyer in good faith and for value (2) Whether or not the CA acted with grave abuse of discretion amounting to lack or in excess of jurisdictionin deciding against TANONGAN.

RULINGS:

(1) No. Tanongan is a buyer in bad faith. It is evident that the judgment favoring the complainants as affirmed by the Supreme Court and the issuance of the Writ of Execution was done before the sale of the motor tanker on July 29, 1997. The CA correctly ruled that the act of OLIZON was an attempt to evade payment and that TANONGAN obviously got word of the Writ. Despite such knowledge, she still bought the tanker ten days before it was levied. It is also more that coincidental that the purchase price for the tanker was P1.1M and the debt to be awarded amounted to P1,192,422.55. “A purchaser in good faith or an innocent purchaser for value is one who buys property and pays a full and fair price for it at the time of the purchase or before any notice of some other person's claim on or interest in it.14 We emphasize that one cannot close one's eyes to facts that should put a reasonable person on guard and still claim to have acted in good faith. Petitioner should have inquired whether Olizon had other unsettled obligations and encumbrances that could burden the subject property. Any person engaged in business would be wary of buying from a company that is closing shop, because it may be dissipating its assets to defraud its creditors.”

(2) No. The CA is correct. “The CA held, in overruling the NLRC, that the Commission possessed, under Article224 (a and b),16 powers necessary to implement and enforce the latter's final judgments, decisions, orders and awards. The appellate court ruled further that the disputed contract was not merely rescissible; it was simulated or fictitious and, thus, void ab initio. We agree with the Court of Appeals. A third-party claim on a levied property does not automatically prevent execution. Under Rule 39 of the Revised Rules of Court, execution is a remedy afforded by law for the enforcement of a judgment, its object being to obtain satisfaction of the decision on which the writ is issued.17 In executing a money judgment against the property of the obligor, the sheriff shall levy on all properties belonging to the judgment debtor as is amply sufficient to satisfy the decision and the costs; and shall sell the same, paying to the judgment creditor as much of the proceeds as will satisfy the amount of the debt and costs. Sheriffs who levy upon properties other than those of the judgment debtors are acting beyond the limits of their authority. When a third-party claim is filed, the sheriff is not bound to proceed with the levy of the property unless the judgment creditor or the latter's agent posts an indemnity bond against the claim. Where the bond is filed, the remedy of the third-party claimant is to file an independent reivindicatory action against the judgment creditor or the purchaser of the property at public auction. The NLRC should not have automatically lifted the levy and restrained execution, just because a third-party claim had been filed. Further, judicial rescission is not necessary in the case at bar. The NLRC lifted the levy on the subject property, ruling that its sheriff could execute its judgments only on properties "unquestionably belonging to the judgment debtor." It observed that the Certificate of Ownership over the disputed vessel was in the name of the third-party

claimant, herein petitioner. Petitioner's claim of ownership over the disputed tanker is not supported by the evidence on record. The Maritime Industry Authority (Marina) administrator wrote the parties in two separate letters, which said that the registration of the disputed vessel under petitioner's name had not been effected, and that the Certificates of Ownership and Vessel Registry covering the motor tanker M/T Petron 7-C had not been released. The reasons were Marina's receipt of the Entry of Judgment issued by the Supreme Court on April 29, 1997, and the Notice of Levy/Sale on Execution of Personal Property covering the subject vessel.22 Under Article 573 of the Code of Commerce, the acquisition of a vessel must appear on a written instrument, which shall not produce any effect with respect to third persons if not inscribed in the Registry of Vessels. Insofar as third persons like herein respondents were concerned, the ownership of the disputed vessel remained with Olizon and CAYCO; thus, the CA correctly held that the NLRC could proceed with the levy and the sale on execution.

Consolidated Rural Bank vs. CA 17 January 2005

FACTS: The Madrid brothers were the registered owners of Lot A situated in Isabela.

Said lot was subdivided into several lots. Rizal Madrid sold part of his share identified lot A-7 to Gamiao and Dayag by virtue of a Deed of Sale, to which his brothers offered no objection as evidenced by their Joint Affidavit .The deed of sale was not registered with the ORD of Isabela. However, Gamiao and Dayag declared the property in their names on a Tax Declaration. Gamiao and Dayag sold the subject southern half of lot to Teodoro dela Cruz, and the northern half to Hernandez. Thereupon, Teodoro dela Cruz and Hernandez took possession of and cultivated the portions of the property respectively sold to them (Later Restituto Hernandez donated the northern half to his daughter. The children of Teodoro dela Cruz continued possession of the southern half after their father’s death.) In a Deed of Sale the Madrid brothers conveyed all their rights and interests over lot A-7 to Marquez which the former confirmed. The deed of sale was registered with the ORD of Isabela. Subsequently, Marquez subdivided lot A-7 into eight (8) lots. On the same date, Marquez and his spouse, Mercedita Mariana, mortgaged 4 lots to the Consolidated Rural Bank, Inc. of Cagayan Valley (hereafter, CRB) to secure a loan. These deeds of real estate mortgage were registered with the ORD. As Marquez defaulted in the payment of his loan, CRB caused the foreclosure of the mortgages in its favor and the lots were sold to it as the highest bidder. The Heirs-now respondents filed a case for reconveyance and damages for the southern portion of Lot No. 7036-A (hereafter, the subject property) against Marquez and CRB. The RTC handed down a decision in favor of Marquez. The Heirs interposed an appeal with the CA, which upheld the claim of the Heirs. Hence, the instant CRB petition.

ISSUE: WON Art. 1544 of the Civil Code (double sale) applicable in this case

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HELD: NO.

The petition is denied, and the decision as modified is affirmed. Like the lower court, the appellate court resolved the present controversy by applying the rule on double sale provided in Article 1544 of the Civil Code. They, however, arrived at different conclusions. The RTC made CRB and the other defendants win, while the Court of Appeals decided the case in favor of the Heirs.

ART. 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property. Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good faith was first in possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith. The provision is not applicable in the present case. It contemplates a case of double or multiple sales by a single vendor. It cannot be invoked where the two different contracts of sale are made by two different persons, one of them not being the owner of the property sold. And even if the sale was made by the same person, if the second sale was made when such person was no longer the owner of the property, because it had been acquired by the first purchaser in full dominion, the second purchaser cannot acquire any right. In the case at bar, the subject property was not transferred to several purchasers by a single vendor. In the first deed of sale, the vendors were Gamiao and Dayag whose right to the subject property originated from their acquisition thereof from Rizal Madrid with the conformity of all the other Madrid brothers. On the other hand, the vendors in the other or later deed were the Madrid brothers but at that time they were no longer the owners since they had long before disposed of the property in favor of Gamiao and Dayag.

In a situation where not all the requisites are present which would warrant the application of Art. 1544, the principle of prior tempore, potior jure or simply “he who is first in time is preferred in right, should apply.” The only essential requisite of this rule is priority in time; in other words, the only one who can invoke this is the first vendee. Undisputedly, he is a purchaser in good faith because at the time he bought the real property, there was still no sale to a second vendee. In the instant case, the sale to the Heirs by Gamiao and Dayag, who first bought it from Rizal Madrid, was anterior to the sale by the Madrid brothers to Marquez. The Heirs also had possessed the subject property first in time. Thus, applying the principle, the Heirs, without a scintilla of doubt, have a superior right to the subject property. Moreover, it is an established principle that no one can give what one does not have¾nemo dat quod non habet. Accordingly, one can sell only what one owns or is authorized to sell, and the buyer can acquire no more than what the seller can transfer legally.53 In this case, since the Madrid brothers were no longer the owners of the subject property at the time of the sale to Marquez, the latter did not acquire any right to it.

Dela Merced vs. GSIS365 SCRA 1

FACTS: This case involves five registered parcels of land located within the Antonio Subdivision, Pasig City Lots 6, 7, 8, and 10 of Block 2 and Lot 8 of Block 8 (subject properties). These lots were originally owned by, and titled in the name of, Jose C. Zulueta (Zulueta), as evidenced by Transfer Certificate of Title (TCT) No. 26105 which contains several lots other than the subject properties within the Antonio Subdivision.

Later, the Zulueta spouses mortgaged several lots contained in TCT No. 26105 to the GSIS, which eventually foreclosed on the mortgaged properties, including the subject properties. Upon consolidation of GSISs ownership, TCT No. 26105 in Zuluetas name was cancelled, and TCT No. 23554 was issued in GSISs name.

Upon learning of the foreclosure, petitioners predecessor, Francisco Dela Merced (Dela Merced), later on substituted by his heirs, filed a complaint praying for the nullity of the GSIS foreclosure on the subject properties (Lots 6, 7, 8, and 10 of Block 2 and Lot 8 of Block 8) on the ground that he, not the Zuluetas, was the owner of these lots at the time of the foreclosure. Dela Merced also impleaded Victor and Milagros Manlongat, who were claiming Lot 6, Block 2 by virtue of a sale executed by the GSIS in their daughters (Elizabeth Manlongat) favor. Dela Merced argued that, due to the nullity of GSISs foreclosure over the subject properties, it had no ownership right that could be transferred to Elizabeth Manlongat.

After a protracted litigation, the SC rendered a Decision in the petitioners favor and nullified GSISs foreclosure of the subject properties because these lots were never part of its mortgage agreement with the Zulueta spouses. Pursuant to the finality of the Decision, petitioners filed a Motion for Execution which GSIS opposed on the basis of Section 39 of the GSIS Act of 1997 (RA 8291 which allegedly exempts GSIS funds and properties from attachment, garnishment, execution, levy and other court processes. A writ of execution was finally issued, however, first by the RTC and then by the CA. The GSIS filed a petition for review before the SC which was denied by the latter.

After the resolution of the issue of GSISs exemption, petitioners encountered more problems with the execution of the Decision. According to the RD of Pasig City, Policarpio Espenesin, he could not cancel the titles of GSIS over Lots 7 and 8 because it no longer had title over these two lots and had already conveyed the same to two other persons. Hence, the RD claimed that the writ of execution must first be modified to include the cancellation of derivative titles of the GSIS title.

ISSUES:

I. Whether the GSIS can still raise the issue of exemption

II. Whether a final and executory judgment against GSIS and Manlongat can be enforced against their successors-in-interest or holders of derivative titles

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III. Whether an order to cancel title to a particular property includes an order to provide technical descriptions and segregate it from its mother title

HELD:

(1) The issue of GSISs alleged exemption under RA 8291 had been finally decided against when this Court denied GSISs petition for review. GSISs attempt to resurrect the same issue by interjecting the same in this proceeding is barred by the principle of "law of the case," which states that "determinations of questions of law will generally be held to govern a case throughout all its subsequent stages where such determination has already been made on a prior appeal to a court of last resort."

(2) A notice of lis pendens is an announcement to the whole world that a particular real property is in litigation, serving as a warning that one who acquires an interest over said property does so at his own risk, or that he gambles on the result of the litigation over the said property. It is not disputed that petitioners caused the annotation of lis pendens on TCT No. 23554 of the lots in question. The current holders of the derivative titles to these lots were aware of such annotation when the individual titles were issued to them. Ineluctably, both were bound by the outcome of the litigation.

(3) The order contained in the Decision in G.R. No. 140398 is for the RD to cancel GSISs titles over Lot 10, Block 2 and Lot 8, Block 8, inter alia. Whether these titles are individual or contained in a mother title is of no consequence. The RD has to cause their cancellation. If the cancellation can only be carried out by requiring GSIS or the Bureau of Lands to provide the necessary information, then they can be compelled to do so. Otherwise, the Courts decision would be rendered inefficacious, and GSIS would retain ostensible ownership over the lots by the simple expedience that they are included in a mother title, instead of individual titles. That result is manifestly contrary to the Courts ruling and would subvert the very purpose of bringing this case for a complete resolution.San Lorenzo Development Corp. vs. CA449 SCRA 99

FACTS: Enrique Salvatierra died intestate and without any issue. He was survived by his legitimate brothers: Tomas, Bartolome, Venancio and Macario, and sister Marcela. His estate consisted of three parcels of land.

An Extrajudicial Partition with Confirmation of Sale was executed by and among the surviving legal heirs and descendants of Enrique Salvatierra, which consisted of Lot No. 25, 26 and 27. By virtue of the sale executed by Marcela in favor of Venancio, the latter now owns 2/5 shares of the estate. By virtue of the sale by Bartolome’s heirs Catalina and Ignacia, of his undivided shares to Tomas, now deceased, represented by his widow, Catalina Azarcon, the latter now owns 2/5 shares in the said estate. Anselmo Salvatierra represented his father Macario, who had already died.

Thereafter, Venancio sold the whole of Lot No. 27 and a 149-sq. m. portion of Lot 26 to herein respondent spouses Lino Longalong and Paciencia Mariano. The Longalongs took possession of the said lots. It was discovered in 1982 (through a relocation survey) that

the 149 sq. m. portion of Lot No. 26 was outside their fence. It turned out that Anselmo Salvatierra was able to obtain a title, Original Certificate of Title No. 0-4221 in his name, the title covering the whole of Lot. No. 26 which has an area of 749 sq. m.

Private respondents Longalong then filed a case with the RTC for the reconveyance of the said portion of Lot 26.

ISSUES:

1. Whether or not there was a double sale.2. Which prescriptive period for actions for annulment should prevail, Art. 1391 of the New Civil Code which limits the filing of actions to four (4) years or Art. 1144 of the same Code which limits the period of the filing of actions on certain grounds to ten years?

RULING:

Petitioners rely on the theory that this is a case of double sale case of Lot No. 26 to both petitioners and respondents Longalong, et. al. A perusal of the records and evidence, reveals otherwise. Both parties did not dispute the existence and contents of the Extrajudicial Partition with Confirmation of Sale, as both presented them as their respective exhibits. The parties may not have realized it, but the deciding factor of this dispute is this very document itself. It is very clear therein that Macario Salvatierra’s share in the estate of the deceased Enrique Salvatierra is only 405 sq. m. out of the 749 sq. m. comprising Lot No. 26. Since Venancio Salvatierra, under this document, is to get a portion of Lot No. 26 in addition to Lot No. 27, then it follows that Venancio is entitled to the remaining 344 sq. m. of Lot No. 26, after deducting the 405 sq. m. share of Macario.

The applicable provision in the case at bar is Art. 1144 of the New Civil. Art. 1391 of the same code, referred to by petitioners is not in point. This article must be read in conjunction with Art. 1390 which refers to voidable contracts. This case at hand involves fraud committed by petitioner Anselmo Salvatierra in registering the whole of Lot No. 26 in his name, with evident bad faith. In effect, an implied trust was created by virtue of Art. 1456.

In this connection, we hold that an action for reconveyance of registered land based on an implied trust may be barred by laches. The prescriptive period for such actions is ten (10) years from the date the right of action accrued. The complaint for reconveyance was filed by the Longalong spouses on November 22, 1985, only five (5) years after the issuance of the O.C.T. No. 0-4221 over Lot No. 26 in the name of Anselmo Salvatierra. Hence prescription has not yet set in.

G.R. No. L-27587, 18 February 1970Carumba vs. Court of Appeals

Facts: In 1955, the spouses Amado Canuto and Nemesia Ibasco, by virtue of a “Deed of Sale of Unregistered Land with Covenants of Warranty” sold a parcel of land located in

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Camarines Sur, to the spouses Amado Carumba and Benita Canuto, The referred deed of sale was never registered in the Office of the RD of Camarines Sur, and the Notary was not then an authorized notary public in the place. In 1957, a complaint for a sum or money was filed by Balbuena against Amado Canuto and Nemesia Ibasco before the Justice of the Peace Court. A decision was rendered in favor of Balbuena and against the defendants. In 1968, the ex-officio Sheriff issued a “Definite Deed of Sale of the property now in question in favor of Balbuena, which instrument of sale was registered before the Office of the RD.

The CFI, finding that after execution of the document Carumba had taken possession of the land, and planted thereon:

1. declared him to be the owner of the property under a consummated sale;2. held void the execution levy made by the sheriff, pursuant to a judgment

against Carumba’s vendor, Amado Canuto;3. and nullified the sale in favor of the judgment creditor, Balbuena.

The CA, without altering the findings of fact made by the court of origin, declared that there having been a double sale of the land subject of the suit Balbuena’s title was superior to that of his adversary under Article 1544 of the Civil Code of the Philippines since the execution sale had been properly registered in good faith and the sale to Carumba was not recorded.

Issue: WON the petitioner has a superior title over the land and rule on double sale applies.

Held: The Court ruled that while under the invoked Article 1544 registration in good faith prevails over possession in the event of a double sale by the vendor of the same piece of land to different vendees, said article is of no application to the case at bar, even if Balbuena, the later vendee, was ignorant of the prior sale made by his judgment debtor in favor of petitioner Carumba. The reason is that the purchaser of unregistered land at a sheriff’s execution sale only steps into the shoes of the judgment debtor, and merely acquires the latter’s interest in the property sold as of the time the property was levied upon. This is specifically provided by section 35 of Rule 39 of the Revised Rules of Court, the second paragraph of said section specifically providing that:

Upon the execution and delivery of said (final) deed the purchaser, redemptioner, or his assignee shall be substituted to and acquire all the right, title, interest, and claim of the judgment debtor to the property as of the time of the levy, except as against the judgment debtor in possession, in which case the substitution shall be effective as of the time of the deed … (Emphasis supplied)

While the time of the levy does not clearly appear, it could not have been made prior to 1957, when the decision against the former owners of the land was rendered in favor of Balbuena. But the deed of sale in favor of Canuto had been executed two years before, in 1955, and while only embodied in a private document, the same, coupled with the fact that the buyer (petitioner Carumba) had taken possession of the unregistered land sold, sufficed to vest ownership on the said buyer. When the levy was made by the Sheriff,

therefore, the judgment debtor no longer had dominical interest nor any real right over the land that could pass to the purchaser at the execution sale. Hence, the latter must yield the land to petitioner Carumba.

Said rule is different in case of lands covered by Torrens titles, where the prior sale is neither recorded nor known to the execution purchaser prior to the levy; but the land here in question is admittedly not registered under Act No. 496.

------------------------------------------

3) To deliver the fruits and accessories (Art. 1537)- In the condition in which they were upon the perfection of the

contract.- All fruits shall pertain to the vendee from the day on which the

contract was perfected.

4) To pay for the expenses of the execution and registration (Art. 1487)- Unless there is a stipulation to the contrary.

5) Conditions and Warranties

a)Condition; concept (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:

i) refuse to proceed with the contract; orii) 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 non-performance of the condition as a breach of warranty.

- Where the ownership of 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.

Obligations which cannot be Waived:1. Obligation to transfer 2. Obligation to deliver

Obligation which can be Waived:1. Obligation to warrant the thing

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b) Warranty – where one party promised that the contingency or some act fixed by the contract shall be performed, like a promise that the goods are of a certain kind and character or that certain state of facts would exist, the promise constitutes a warranty, and failure of which gives rise to an action for its breach. Breach: the buyer may

(1) accept goods + maintain an action for damages(2) accept goods + set up breach of warranty as a recoupment in

diminution/ extinction of price(3) refuse to accept goods and maintain action for damages(4) rescind + refuse to accept goods; or return (or offer to return) goods +

recover price paidDistinguished from condition

Condition Warranty

Generally goes into the root of the existence of the obligation

Goes into the performance of such obligation, and in fact may constitute an obligation in itself

Must be stipulated by the parties in order to form part of an obligation

May form part of obligation by contract or provision of law, without parties having agreed thereto

May attach itself either to obligation of seller to deliver possession or transfer ownership over subject matter of sale

Whether express or implied, relates to subject matter itself or to the obligations of the seller as to the subject matter of the sale

Distinguished from opinion, dealer’s talk

a) Warranty – an affirmation of fact or any promise by seller relating to the thing which has a natural tendency to induce the buyer to purchase the same, relying on such promise of affirmation

b) Opinion/dealer’s talk – an affirmation of the value of the thing or any statement of the seller’s opinion shall not be construed as a warranty, unless the seller made such an affirmation as an expert and it was relied upon by the buyer

Test: whether the vendor assumes to assert a fact of which the buyer is ignorant, in which case it is a warranty, or whether it is merely an expression of an opinion or judgment on

the part of the seller on a matter of which the seller has no special knowledge and on which the buyer may be expected also to have an opinion or exercise his judgment.

“In good condition” v. “Excellent quality” – the first relates to the quantity, kind or condition of the goods sold, it is an affirmation of fact or promise, and not a mere expression of an opinion; the second is not an express warranty and the purchaser must rely on the implied warranty that the goods are merchantable; mere expression of an opinion6

Distinguished from false representation

PHIL. MANUFACTURING v. Go JUCCO: An intention to deceive or mislead the other party to his prejudice is an essential element of fraud. Concealment of facts does not necessarily amount to false representation, unless there was an active misstatement of fact or a partial statement of fact, such that withholding of that which is not stated makes that which is stated absolutely false.

1) Express (Art. 1546) – any affirmation of fact or any promise by the seller relating to the thing, the natural tendency is to induce to purchase the thing.

There must be an affirmation of fact; The fact must pertain to the thing either to the quality, character or title of the

thing.

The use of the words / terminologies is not conclusive as to whether or not there is an express warranty.Example: “I guaranty / warranty you that you will be happy if you buy this car at P100,000”→ this does not result in an express warranty

Again, if the affirmation of fact pertains to the quality of the thing, it is an express warranty.Example: These 10 sacks of fertilizer would result in 200 cavans of rice.

6 SONGCO v SELLNER: Opinion or dealer’s talk is not warranty. Opinion or dealer’s talk is

the usual or ordinary means used by sellers to get a high price and is understood as affording to buyers no ground for omitting to make inquiries. Caveat emptor. A man who relies on such an affirmation does so at his own peril and must take the consequences of his imprudence.

What would make a misrepresentation void: (a) false representation is as to matters of fact substantially affecting buyer’s interest, and not as to matters of opinion, judgment, probability or expectation; (b) the party to the contract who has special/expert knowledge takes advantage of the ignorance of another to impose upon him the false representation.

MOLES v IAC: 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

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The statement of the seller’s opinion is not as a rule considered an express warranty.Example: “This is the best piña cloth” → it may turn out that there are better piña cloth.

As long as the seller is not an expert on that field, that would be treated merely as an opinion and there can be no liability for breach of an express warranty.

BE: “A” sold a land to B for P1M in Antipolo. As agreed upon P100,000 will be paid upon the signing of the DOS. The balance will be paid within 30 days from the time the occupants (squatters) of the land are evicted. It was so stipulated that if within 6 months, the squatters have not yet been evicted, the seller should return the P100,000. Another stipulation states – within the 6-month period, the value of the land doubled. Despite the filing of an eviction suit by the seller and the lapse of the 6-month period, the squatters were still occupying the land. The seller offers to return the P100,000 to the buyer. The buyer refused to accept the P100,000 and told the seller “never mind even if the squatters are still there. I will still buy the land”. So the buyer offered to pay the balance P900,000 and demanded that a DOS be executed by the seller. The seller refused to accept the P900,000. What he did is to file an action to rescind the contract. Would the action prosper?SA: If the answer is based on rescission, the action will not prosper because rescission may only be invoked by the aggrieved party. The seller is not an aggrieved party.

2. Implied (Art. 1547) – those which are not stipulated but provided by law.

Prof. De Leon: because of this implied warranty, it cannot be said that Philippine law does not adopt caveat emptor “buyer beware

Even if there is no stipulation as to these warranties, the law itself would provide for these warranties and hence if there are hidden defects he would have remedies under the law or even if he was deprived of the thing he bought he would have a remedy against the seller. Hence, it is not correct to say that Philippine law has adopted caveat emptor. But there are certain instances when there would be no such implied warranty against hidden defects. There may be warranty as to title or against eviction but there is no warranty against hidden defects under certain circumstances.

A) Warranty against eviction/of seller’s title (Art. 1548-1559) – in order for the vendor to be held liable, the following requisites must be complied with:1. Existence of a final judgment depriving the vendee of the whole or part of the

thing purchased;

In other words, a case was filed by a 3rd person against the buyer which resulted in a favorable decision as to the plaintiff resulting in the deprivation of the property by the buyer.

2. Deprivation must be eithera) based on a third person’s prior right over the thing orb) based on an act imputable to the vendor;

3. There should be no valid waiver;4. The action to hold the vendor liable should be filed within the period

prescribed by law

Q: If the seller was able to transfer ownership to the buyer may the seller nonetheless be held liable for breach of warranty against eviction?A: Yes. These are 2 different obligations: the obligation to transfer ownership and the obligation to warrant the thing.

Example: This warranty against eviction would include the warranty that the buyer from the moment of the sale have and enjoy the legal and peaceful possession over the thing sold.

-------------------------------------------Jurisprudence:G.R. No. L-41233, 21 November 1979J.M. Tuason & Co., Inc. vs. CA

Facts: Petitioner executed, in favor of Ricardo de Leon, a contract to sell a lot with the agreed price of P24.60 per square meter. At the execution of the contract, Ricardo de Leon paid the down-payment of P4,190.86 and agreed to pay the balance in the monthly installment of P498.63 including the agreed annual interest of 10%. Meanwhile, on April 10, 1953, petitioner signed a compromise agreement with the Deudors. On July 19, 1965 with the consent of the petitioner, Ricardo de Leon transferred all his rights to the lot in favor of his parents, herein private respondents Alfonso and Rosario de Leon. On the same date, private respondents paid the outstanding balance of the purchase price. At the time of the execution of the contract to sell, the contracting parties knew that a portion of the lot in question was actually occupied by Ramon Rivera. However, it was their understanding that the latter will be ejected by the petitioner from the premises. Petitioner filed a complaint of ejectment against Ramon Rivera before the CFI and later petitioner Ricardo de Leon and respondents Alfonso and Rosario de Leon as necessary parties and they were evicted from the premises in the question which was affirmed by the CA. Private respondents filed the proper action before the CFI of Manila action against J.M. Tuason & Co., Inc. to enforce the vendor's warranty against eviction or to recover the value of the land plus damages.

The CFI decided the case against herein petitioner J.M. & Co., Inc. which was affirmed by the CA.

Issue: WON the respondents are entitled to the vendor’s warranty eviction.

Held: The Court ruled that without being shown to be vendees in good faith, herein respondents are not entitled to the warranty against eviction nor are they entitled to recover damages (Article 1555 of the Civil Code).

The prior right of Ramon Rivera to purchase the lot in litigation was based more on his prior occupancy to the same since 1949, about which fact respondents De Leon were informed by petitioner at the time of the execution of the contract to sell. The execution of the compromise agreement merely recognized this prior right, under the condition as stipulated in said agreement, that it was possible to do so.

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The Court did not have the hesitation to give to petitioner the benefit of the doubt of its having acted in good faith, which is always presumed, without any intention of taking advantage of the other party dealing with it. "Good faith consists in an honest intention to abstain from taking any unconscientious advantage of another. Good faith is an opposite of fraud and of bad faith and its non-existence must be established by competent proof."

Moreover, at the time of the execution of the contract to sell it is an admitted fact that Ricardo de Leon knew that a third party was occupying a part of the lot subject of the sale. Ricardo de Leon ought to have known that he was buying a property with the distinct possibility of not being able to possess and own the land due to the occupancy of another person on the same. So there had to be an understanding between him and the petitioner for the latter to eject the occupant, something which, by the facts then obtaining and the law relevant thereto, would make the ejectment more speculative than certain. Nonetheless, Ricardo de Leon knowingly assumed the risk when he bought the, land, and was even called a vendee in bad faith by the Court of Appeals in doing so, clearly not an innocent purchaser in good faith. If petitioner that it would eject Ramon Rivera, he did so, not knowing that the compromise agreement would stand on the way, as it had thought, in all good faith, that paragraph 7 of the compromise agreement excluded the lot in question, having been already sold to Ricardo de Leon before the agreement was executed in court.

One who purchases real estate with knowledge of a defect or lack of title in his vendor cannot claim that he has acquired title thereto in good faith, as against the true owner of the land or of an interest therein; and the same rule must be applied to one who has knowledge of facts which should have put him upon such inquiry and investigation as might be necessary to acquaint him with the defects in the title of his vendor. A purchaser cannot close his eyes to facts which should put a reasonable man upon his guard and then claim that he acted in good faith under the belief that there was no defect in the title of the vendor.

G.R. No. L-42636, 1 August 1985Escaler vs. CA

Facts: Spouses Africa V. Reynoso and Jose L, Reynoso sold to petitioners several others, a parcel of land which Deed of Sale contained a covenant against eviction. On April 21, 1961, the Register of Deeds of Rizal and A. Doronilla Resources Development, Inc. filed a case before the CFI of Rizal for the cancellation of the OCT issued in the name of Angelina Reynoso (predecessor-in-interest of private respondents-vendors) on the ground that the property covered by said title is already previously registered under a TCT issued in the name of A. Doronilla Development, Inc. In that case, an order was issued declaring the OCT null and void. Petitioners, spouses Maria de Leon Escaler and Ernesto Escaler and spouses Cecilia J. Roxas and Pedro Roxas, filed a civil case before the CFI of Rizal against their vendors, herein private respondents, spouses Jose L. Reynoso and Africa Reynoso for the recovery of the value of the property sold to them plus damages on the ground that the latter have violated the vendors' "warranty against eviction."

The CFI rendered a judgment ordering the return to the plaintiffs Maria Luisa de Leon Escaler and Ernesto Escaler, Cecilia J. Roxas and Pedro Roxas, the value of the property sold to them at the time of eviction. The CA reversed this decision and ruled that petitioners as vendees had not given private respondents-vendors, formal notice of the eviction case as mandated by Arts. 1558 and 1559 of the New Civil Code.

Issue: WON a vendor’s liability for eviction may be enforced in the case at bar.

Held: The Court ruled that the petition is devoid of merit. Consequently, it must be dismissed.

Article 1548, in relation to Articles 1558. and 1559 of the New Civil Code reads as follows:

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.

Xxxx

Art. 1558. The vendor shall not be obliged to make good the proper warranty, unless he is summoned in the suit for eviction at the instance of the vendee. (emphasis supplied)

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 as co-defendant

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 the petitioners did, per their very admission, was to furnish respondents, by registered mail, with a copy of the opposition they (petitioners filed in the eviction suit. Decidedly, this is not the kind of notice prescribed by the aforequoted Articles 1558 and 1559 of the New 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-

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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.

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(a) Warranty against hidden defects (Arts. 1560-61, 1566-81) – refers to such defects as would render the thing unfit for the use intended or would diminish its fitness for such use to such an extent that, had the vendee been aware thereof, he would not acquire it or have given a lower price for it.

The following requisites must be present in order for the vendor to be held liable:i. Defect must exist at the time of the sale;

ii. Defect must be hidden;iii. Defect must result in the thing being unfit for the purpose of the

buyer or at least diminish the fitness of the thing.

Instances where no warranty against hidden defects:

a. “As is, where is” sale – the seller disclaims liability and it is the buyer’s responsibility to get the item where it is located at the time of the sale.

b. Sale of secondhand items

c. Sale of animals in fairs

d. Sale in public auction

DEFFECT MUST BE HIDDENIf the defect is patent and the buyer nonetheless bought the thing then he can no longer hold the seller liable. If the seller is not aware of the hidden defects, he can be held liable. If he was aware, his liability will be greater because that makes him a bad faith seller.

Q: Even if there is such a hidden defect, is it possible that the vendee cannot hold the vendor liable despite the fact that there was hidden defect even if he was not informed because maybe the seller was not aware?A: Yes, he may not be able to hold the seller liable if he is an expert on the thing. He is expected to know the defect.

The defect must result in the thing being unfit for the purpose of the buyer or at least it diminish the fitness of the thing such that the buyer would not have bought it at the price had he known of such defect.

Q: If the thing which has a hidden defect was lost or destroyed, can the vendee hold the vendor liable for this breach of warranty? Does it matter if the loss was due to a fortuitous

event or maybe the loss was due to the fault of the buyer himself, nonetheless, can he hold the vendor liable?A: Yes. The vendee can hold the vendor liable for breach of warranty against hidden defects even if the thing was lost due to fortuitous event or due to the fault of the vendee himself because of the hidden defects. But of course, if the cause of the loss was the defect itself, the liability is greater than if the cause of the loss was a fortuitous event or fault of the buyer.

If there would be a problem here as to the extent of the liability of the vendor, he should first consider the cause of the loss, maybe it was lost due to the defect itself or lost through fortuitous event or lost through the fault of the vendee. After that, he should determine whether the vendor was aware of the defects or he was not aware. Again, if he was aware, damages may be recovered. If he was not aware, he may not be held liable for damages unless he can only be held liable for interest.

If the defect was the cause of the loss, the vendor would be liable for the return of the price, not only the price less value but also to refund the expenses and damages because the vendor was aware of the defects.

If the vendor was not aware of the defects, he cannot be held liable for damages but he would only be held liable for the price.

If the cause of the loss of the thing was a fortuitous event, he can only be held liable for the price less value.

ANY CHARGE OR NON – APPARENT ENCUMBRANCE NOT DECLARED OR KNOWN TO THE BUYERQ: Would there be an encumbrance over an immovable which is a form of easement or servitude?A: An example of this is a road right of way.

Q: If the buyer bought the land which turned out to have a road right of way in favor of a 3 rd

person, can he claim breach of warranty against any charge or non – apparent encumbrance?A: Of course there are requisites:

(1) The encumbrance or easement or burden or the road right of way has to be non – apparent.

Q: If there is an encumbrance, what are the remedies of the buyer?A: (a) He can seek for the reduction of the price. (b) Rescission - the law requires that the action for rescission must be filed within 1 year from the date of the contract. If after 1 year, no more rescission. (c) If he became aware more than a year, he may file an action for damages, But the law requires that the action for damages has to be filed within 1 year also but from the time of the discovery of encumbrance. If he filed it for example, after 2 years from discovery – no recovery of damages.

-------------------------------------------Jurisprudence:G.R. No. 73913, 31 January 1989Moles vs. IAC

However, there is still

warranty against

eviction.

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Facts: 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. On his second visit to the Diolosa Publishing House, petitioner decided to buy the linotype machine. The transaction was basically verbal in nature but to facilitate the loan application with the DBP, a pro forma invoice was signed by petitioner with an addendum that payment had not yet been made but that he promised to pay the full amount upon the release of his loan from the aforementioned bank on or before the end of the month. The machine was delivered to petitioner's publishing house where it was installed by an employee of respondent 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 where later on received the DBP check for P50,000.00. On November 29, 1977, petitioner wrote private respondent that the machine was not functioning properly as it needed a new distributor bar. In the same letter, petitioner unburdened himself of his grievances and sentiments in this wise. After their requests to check the machine went unheeded, petitioner thus finally decided to indorse the matter to his lawyer. An expert witness found several defects. Having found defects in said machine, the witness informed Sy Brother about his findings, hence the purchase was aborted. In his opinion, major repairs were needed to put the machine back in good running condition.

On 17 May 1978, petitioner Jerry T. Moles commenced a suit against private respondent Mariano M. Diolosa in the aforesaid trial court in Bacolod City, for rescission of contract with damages. Private respondent moved to dismiss on the ground of improper venue. This was opposed by petitioner who averred that there is no formal document evidencing the sale which is substantially verbal in character. In an order dated June 23, 1978, the trial court denied the motion to dismiss, holding that the question of venue could not be resolved at said stage of the case. The subsequent motion for reconsideration was likewise denied.

Issues: 1. WON there is an implied warranty of its quality or fitness on a secondhand item; 2. WON the hidden defects in the machine is sufficient to warrant a rescission of the contract between the parties.

Held: As to the first issue, the Court ruled 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.

The respondent court cited the ruling in Sison vs. Ago, et al. to the effect that unless goods are sold as to raise an implied warranty, as a general rule there is no implied warranty in the sale of secondhand articles.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:

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;

In the present case, 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. This contention is bereft of substance.

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.

On the basis of the foregoing circumstances, the inescapable conclusion is that private respondent is indeed bound by the express warranty he executed in favor of herein petitioner.

As to the second issue, the Court considered 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.

Nutrimix Feeds Corporation vs. CA 25 October 2004

FACTS: Evangelista spouses purchased feeds from Nutrimix. They refused to pay their unsettled debt claiming that thousands of their livestock were poisoned by the Nutrimix feeds. Nutrimix sued them for collection of money. The spouses countered with a suit for damages. Various expert witnesses were presented during the trial.

ISSUE: W/N Nutrimix should be held liable for the death of the livestock

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HELD: NO. In alleging that there was a violation of warranty against hidden defects, the spouses assumed the burden of proof. However, this they failed to overcome. Under the law, the defect must exist at the time the sale was made and at the time the product left the hands of the seller, which the spouses failed to prove. The feeds were belatedly tested—3 months after the death of the broilers and hogs. This means that at that time, they may have already been contaminated.

They failed to prove that the feeds delivered to be tested were the same feeds that allegedly poisoned the animals. It is also common practice for them to mix different kinds of feeds. The mere death of the animals does not raise a prima facie case of breach of warranty. In this case, the evidence presented by the spouses are only circumstantial. The remedies of breach of warranty against hidden defects are either withdrawal from the contract or to demand a proportionate reduction of the price plus damages in either case. In this case, though the spouses failed to make out their case, hence they should be liable for their debt.

-------------------------------------------

(b) Warranty of quality (Arts. 1562-65, 1586, 1599 (5))

a. Warranty of merchantability – it pertains to the fact that it is fit for the general purpose especially if the thing was sold by description or by sample.

b. Warranty of fitness – the thing bought may not actually have any defect and for one million buyers, it would be fit for their purpose. However, it may not be fit for the purpose of one buyer and if all the requisites for this warranty are present, then the buyer may hold the seller liable for breach although there is no hidden defect, as long as not fit for the purpose of the buyer.

Buyer has to inform the seller of the particular purpose for which the thing is to be used;

Seller manifested that the thing would be fit for the purpose and the buyer relied on such representation of the seller.

WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE

The thing bought may not actually have any defect and for 1 million buyers it would be fit for their purpose. However, it may not be fit for the purpose of 1 buyer and if all the requisites for this warranty are present, then he may hold the seller liable for breach of warranty of fitness for a particular purpose although there is no hidden defect but it is not fit for the purpose of the buyer.In order for the seller may be held liable:

1. The buyer has to inform the seller of the particular purpose for which the thing is to be use and

2. The seller manifested that the thing would be fit for the purpose and the buyer relied on such representation of the seller.

Note: If the thing is sold under the trade name there can be no warranty of fitness for a particular purpose.

WARRANTY OF MERCHANTABILITY It pertains to the fact that it is fit for the general purpose. If the thing was sold by description or by sample, it is considered that there is such a thing as warranty of merchantability.

Instances whether there would be no warranty against hidden defects and therefore caveat emptor may be invoked:1. Sale which is an “as is where is” sale which means sale where it is found xxx bahala ka sa buhay mo if you want to buy the thing and you cannot later on claim that there were hidden defects. (Faye: pls. research the complete meaning of “as is where is” sale. Atty. Uribe will ask the meaning. )2. Sale of 2nd hand items3. Sale of animals in fairs 4. Sale in public auction

Note: There would still be warranty against eviction.Note: Rules on warranty also apply to judicial sale.

Q: In sale by authority of law or in execution sale, can there be breach of warranty against eviction?A: Yes. The judgment debtor and not the sheriff shall be liable.

The law would specifically exempt certain persons from liability for breach of warranty like sheriff, auctioneer, mortgagee, pledge and other persons who sell by virtues of an authority of law like notary public because they are not really selling for themselves, they are selling on behalf of another person.

5. Rule in case of sale under a patent or trade name (Art. 1563) – there is no warranty as to its fitness for any particular purpose, unless there is stipulation to the contrary.

6. Effect of usage of trade (Art. 1564) – it may annexed an implied warranty or condition as to the quality or fitness for a particular purpose.

7. Rule in case of goods sold by sample (Art. 1565) – 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.

3. Alternative remedies of buyer to enforce the warranties; prescriptive period (Arts. 1567, 1571) – the vendee may elect between:

i.) Withdrawing from the contract;ii.) Demanding a proportionate reduction of the price.iii.) Plus damages in any case between i.) and ii.)

*actions barred after 6 months from the delivery of the property/thing sold.

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8. Loss of the thing sold due to hidden defects (Arts. 1567-69) – in cases provided under Arts. 1561-62, 1564-66, the vendee may elect between withdrawing from the contract and demanding a proportionate reduction of the price, with damages in either case.

- If the vendor was aware of the hidden defects, 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 the interest thereon, and reimburse the expenses of the contract which the vendee might have paid.

- If the thing sold had hidden defects and lost through a fortuitous event or through vendee’s fault, the latter may demand of the vendor the price which he paid, less the value which the thing had when it was lost. If the vendor acted in bad faith, he shall pay damages.

Applicability of warranty on judicial sales (Art. 1570) – except that the judgment debtor shall not be liable for damages.

Prescriptive period of action (Art. 1571) – shall be barred after 6 months from the delivery of the thing sold.

Rules on sale of animals (Arts. 1572-81) – if 2 or more animals are sold together,

General rule: the redhibitory defect of one shall only give rise to its redhibition and not of that of the others. He cannot rescind the entire contract pertaining to all animals.

*Redhibitory defect (Art. 1576) – kind of defect that even by examination of expert, it cannot be discovered.

Exception: if he can prove that he would not have bought the others had he known the defect of one, then he can rescind the entire contract.

Presumption that the buyer would not have bought the others had he known of the defect of one – arises when the buyer bought the animals in teams or in pairs.

Sale of animals suffering from contagious diseases – VOID.

Q: If one of the animals has redhibitory defect, can the buyer rescind the entire contract pertaining to all the animals?A: G.R.: No. He can only rescind the contract pertaining to the animal with redhibitory defect. He cannot rescind the entire contract pertaining to all animals. Exception: If he can prove that he would not have bought the others had he known the defect of one then he can rescind the entire contract.

Q: Who has the burden of proof that he would not have bought the others had he known of the defect of one?A: Normally, it would be the buyer. But the law under certain circumstances would provide for this presumption that it is presumed that he would have bought the others had he known of the defect of one.Examples: He bought the animals in teams or in pairs then the presumption arises.

- Love birds (Ang mga love birds, kapag namatay yung isa later on mamatay din yung isa. Minsan nga mgsuicide pa sya pag mag isa na lang sya. Iuuntog nya ulo nya sa cage nya. )

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VII. DOCUMENTS OF TITLEA. Concept and function/purpose:

- A document used in the ordinary course of business in the sale or transfer of goods, as proof of the possession or control of the goods, or authorizing or purporting to authorize the possessor of the document to transfer or receive, either by endorsement or by delivery, goods represented by such document (Art. 1636).7

- Evidence of possession or control of goods described therein;- Medium of transferring title and possession over the goods described

therein without having to effect actual delivery (Villanueva, 2009 ed.) - The custody of a negotiable warehouse receipts issued to the order of the

owner, or to bearer, is a representation of title upon which bona fide purchasers for value are entitled to rely , despite breaches of t rust or violations of agreement on the part of the apparent owner (Siy Cong Bieng v. HSBC, 56 Phil 598).

The functions of documents of title are(1) Evidence of the possession or control of the goods described therein (2) Medium of transferring title and possession over the goods described

therein without having to effect actual delivery thereof (Villanueva)(3) Evidence of existence of contract to hold the depositary liable

B. Common forms of documents of title:

1. Dock warrant –2. Bill of lading – is a document issued by the common carrier acknowledging

receipt of goods described therein for transportation to a designated place and delivery to a named consignee.

3. Warehouse receipt –4. Quedan –

C. Classes of documents of title:

1. Negotiable documents of title –

- How negotiated?- Negotiated by delivery of the document to another if by the

terms thereof, the goods are deliverable to bearer, or when

7 PHIL. TRUST CO. V NATIONAL BANK: The purpose of documents of title is that the seller is allowed by fiction of law to deal with the goods described therein as though he had physically delivered them to the buyer; and the buyer may take the document of title as though he had actually taken possession and control over the goods described therein

the bill of lading was endorsed in blank by the person whose order the goods were deliverable.

- Who may negotiate? (Art. 1512) –- The owner of the document;- The one to whom possession or custody of the document

has been entrusted by the owner.

- Rights of the a person to whom the document has been negotiated (Art. 1513, 1519) –

- He acquires the rights of his vendor- Whatever rights the original cosignee had over the goods.- Also the direct obligation of the carrier as if he were the

shipper.- Can sue the carrier directly in his own name.

- Transfer of order document without indorsement (Art. 1515)- If transferred for value by delivery, the transferee acquires a

right against the transferor to compel him to indorse the document unless a contrary intention appears.

- Negotiation shall take effect as of the time when the indorsement is actually made.

- Indorser not a guarantor (Art. 1517)- Indorsemnt of a document of title shall not make the

indorser liable for any failure on the part of the bailee who issued the document or previous indorsers thereof to fulfill their respective obligations.

- Negotiation not impaired by (Art. 1518):- The fact that the negotiation was a breach of duty on the

part of the person making the negotiation;- The fact that the owner of the document was deprived of

the possession of the same by loss, theft, fraud, accident, mistake, duress, or conversion if the other paid for value without notice of the breach.

2. Non-negotiable documents of title (Art. 1510) –

- Rights of the a person to whom the document has been negotiated (Art. 1514)

- He acquires the title to the goods, subject to the terms of any agreement with the transferor as against the transferor subject to the terms of any agreement;

- He also acquires the right to notify the bailee who issued the document of the transfer;

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- Also a direct obligation of such bailee to hold possession of the goods for him according to the terms of the document.

D. Warranties of a person negotiating or transferring documents (Art. 1516)- He warrants that:

1. The document is genuine;2. He has a legal right to negotiate or transfer it;3. He has knowledge of no fact which would impair the

validity or worth of the document; and4. He has a right to transfer the title to the goods;5. The goods are merchantable or fit for a particular

purpose.

E. Rules on levy/garnishment of documents of title

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VIII. RIGHTS AND OBLIGATIONS OF THE VENDEE

A. Principal Obligation of Vendee (1582)- The vendee is bound to accept delivery and to pay the price of the

thing sold at the time and place stipulated in the contract.- If the time and place should not have been stipulated, the payment

must be made at the time and place of the delivery of the thing sold

Q: If the buyer received the goods delivered, does it mean that he already accepted?

A: No because receiving is preliminary to accepting. In fact, this is consistent to the right provided by law to the buyer which is the right of inspection or the right of examination. Thereafter, he may reject the goods if defective.

Q: When Is there obligation to pay?

A: (1) As stipulated(2) If there is no stipulation, it would be at the time and place of delivery.

1. No obligation to accept delivery by installments (Art. 1583)- This is the general rule.- Exception: unless otherwise agreed.

4. Modes of manifesting acceptance (Art. 1585)- When the buyer intimates to the seller that he has accepted them;- When the goods have been delivered to him and he does any act in

relation to them which is inconsistent with the ownership of the seller;

- When after the lapse of a reasonable time, he retains the goods without intimating to the seller that he has rejected them.

5. Effect of a wrongful refusal to accept (Art. 1588)- The title passes to the buyer from the moment they are placed at his

disposal.

6. Liability for interest (Art. 1589)- The vendee owes interest for the period between the delivery of the

thing and the payment of the price in the following cases:(1) If so stipulated;(2) If the thing sold and delivered produce fruits or income;(3) If he should be in default, from the time of judicial or

extrajudicial demand for the payment of the price.

B. Rights of Vendee

1. Right of inspection/examination (Art. 1584)- Where goods are delivered to the buyer, which he has not previously

examined, he is not deemed to have accepted them unless and until he has had reasonable opportunity of examining them for the purpose of ascertaining whether they are in conformity with the contract if there is no stipulation to the contrary.

General rule: When the seller tenders delivery of goods to the buyer, he is bound, on request, to afford the buyer a reasonable opportunity of examining the goods.

XPN: Unless otherwise agreed.

2. Acceptance not a bar to action for damages (Art. 1586)

XPN: In the absence of express or implied agreement of the parties.

XPN to the XPN: If after the acceptance of the goods, the buyer fails to give notice to the seller of the breach in any promise of warranty within a reasonable time after the buyer knows, or ought to know of such breach, the seller shall not be liable therefor.

3. No obligation to return goods wrongfully delivered (Art. 1587)

General rule: Where goods are delivered to the buyer, and he refuses to accept them, having the right so to do, he is not bound to return them to the seller.

XPN: Unless otherwise agreed.

Requirement: It is sufficient if he notifies the seller that he refuses to accept them.

Note: If he voluntarily constitutes himself a depositary, he shall be liable as such.

4. Right to suspend the payment of price (Art. 1590)

General rule: In the following cases:1. The vendee be disturbed in the possession or ownership of the

thing acquired2. The vendee has reasonable grounds to fear such disturbance by

vindicatory action or a foreclosure of mortgage.

XPN:

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1. The vendor gives security for the return of the price in a proper case; or

2. It has been stipulated that, notwithstanding any such contingency, the vendee shall be bound to make the payment.

Note: Mere act of trespass shall not authorize the suspension of the payment of the price.

5. When rescission of sale of real property may be made (Art. 1591-92)- When the vendor have reasonable grounds to fear the loss of

immovable property sold and its price.- If such ground did not exist, Art. 1191 shall be observed.

- The vendee may pay even after the expiration of the time agreed upon the rescission of the contract shall take place, as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act.

6. Rescission in case of sale of movable thing (Art. 1593)- 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.

-------------------------------------------Jurisprudence:G.R. No. 142310, 30 September 2004Arra Realty Corp., et. al. vs. Guarantee Dev’t. Corp.

Facts: Arra Realty Corporation (ARC) was the owner of a parcel of land. Through its president, the ARC decided to construct a five-story building on its property and engaged the services of Engineer Erlinda Peñaloza as project and structural engineer. In the process, Peñaloza and the ARC, agreed on November 18, 1982 that Peñaloza would share the purchase price of one floor of the building, payable within sixty (60) days and the balance payable in twenty (20) equal quarterly installments of P110,205. The parties further agreed that the payments of Peñaloza would be credited to her account in partial payment of her stock subscription in the ARC’s capital stock. Peñaloza took possession of the one-half portion of the second floor, where she put up her office and operated the St. Michael International Institute of Technology. Unknown to her, ARC had executed a real estate mortgage over the lot and the entire building in favor of the China Banking Corporation as security for a loan. Peñaloza paid for the portion of the second floor of the building she had purchased from the ARC. She learned that the property had been mortgaged to the China Banking Corporation sometime in July 1984. Thereafter, she stopped paying the installments due on the purchase price of the property. When the ARC failed to pay its loan to China Banking Corporation, the subject property was

foreclosed extrajudicially, and, thereafter, sold at public auction to China Banking Corporation. The ARC and the Guarantee Development Corporation and Insurance Agency (GDCIA) executed a deed of conditional sale covering the building and the lot. The petitioner executed a deed of absolute sale over the lot and building in favor of the GDCIA for P22,000,000. The ARC obliged itself under the deed to deliver possession of the property without any occupants therein.

Peñaloza filed a complaint against the ARC, the GDCIA, and the Spouses Arguelles, with the RTC of Makati. The trial court rendered judgment in favor of Peñaloza and the GDCIA, and against the ARC and the Spouses Arguelles. On appeal, the CA rendered judgment affirming with modification the appealed decision.

Issue: WON Peñaloza has the right to suspend payments.

Held: The Court ruled against the petitioners.The parties had agreed on the three elements of subject matter, price, and terms of payment. Hence, the contract of sale was perfected, it being consensual in nature, perfected by mere consent, which, in turn, was manifested the moment there was a meeting of the minds as to the offer and the acceptance thereof. The perfection of the sale is not negated by the fact that the property subject of the sale was not yet in existence. This is so because the ownership by the seller of the thing sold at the time of the perfection of the contract of sale is not an element of its perfection. A perfected contract of sale cannot be challenged on the ground of non-ownership on the part of the seller at the time of its perfection. What the law requires is that the seller has the right to transfer ownership at the time the thing is delivered. Perfection per se does not transfer ownership which occurs upon the actual or constructive delivery of the thing sold.

In May 1983, respondent Peñaloza took possession of a portion of the second floor of the building sold to her with an area of 552 square meters. She put up her office and operated the St. Michael International Institute of Technology. Thenceforth, respondent Peñaloza became the owner of the property, conformably to Article 1477 of the New Civil Code which reads:

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

In a contract of sale, until and unless the contract is resolved or rescinded in accordance with law, the vendor cannot recover the thing sold even if the vendee failed to pay in full the initial payment for the property. The failure of the buyer to pay the purchase price within the stipulated period does not by itself bar the transfer of ownership or possession of the property sold, nor ipso facto rescind the contract.37 Such failure will merely give the vendor the option to rescind the contract of sale judicially or by notarial demand as provided for by Article 1592 of the New Civil Code:

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

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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.

Admittedly, respondent Peñaloza failed to pay the downpayment on time. But then, the petitioner ARC accepted, without any objections, the delayed payments of the respondent; hence, as provided in Article 1235 of the New Civil Code, the obligation of the respondent is deemed complied with:

Art. 1235. When the obligee accepts the performance, knowing its incompleteness or irregularity, and without expressing any protest or objection, the obligation is deemed fully complied with.

The respondent cannot be blamed for suspending further remittances of payment to the petitioner ARC because when she pushed for the issuance of her title to the property after taking possession thereof, the ARC failed to comply. She was aghast when she discovered that in July 1984, even before she took possession of the property, the petitioner ARC had already mortgaged the lot and the building to the China Banking Corporation; when she offered to pay the balance of the purchase price of the property to enable her to secure her title thereon, the petitioner ARC ignored her offer. Under Article 1590 of the New Civil Code, a vendee may suspend the payment of the price of the property sold:

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.

ROBERTO Z. LAFORTEZA vs. ALONZO MACHUCAG.R. No. 137552. June 16, 2000 (333SCRA643)Third Division

Facts: On August 2, 1988, defendants Lea Zulueta-Laforteza and Michael Z. Laforteza both executed a Special Power of Attorney (SPA) in favor of defendants Roberto and Gonzalo Z. Laforteza, Jr., appointing both as her Attorney-in-fact authorizing them jointly to sell the subject property and sign any document for the settlement of the estate of the late Francisco Q. Laforteza.

Both agency instruments contained a provision that in any document or paper to exercise authority granted, the signature of both attorneys-in-fact must be affixed.

On October 27, 1988, defendant Dennis Z. Laforteza executed an SPA in favor of defendant Roberto Z. Laforteza for the purpose of selling the subject property. A year

later, Dennis Z. Laforteza executed another SPA in favor of defendants Roberto and Gonzalo Laforteza, Jr. naming both attorneys-in-fact for the purpose of selling the subject property and signing any document for the settlement of the estate of the late Francisco Q. Laforteza.

On January 20, 1989, the heirs of the late Francisco Q. Laforteza represented by Roberto Z. Laforteza and Gonzalo Z. Laforteza, Jr. entered into a Memorandum of Agreement (MOA[Contract to Sell]) with the plaintiff over the subject property for the sum of P630,000.00.

On January 20, 1989, plaintiff paid the earnest money of P30,000.00, plus rentals for the subject property.

On September 18, 1998 , defendant heirs, through their counsel wrote a letter to the plaintiff furnishing the latter a copy of the reconstituted title to the subject property, advising him that he had 30 days to produce the balance of P600,000.00 under the Memorandum of Agreement which plaintiff received on the same date.On October 18, 1989, plaintiff sent the defendant heirs a letter requesting for an extension of the 30 DAYS.

On November 15, 1989, plaintiff informed the defendant heirs, through defendant Roberto Z. Laforteza, that he already had the balance P600,000.00 covered by United Coconut Planters Bank Managers Check. However, the defendants, refused to accept the balance Defendant Roberto Z. Laforteza had told him that the subject property was no longer for sale.

On November 20, 1998, defendants informed the plaintiff that they were canceling the MOA in view of the plaintiffs failure to comply with his contractual obligations.Thereafter, plaintiff reiterated his request to tender payment of the balance. Defendants, however, insisted on the rescission of the MOA. Plaintiff filed the instant action for specific performance. The lower court rendered judgment in favor of the plaintiff.Petitioners appealed to the Court of Appeals, which affirmed with modification the decision of the lower court.

Motion for Reconsideration was denied but the Decision was modified so as to absolve Gonzalo Z. Laforteza, Jr. from liability for the payment of moral damages. Hence this petition.

Issues: W the Memorandum of Agreement is a mere contract to sell, as indicated in its title.

Ruling: CA decision is AFFIRMED and the instant petition is hereby DENIED.

A perusal of the MOA shows that the transaction between the petitioners and the respondent was one of sale and lease.

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A contract of sale is a consensual contract and is perfected at the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the price. From that moment the parties may reciprocally demand performance subject to the provisions of the law governing the form of contracts. The elements of a valid contract of sale under Article 1458 of the Civil Code are (1) consent or meeting of the minds; (2) determinate subject matter and (3) price certain in money or its equivalent.In the case at bench, there was a perfected agreement between the petitioners and the respondent whereby the petitioners obligated themselves to transfer the ownership of and deliver the house and lot and the respondent to pay the price amounting to P600,000.00. All the elements of a contract of sale were thus present. However, the balance of the purchase price was to be paid only upon the issuance of the new certificate of title in lieu of the one in the name of the late Francisco Laforteza and upon the execution of an extrajudicial settlement of his estate. Prior to the issuance of the "reconstituted" title, the respondent was already placed in possession of the house and lot as lessee thereof for six months at a monthly rate of P3,500.00.

The six-month period during which the respondent would be in possession of the property as lessee, was clearly not a period within which to exercise an option. An option is a contract granting a privilege to buy or sell within an agreed time and at a determined price. An option contract is a separate and distinct contract from that which the parties may enter into upon the consummation of the option. An option must be supported by consideration. An option contract is governed by the second paragraph of Article 1479 of the Civil Code.

“An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price."

In the present case, the six-month period merely delayed the demandability of the contract of sale and did not determine its perfection for after the expiration of the six-month period, there was an absolute obligation on the part of the petitioners and the respondent to comply with the terms of the sale.

Vda. De Mistica vs. Naguiat418 SCRA 73

Issue/ScopePotestative Condition under Art. 1182 in relation to Art. 1191 of Civil Code

FactsPredecessor-in-interest of Petitioner and herein Defendants entered into a contract to sell in which the latter prayed the initial payment and undertake to pay the remaining by installment within 10 years subject to 12% interest per annum

Petitioner filed a complaint for rescission alleging failure and refusal of Defendants to pay the balance constitutes a violation of the contract which entitles her to rescind the same

Petitioner argues that period for performance of obligation cannot be extended to 10 years because to do so would convert the obligation to purely potestative

Held

Under Art. 1191 of Civil Code, the right to rescind an obligation is predicated on violation between parties brought about by breach of faith by one of them. Rescission, however, is allowed only when the breach is substantial and fundamental to the fulfillment of the obligation

In this case, no substantial breach – in the Kasulatan, it was stipulated that payment could be made even after 10 years from execution of contract, provided they will pay the 12% interest

Civil Code prohibits purely potestative, suspensive, conditional obligation that depend on the whims of the debtor. Nowhere in the deed that payment of purchase price is dependent whether respondents want to pay it or not, the fact that they already made partial payment shows that parties intended to be bound by the Kasulatan

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IX. ACTIONS FOR BREACH OF CONTRACT OF SALE OF GOODS

A. Available remedies on the part of the seller:

1. Action for payment of price (NCC 1595)

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)

2. Action for damages in case of non-acceptance of goods (NCC 1596)

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)

3. Action for rescission of contract (NCC 1597)

Art 1597. Where the goods have not been delivered to the buyer, and the buyer has repudiated the contract of sale, or has manifested his inability to perform his obligations thereunder, or has committed a breach thereof, the seller may totally rescind the contract of sale by giving notice of his election so to do to the buyer. (n)

4. Unpaid Seller

a) Unpaid seller – if the whole price has not been paid or tendered, or when the check received as conditional payment was dishonored by non-payment or insolvency of the buyer

b) seller – includes the agent of the seller to whom the bill of lading was endorsed, or the consignor or agent who had paid the price or is responsible for the price, or any other person who is in the position of a seller.

a. Concept (NCC 1525)

Art 1525. The seller of goods is deemed to be an unpaid seller within the meaning of this Title:

(1) When the whole of the price has not been paid or tendered; (2) When a bill of exchange or other negotiable instrument has been received

as conditional payment, and the condition on which it was received has been broken by reason of the dishonor of the instrument, the insolvency of the buyer, or otherwise.

In Articles 1525 to 1535 the term "seller" includes an agent of the seller to whom the bill of lading has been indorsed, or a consignor or agent who has himself paid, or is directly responsible for the price, or any other person who is in the position of a seller. (n)

b. Remedies of an unpaid seller (NCC 1526-1535)

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.

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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)

a) If ownership over the goods had not yet passed to the buyer: the seller, as owner, could retain the goods or resell them to another, without prejudice to his liability for damages for any breach of contract committed by him.

b) If ownership had passed to the buyer but the goods are still in the possession of the seller or are in transit to the buyer: the unpaid seller could withhold delivery or stop the goods in transit should the buyer become insolvent. As a consequence of his lien over the goods, the unpaid seller could resell the goods to another or resume ownership over them, without court order, and may still used the buyer for damages

(1) Lien on the goods

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)

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)

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)

The unpaid seller’s lien implies that he has a right to retain possession of the goods until payment or tender of the whole price, unless he agreed to sell on credit.

If the unpaid seller agrees to sell on credit, he may refuse to deliver them if the buyer becomes insolvent, or if the term of the credit had expired and the price has not been paid.

Loss of lien : the unpaid seller losses his lien when: He delivers the goods to the carrier or other bailee, consigning them to the

buyer under a straight or non-negotiable bill of lading, or When the goods were delivered to the buyer, or When he waived his lien.

It is not lost on the remainder of the goods when only partial delivery was made, unless such was intended to operate as symbolical delivery of the whole. The lien is not lost by the mere fact that the seller had already obtained judgment for the price.

Revival of lien : the unpaid seller’s lien is revived if the goods are returned by the buyer in wrongful repudiation of the contract.

(2) Right of stoppage in transit

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)

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.

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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)

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)

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)

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)

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)

Old common law remedy which is an extension of the lien for the price and entitles the unpaid seller to resume possession of the goods while they are in transit before the goods come in possession of the vendee if the later is or becomes insolvent.

Goods are considered to be in transit from the time they are delivered to a carrier or other bailee by the seller for the purpose of transmission to the buyer, until the buyer or his agent takes delivery of them from the carrier. To terminate the transit by delivery to a middleman, it must be delivery to keep, not to transport.

Goods are still considered to be in transit even if they reached their ultimate destination when the buyer rejects them and they remain in the possession of the carrier.

Goods are no longer in transit if the buyer or his agent obtained delivery of the goods even before they reached their ultimate destination, or when the goods arrived at the ultimate destination but the carrier or other bailee wrongfully refuses to deliver the goods to the buyer or his agent, or when the carrier, upon arrival of the goods at the ultimate destination, enters into a new contract with the buyer or his agent.

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If there was partial delivery of the goods to the buyer, the remainder of the goods may be stopped in transitu, unless such part delivery has been made under such circumstances as to show an agreement with the buyer to give up possession of the whole. Where the buyer has taken some portion of the whole mass which was then susceptible of possession, there is constructive possession of the whole.

Sale of goods in transit : 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.

1) Where a negotiable document of title has been issued for the goods, no seller’s lien or right of stoppage in transitu cannot defeat the rights of any purchaser for value in good faith to whom such document has been negotiated.

2.) Where the document of title is a straight bill of lading, the seller’s right of stoppage will not be cut off as the transferee acquires no greater or added rights than his transferor.

Right of Stoppage; How Exercised-The unpaid seller may exercise his right by 1. obtaining actual possession of the goods or2. by giving notice of his claim to the carrier or other bailee in whose possession

the goods are.

When notice of stoppage in transit is given to the carrier, the latte must redeliver the goods to, or according to the directions of, the seller. If however, a negotiable document of title representing the goods has been issued by the carrier, the latter shall not be obliged to deliver the goods unless such document is first surrendered for cancellation.

(3) Right of resale



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.



When the goods are of perishable nature, or where the seller expressly reserves the right of resale in case the buyer should default in payment, or where the buyer has been in default for an unreasonable length of time, the unpaid seller, having a right of lien or having stopped the goods in transitu, may resell the goods and recover from the buyer damages for breach of contract.

The resale may be in a public or private sale, but the seller cannot buy them directly or indirectly. The seller is entitled to any profit he may make out of the resale.

In case he sells them at a loss, he is entitled to recover the difference from the original buyer. It is not essential to the validity of a resale that previous notice of an intention to resell or notice of the time and place or resale be given to the original buyer.

Damages recoverable : Whether the action is for damages or to recover loss from a resale, the purpose is to compensate the seller for loss for breach of contract. Thus, if the purchaser fails to take delivery and pay the price, the vendor, without need of first rescinding the contract judicially, is entitled to resell, and if obliged to sell for less than the contract price, the buyer is liable for the difference.

Due diligence must be exercised to secure the highest price obtainable in the best available market. The burden of showing it was exercised is on the vendor.

(4) Right to rescind8

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

8 MERCHANTS REFRIGERATING CORP v TITMAN: A rescission of the contract would

accomplish the following results: (1) termination of the original contract (2) return of the title to the undelivered portion of the goods to the seller (3) release of the buyer from his obligation to take and pay for the balance of the goods(4) the unpaid seller would be free to pursue its remedies on quantum meruit to recover

what it had delivered to the buyer (Merchants Refrigerating Co. v Benjamin Titman Corp)

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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 ownership in the goods where he expressly reserved the right to do so in case the buyer defaults, or where the buyer has been in default in payment of the price for an unreasonable time. The transfer of title shall not be held to have been rescinded by the unpaid seller until he manifests by notice to the buyer or by some overt act an intention to rescind. After rescinding the transfer of title, the seller may still recover damages from the buyer for breach of contract.

As used in Art. 1534, the term “rescind” is equivalent to return of the title over the undelivered goods to the seller and the right to recover damages for loss due to breach of contract.

B. Available remedies on the part of the buyer:

5. Action by buyer for specific performance (NCC 1598)

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)

6. Action by buyer for rescission or damages for breach of warranty (NCC 1599)

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)

Art 1571. Actions arising from the provisions of the preceding ten articles shall be barred after six months, from the delivery of the thing sold. (1490)

7. Rule in case of sale by description or by sample (NCC Article 1481)

Art 1481. In the contract of sale of goods by description or by sample, the contract may be rescinded if the bulk of the goods delivered do not correspond with the description or the sample, and if the contract be by sample as well as description, it is not sufficient that the bulk of goods correspond with the sample if they do not also correspond with the description.

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The buyer shall have a reasonable opportunity of comparing the bulk with the description or the sample. (n)

A. Recto Law (Sale of Movables on Installments) (NCC 1484-86; )9

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)10

9 LEVY v GERVACIO: CC Art 1454 is aimed at sales where the price is payable in several installments. A cash payment (in sales with two installments) cannot be considered as a payment in installments, and even if it can be so considered, still the law does not apply, for it requires nonpayment of two or more installments in order that its provisions may be invoked. In this case, only one installment was unpaid. 10

TAJANLANGIT v SOUTHERN MOTORS: It is true that there was a chattel mortgage on the goods sold, but Southern Motors elected to sue the note exclusively – to exact fulfillment of the obligation to pay. It had the right to select among the three remedies established in Art 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.

FILINVEST v CA: The remedies IN 1484 are alternative and not cumulative. Hence, the exercise of one bars the exercise of the others.

NONATO v IAC: The corporation is barred from exacting payment from Nonato of the balance of the price of the vehicle when it had already repossessed it.

CRUZ v FILIPINAS INVESTMENTS: The vendor of personal property sold on installment basis is precluded, after foreclosing the chattel mortgage on the thing sold, from having a recourse against the additional security put up by a third party to guarantee the purchaser’s performance of his obligation.

NORTHERN MOTORS v SAPINOSO: What Art 1484 (3) prohibits is “further action against the purchaser to recover any unpaid balance of the price;” and although this Court has construed the word “action” to mean “any judicial or extrajudicial proceeding by virtue of which the vendor may lawfully be enabled to exact recovery of the supposed unsatisfied balance of the purchase price from the purchaser or his privy,” there is no occasion at this stage to apply the restrictive provision of the said article because there has not yet been a foreclosure sale resulting in a deficiency. The payment of the sum of P1,250 of Sapinoso was a voluntary act on his part and did not result from a “further action” instituted by Northern Motors.

BORBON v SERVICE-WIDE SPECIALIST: When the seller assigns his credit to another person, the latter is likewise bound by the same law. Accordingly, when the assignee forecloses on the mortgage, there can be no further recovery of the deficiency, and the seller-mortgagee is deemed to have renounced any right thereto.

Art 1485. The preceding article shall be applied to contracts purporting to be leases of personal property with option to buy, when the lessor has deprived the lessee of the possession or enjoyment of the thing. (1454-A-a)

Art 1486. In the case referred to in two preceding articles, a stipulation that the installments or rents paid shall not be returned to the vendee or lessee shall be valid insofar as the same may not be unconscionable under the circumstances. (n)



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.



When the seller assigns his credit to another person, the latter may likewise avail of the remedies under Art 1484 (assuming case is one of sale of movables on installment). If the remedy chosen is rescission, a stipulation in the contract that the installments paid shall not be returned to the vendee is valid insofar as the same may not be unconscionable under the circumstances (Villanueva citing Delta Motor v. Niu Kim Duan, 213 SCRA 259)

Jurisprudence

Levi Hermanos, Inc. vs. Gervacio69 Phil 52

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Zayas vs. Luneta Motor Company117 SCRA 726

Borbon II vs. Servicewide Specialists, Inc.July 11, 1996

Bachrach Motor Co. vs. Millan61 Phil 409

Tajanlangit vs. Southern Motors, Inc.101 Phil 606

Cruz vs. Filipinas Investment & Finance Corp.23 SCRA 791

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X. RISK OF LOSS (NCC 1174, 1493-94; 1504, 1538, 1189)

A. General rule

Art. 1263. In an obligation to deliver a generic thing, the loss or destruction of anything of the same kind does not extinguish the obligation. (n)

Art. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which, though foreseen, were inevitable.

An obligation to deliver a generic thing is not extinguished by loss because genus never perishes.

NOTE that the next 3 situations contemplate loss of specific things

1. When loss occurs before perfectionWhen loss occurred before perfection, it is borne by the seller. This is because

ownership is still with him11.

2. When loss occurs at the time of perfection

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) 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)

If at the time the sale is perfected, the thing had been lost entirely, the contract shall be ineffective. This is because there can be no contract without an object.

The loss must have occurred before the contract was entered into, without the knowledge of both parties.

11 ROMAN V GRIMALT: The sale was not perfected as the buyer agreed to buy the vessel, provided that the title was in proper form. As the vendor failed to perfect his title, the loss was borne by him

Options of buyer when there is partial loss and a loss which results in substantial change in character

O Withdraw from the contractO Buy the remainder at a proportionate price

3. When loss occurs after perfection but before delivery

Art. 1496. The ownership of the thing sold is acquired by the vendee from the moment it is delivered to him in any of the ways specified in Articles 1497 to 1501, or in any other manner signifying an agreement that the possession is transferred from the vendor to the vendee. (n)

Art. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is transferred to the buyer, but when the ownership therein is transferred to the buyer the goods are at the buyer's risk whether actual delivery has been made or not, except that:

(1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance of the contract and the ownership in the goods has been retained by the seller merely to secure performance by the buyer of his obligations under the contract, the goods are at the buyer's risk from the time of such delivery;

(2) Where actual delivery has been delayed through the fault of either the buyer or seller the goods are at the risk of the party in fault. (n)

Art. 1406. When a contract is enforceable under the Statute of Frauds, and a public document is necessary for its registration in the Registry of Deeds, the parties may avail themselves of the right under Article 1357.

Art. 1189. When the conditions have been imposed with the intention of suspending the efficacy of an obligation to give, the following rules shall be observed in case of the improvement, loss or deterioration of the thing during the pendency of the condition:

(1) If the thing is lost without the fault of the debtor, the obligation shall be extinguished;

(2) If the thing is lost through the fault of the debtor, he shall be obliged to pay damages; it is understood that the thing is lost when it perishes, or goes out of commerce, or disappears in such a way that its existence is unknown or it cannot be recovered;

(3) When the thing deteriorates without the fault of the debtor, the impairment is to be borne by the creditor;

(4) If it deteriorates through the fault of the debtor, the creditor may choose between the rescission of the obligation and its fulfillment, with indemnity for damages in either case;

(5) If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the creditor;

(6) If it is improved at the expense of the debtor, he shall have no other right than that granted to the usufructuary. (1122)

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Art. 1538. In case of loss, deterioration or improvement of the thing before its delivery, the rules in Article 1189 shall be observed, the vendor being considered the debtor. (n)

When loss occurs after perfection but before delivery, the seller bears the risk of loss. The buyer does not bear the risk of loss until the goods are delivered, actually or constructively. This is because the rule is a combination of the common-law rule that the owner bears the risk of loss (res perit domino), and the Roman law requiring delivery to transfer ownership.

B. When ownership is transferred

GENERAL RULES: 1. The risk of loss shall be borne by the owner.2. Ownership is transferred upon delivery.

EXCEPTIONS: 1. Contrary stipulation12 2. Security title13

3. Delay through the fault of the buyer or the seller14 – at the risk of the party at fault

12 SUN BROS. APPLIANCES V PEREZ: The law allows an agreement which stipulates that (1) where goods are sold and delivered to the buyer, the title is to remain in the seller until full payment, [but] (2) the loss or destruction of the property while in the possession of the buyer before payment, does not relieve him from the obligation to pay the price; in which case, the buyer suffers the loss. The reasons for its validity are: First, the absolute and unconditional nature of the vendee’s promise to pay for the goods. Second, the vendor has fully performed his contract and the vendee received what he bargained for. Third, the policy of providing an incentive to care properly for the goods, which is under the control and dominion of the vendee.13 LAWYER’S COOP. V TABORA: Despite the loss of the books in a fire, the risk of loss would be borne by the buyer although he was not the owner yet. This is because the stipulation “ownership shall only be transferred upon full payment” was agreed merely to secure the performance by the buyer of his obligation. Moreover, in the contract, it was agreed that loss or damage to the books after delivery to the buyer shall be borne by the buyer.While under the rule, an obligor should be exempt from liability when the loss occurs in a fortuitous event, this cannot be used by the buyer as a defense to exempt himself from paying. His obligation does not pertain to the delivery of the subject matter, but to the payment of the purchase price. The ability to pay in money or legal tender is never lost through a fortuitous event.14 NORTH NEGROS SUGAR CO. V CIA. GEN DE TABACOS: If there was delay in accepting delivery but there was segregation of goods, such that place of delivery was at the seller’s warehouse, the buyer bears the risk of loss. This is because the seller becomes merely a depositary.

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XI. EXTINGUISHMENT OF SALE (NCC 1600)

A. Common CausesB. Special CausesC. Extra-special Causes

1. Conventional redemption (NCC 1601 to 1616; CASES: Catangcatang vs. Legayada, 84 SCRA 51; Villarica vs. Court of Appeals, 26 SCRA 189; Diamante vs. CA, 206 SCRA 52; Vda. De Urbano vs. GSIS, 367 SCRA 672; Legaspi vs. CA, 142 SCRA 82)

a. Definitionb. Distinguished from option to purchasec. Period of redemption (NCC 1606)d. Effect when no redemption is madee. Equitable mortgage (NCC, 1602-06; CASES: San Pedro vs.

Lee, et al. 28 May 2004; Ceballos vs. Intestate Estate of the late Emigdio Mercado, 28 May 2004; Balatero vs. IAC, 154 SCRA 530; Lacorte vs. CA, 286 SCRA 24; Camus vs. CA, 222 SCRA 612; Dapiton vs. CA, 272 SCRA 95)

f. Right of the parties to the fruits of the land (NCC 1617)g. Right of vendor a retro as to charges/encumbrances (NCC

1618)

2. Legal Redemption; concept and instances (NCC 1619-1623)

CASES: Alonzo vs. IAC,150 SCRA 259; Primary Structures Corporation vs. Sps. Valencia, GR No. 150060, August 19, 2003; Lee Chuy Realty Corporation vs. Court of Appeals, December 4, 1995)

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Sales - Lecture

Documents

donation sale

valid contract of sale

concepts contract of

formal contract sale

determinate thing

value of thing

important thing

price certain