COMPILATION REPORT IN

SALES
(CHAPTER 5 TO CHAPTER 16)

Saturday/ 5:00 7:00 pm

May 21, 2016

CHAPTER 5
FORMATION OF SALE
Reported by LARRY L. HANDAYAN and QURAISH S. ALI

Policitacion Stage is a stage where there is a freedom to contract, which signifies the
right to choose with whom to contract. In law on sales, an owner of property is free to
offer the subject property for sale to any interested person.

Advertisement and Invitation

Article 1325 of the Civil Code provides a not definite offer yet, but mere invitations to
make an offer.

Mere advertisements which contains a certain offer still a mere offer so long as it is
addressed to the general public.
Example buy & sell
OFFER:
The offerer has the right to attach to an offer any form or condition he desires and
may fix the time by place and manner of acceptance.
- Not separate and distinct parts
- Offerer has only the choice to accept or reject the offer in its entirety.
- Cannot choose disadvantageous ones and accept that which is beneficial only
- Counter offer is always considered in law as the rejection of the original offer and has
the effect of extinguishing the original offer.

Option Contracts

The second paragraph of Article 1479 of the Civil Code governing options,
provides that an accepted unilateral promise to buy or sell a determinate thing for a
price certain is binding upon the promisor if the promise is supported by a consideration
distinct from the price.
In connection therewith, Article 1324 of the Civil Code, which covers offers and
acceptance in general, provides that: when the offeror has allowed the offeree a
certain period to accept, the offer may be withdrawn at any time before acceptance by
communicating such withdrawal, except when the option is founded upon a
consideration, as something paid or promised.
Definition: It is simply a contract by which the owner of property agrees with
another person that he shall have the right to buy his property at a fixed price within a
certain time.
It is a preparatory contract in which one party grants to the other, for a fixed
period and under a specified condition, the power to decide whatever or not to enter into
a principal contract.

Separate and distinct to principal contract

Characteristics: It is also a consensual contract because the meeting of the minds as
to the subject matter and the price would also give rise to the option contract.

Obligations:
1) personal obligation not to offer to a third party the sale of the object of the option
during the option period.
2) the option not to withdraw the offer or option during option period.
3) obligation to hold the subject matter for sale to the offeree in the event that offeree
exercises his option during the option during the option period.
Elements of a Valid Option Contract:

a.) Consent meeting of minds

b.) Subject matter:

- determine object
- for a certain price, including the manner of payment
c.) Prestation A consideration separate and distinct for the purchase price for the
option given.

Meaning of Separate Consideration

- It is the why of the contracts, the essential reason which moves the contracting
parties to enter in the contract.
Period of Exercise of Option
Should be exercised within the option period if not exercised, it is extinguished
and cannot be deemed to have been included in the implied renewal of the lease.
- If it does not contain: CC 1144 provides for 10 years.
Proper exercise of option:
The option shall be exercised by a written notice to the lessor at any time during
or within the option period.
Rights of first refusal
It is a promise on the part of the owner that if he decides to sell the property in
the future, he would first negotiate it to the promissee.

Sublessee may not take advantage of Right of First Refusal of the lessee.
-

Sublessee is a stranger to the lessor who is bound to respect the right of first
refusal in favor of the lessee only.
Mutual promise to buy & sell.

Note: Actual demonstration of sale transactions and class discussions are not included
in this summary of report.

CHAPTER 6
PERFECTION OR CONSUMMATION OF SALE
Reported by KENT WILSON ANDALES and AL MAYO PAGLINAWAN

Rules On Preservation Of, Injury To Or Benefit From The Thing Sold Before Or
After Perfection

Duty of seller to preserve thing after perfection but before delivery (Art 1163)

Right of the buyer to the fruits (Art 1537, 1164)

Loss of or injury to the thing

Loss before perfection (including deterioration in quality)

Complete loss, sale is void.

Partial loss, buyer may;

Withdraw from the contract (rescission), and
Demanding the remaining part and paying its proportionate
price (Art 1493, 1494)

Rules On Preservation Of, Injury To Or Benefit From The Thing Sold Before Or
After Perfection
Loss after perfection

Buyer bears the risk of loss (Art 1480)

Seller bears the risk of loss (Art 1504)

Note: if the Seller bears the risk, it is consistent with the principle of re perit domino or
the loss of the property falls upon the owner
Sale By Sample;
Description And Sample Description
Sale by sample
Sale by description

 Sale by sample and description

#Rescission of the buyer; if the goods delivered do not correspond with the
sample, description or sample description, as the case may be, the buyer may ask for
the rescission of the of the sale (Art 1481)
Delivery or Tradition: Concept
Kinds of Delivery or Tradition

Actual or real delivery

Constructive or legal delivery

By legal formalities (Art 1498)
Symbolic delivery (traditio simbolica or traditio clavium) (Art 1498)
Traditio longa manu (Art 1499)
Traditio brevi manu (Art 1499)
Traditio constitutum possessorium (Art 1500)

Delivery by incorporeal
By constructive tradition
Placing the titles of ownership in the possession of the vendee
Use by the vendee of his rights, with the consent of the vendor (Art 1501)

Sale Or Return And Sale On Approval Or On Trial Or Satisfaction

Sale or Return

Ownership passes upon

delivery

Risk of loss is on the buyer

The buyer may return the

goods even he is satisfied of
its quality

Example #1

Sale on Approval

Ownership
passes
upon
his
acceptance or expiration of the time
given to him

Risk of loss on the seller

The buyer has no right to return the

goods if he is satisfied of its quality

On May 2, S delivered an electronic calculator to B under a sale or return

arrangement. S gave B up to May 7 to return the electronic calculator. On delivery, B
became the owner of the calculator. If on or before May 7, B does not return the
calculator, the sale to him will become absolute. If B returns the calculator on or before
May 7, ownership thereof is revested in S.
Supposed that before B could return the calculator, the same is destroyed in a
fires, must B still pay its price? Yes, because upon delivery he becomes the owner, so
he bears the loss, the same rule applies if it was due to his fault.
Example #2
On June 3, S delivered a computer to B under a sale on approval arrangement.
S gave B up to June 10 to try the computer and decide to purchase it if it proves
satisfactory. If the computer proves satisfactory after trial by B and B signifies his
approval to S, the ownership of the computer is passed on to B upon his communication
of his approval to S. If B does not signify his approval but retains possession even after
June 10, it is likewise passed on to him.
Supposed that before the given time to B has expired and B has not yet signified
his approval to S, the computer id destroyed in a fire, will B obliged to pay the price?
No, the risk of loss is with S who retained ownership despite its delivery to B. However,
if the cause of loss was due to his fault, he must pay its price.
Double Sale
General Rule: First in time, priority in right (Primus Tempore, Potior Jure)
Application of the General Rule: When NOT all requisites embodied in
Art. 1544 concur
Requisites:

(a) The two (or more) sales transactions must constitute valid
Sales;

(b) The two (or more) sales transactions must pertain to exactly the
same Subject Matter;

(c) The two (or more) Buyers at odds over the rightful ownership
of the Subject Matter must each represent conflicting interests;
and

(d) The two (or more) Buyers at odds over the rightful ownership of
the Subject Matter must each have bought from the very same
Seller

The two (or more) sales transactions must constitute valid Sales:
1544 does not apply where:

There is only one valid sale, while the other sale over the same
property is void

Where one of the contract is a contract to sell

Valid sales transactions, and buyers must be at odds over
the rightful ownership of the subject matter who must have
bought from the same seller, are lacking in a contract to sell
for neither a transfer of ownership nor sales transaction has
been consummated, and such contract is binding only upon
the fulfillment or non-fulfillment of the event

(b) The two (or more) sales transactions must pertain to exactly the same Subject
Matter

Does not apply where there was a sale to one party of the land itself while the
other contract was a mere promise to sell the land or at most an actual
assignment of the rights to repurchase the land because the subject of the
second sale is not the land itself, but the right to redeem

(d) The two (or more) Buyers at odds over the rightful ownership of the Subject Matter
must each have bought from the very same Seller

Does not apply where there same thing is sold to different vendees
by different vendors, or even to the same buyer but by different
sellers

Does not apply where the sales involved were initiated not by just one vendor but
by several successive vendors

Rules according to Art. 1544

1. As to Movables:

First to possess, in good faith

Oldest title, in good faith

Then: First in time, priority in rights

2. As to Immovables:

First to register, in good faith

No inscription, first to possess, in good faith

No inscription & no possession in good faith - Oldest title, in good

faith

Then: First in time, priority in rights

Registration

Any entry made in the books in the registry, including both registration in its
ordinary and strict sense, and cancellation, annotation, and even marginal notes.
It is the entry made in the registry which records solemnly and permanently the
right of ownership and other real rights

1. If immovable is registered under the Torrens system

3.

Art. 1544 applies

If immovable is not registered under the Torrens system

Art. 1544 does not apply

Under Act No. 3344, registration of documents affecting

unregistered land is without prejudice to a third party with a better
right. The mere registration of a sale in ones favor does not give
him any right over the land if the vendor was not anymore the
owner of the land, having previously sold the same to somebody
else, even if the earlier sale was unrecorded

If the first sale occurs when the land is not yet registered
and
second sale is done when the said land is already
registered

4.

Apply First in Time, Priority in Right

Registration by the first buyer under Act 3344 can have the effect of
constructive notice to the second buyer that can defeat his right as such
buyer

Who is a buyer in good faith?

In the determination of whether or not a buyer is in good faith, the point in time to
be considered is the moment when the parties actually entered into the contract
of sale.

a) Must Have Paid Price in Full a buyer in good faith is one who buys property
without notice that some other person has a right to, or interest in, such property
and pays a full and fair price for the same at the time of such purchase, or before
he has notice of the claim or interest of some other person in the property
Under Art. 1544, mere registration is not enough to acquire a new title.
Good faith must concur. Clearly, when the buyer has not yet fully paid the
purchase price, and as long as seller remains unpaid, the buyer cannot
feign good faith.
b) Burden of proof The burden of proving the status of a purchaser in good faith
lies upon him who asserts that status. It is not sufficient to invoke the ordinary
presumption of good faith, that is, that everyone is presumed to have acted in
good faith, since the good faith that is here essential is integral with the very
status that must be established
It is axiomatic that good faith is always presumed in the absence of any
direct evidence of bad faith.
Obligations of Buyer
1. Pay the Price (Art. 1582)

Buyer is obligated to pay the price at the time and place

stipulated in the contract

Mere sending of a letter by the buyer expressing his

intention to pay without the accompanying payment is not
considered a valid tender of payment

Unless the parties have agreed to the payment of the price

to any other party, then its payment to be effective must be
made to the seller in accordance with Art. 1240 of the Civil
Code

Payment shall be made to the person in whose favor

the obligation has been constituted or his successor
in interest, or any person authorized to receive.

The buyer is also obliged to pay interest for the period

between delivery of the subject matter and the payment of
the price when:
(a) the same has been stipulated;
(b) should object delivered produce fruits or income;
or
(c) in case the buyer is in default, from the time of
judicial or extra-judicial demand

Non payment of the consideration in the sale does not prove

simulation; at most, it gives the seller the right to sue for
collection

Generally, in a sale, payment of the price is a resolutory

condition and the remedy of the seller is to:

Exact fulfillment; or

In a case of substantial breach, to rescind the contract

under Art. 1191 of the Civil Code

2. Accept Delivery of the Thing Bought (Art. 1582-1585)

The buyer is bound to accept delivery of the thing bought 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

In case of goods, the buyer is deemed to have

accepted the goods when:

He intimates to the seller that he has accepted

them; or

When the goods have been delivered to him,

and he does any act in relation to them which
is inconsistent with the ownership of the seller;
or

When after a lapse of a reasonable time, he

retains the goods without intimating to the
seller that he has rejected them.

A. Opportunity to Inspect Goods

Where goods are delivered to the buyer, which he has not

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

Exception: C.O.D. Sales

B.

Where the goods are delivered to a carrier in

accordance with an order from or agreement with the
buyer, upon the terms that the goods shall not be
delivered by the carrier to the buyer until he has paid
the price, whether such terms are indicated by
marking the goods with words collect on delivery, or
otherwise, the buyer is not entitled to examine the
goods before the payment of the price, in the absence
of agreement or usage of trade permitting such
examination.

Goods Sold on Installments

Unless otherwise agreed, the buyer of goods is not bound

to accept delivery thereof by installments

C.Effect of Acceptance of Goods on Sellers Warranty

D.

In the absence of an argument to the contrary, acceptance of

the goods by the buyer shall not discharge the seller from
liability in damages or other legal remedy for breach of
promise or warranty in the sale.

But, if after acceptance of the goods, the buyer fail to give

notice to the seller of breach in any promise or warranty
within a reasonable time after the buyer knows, or ought to
know of such breach, the seller is excused.

Refusal to Accept Goods

Unless otherwise agreed, where goods are delivered to the

buyer, and he refuses to accept them, having the right to do
so, he is not bound to return to the seller, and it is sufficient
that he notifies the seller of his refusal. If he voluntarily
constitutes himself as a depository, he shall be liable as
such.

On the other hand, in the absence of stipulation, when the buyers refusal to accept the
goods is without just cause, the title thereto passes to him from the moment they are
placed at his disposal.

Republic Act No. 6552 (MACEDA LAW)

The Realty Installment Buyer Act
Reported by GINO LEOCADIO

History
1971 elections three Senators were elected from the Nacionalista Party under the
slate of President Ferdinand E. Marcos
1972 Martial Law was declared and Marcos abolished the Senate creating the
unicameral BatasangPambansa
Between those two years, only one bill was signed into law Republic Act No. 6552.
Authored by Senator Ernesto Maceda, AN ACT TO PROVIDE PROTECTION TO
BUYERS OF REAL ESTATE ON INSTALLMENT PAYMENTS was approved on 26
August 1972.

R.A. 6552 governs sales of real estate on installments. It recognizes the vendor's
right to cancel such contracts upon failure of the vendee to comply with the terms
of the sale, but imposes, chiefly for the latter's protection, certain conditions
thereon.

- Layug vs. Intermidiate Appellate Court and Rodrigo Gabuya, G.R. No. 75364, 1988

Salient Features

Section 2. It is hereby declared a public policy to protect buyers of real estate on

installment payments against onerous and oppressive conditions.

For sales installments of which have been paid for at least two years:

Section 3. In all transactions or contracts involving the sale or financing of real

estate on installment payments, including residential condominium apartments
but excluding industrial lots, commercial buildings and sales to tenants under
Republic Act Numbered Thirty-eight hundred forty-four, as amended by Republic
Act Numbered Sixty-three hundred eighty-nine, where the buyer has paid at least

two years of installments, the buyer is entitled to the following rights in case he
defaults in the payment of succeeding installments:

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

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

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

the computation of the total number of installment payments made.

Where installment payments have been made for less than two years:

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

If the buyer fails to pay the installments due at the expiration of the grace period,
the seller may cancel the contract after thirty days from receipt by the
buyer of the notice of cancellation or the demand for rescission of the
contract by a notarial act.

Buyers right to sell his rights:

Section 5. Under Section 3 and 4, the buyer shall have the right to sell his
rights or assign the same to another person or to reinstate the contract by
updating the account during the grace period and before actual cancellation
of the contract. The deed of sale or assignment shall be done by notarial act.

Buyers right to pay in advance any installment or full unpaid balance:

Section 6. The buyer shall have the right to pay in advance any installment or the
full unpaid balance of the purchase price any time without interest and to have
such full payment of the purchase price annotated in the certificate of title
covering the property.

Protection from contractual obligations and stipulations contrary to the provisions:

Section 7. Any stipulation in any contract hereafter entered into contrary to the
provisions of Sections 3, 4, 5 and 6, shall be null and void.

CHAPTER 7
DOCUMENTS OF TITLE
Reported by JIEHAN DIAGAO and JAY ANN DIVINAGRACIA

Documents of title of goods

Includes any bill of lading, dock warrant, quedan or warehouse receipt or order for the
delivery of goods, or any other 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.
Functions of Documents of Title

As evidence of possession or control of the goods described therein

As a medium of transferring title and possession over the goods described

therein, without having to effect actual delivery thereof

Governing Laws

The Civil Code of the Philippines

Articles 1507 to 1520, 1532 (2nd par.), 1535
(2nd par.) and 1749.

Warehouse Receipt Law

The Code of Commerce bills of lading issued by common carriers

Rationale

Merchants should be allowed to transact with goods and merchandise without

having to physically carry them around, and that buyers should be assured that
they may deal with the evidence thereof with the same effect as though they
could feel the merchandise themselves.

Types of Documents of Title

1. Negotiable Document of Title
- A document of title in which it is stated that the goods referred to therein are
deliverable to bearer. or to order of any person named in such document.
2. Non-negotiable Document of Title
A document of title which does not state that the goods referred to therein
are deliverable either to bearer or to the order of any person named therein.
Effect of errors

Clerical Errors

Wrongful designation

Does not destroy the negotiability of a document of title

Effects of use of Non-negotiable terms on the Documents of Title

If a document of title which contains the undertaking by a carrier, warehouseman,

or other bailee to deliver the goods to bearer or specified persons, which
contains the words of like import, has placed upon it the words nonnegotiable or not negotiable, such document may nevertheless be
negotiated by the holder.

Who can negotiate?

1. The owner thereof; or
2. Any person to whom the possession or custody of the document has been
entrusted by the owner,
a) if, bailee undertakes to deliver the goods to the order of the person
b) if document is in such form that it may be negotiated by delivery.
How Negotiation Properly Effected?
1) Delivery Alone
2) By Endorsement and Delivery

A negotiable document of title may be negotiated only by the endorsement

of the person to whose order the goods are by the terms of the document deliverable,
coupled with a delivery thereof.
Effects of Proper Negotiation
1. Such title to the goods as the person negotiating the document to him had or had
ability to convey to a purchaser in good faith and for value;
2. Such title to the goods as the person to whose order the goods were to be
delivered by the terms of the document had or had ability to convey to a
purchaser in good faith and for value; and
3. 3. The direct obligation of the bailee issuing the document to hold possession of
the goods for him according to the terms of the document as fully as if such
bailee had contracted directly with him.
When Document of Title not properly negotiated

Under Article 1511

-A negotiable document of title which is not in such form that it can be

negotiated by delivery, may be transferred by the holder by delivery to a purchaser or
donee

Under Article 1514

-Persons to whom a document has been transferred, but not negotiated,

acquires thereby as against the transferor, the tile to the goods, subject to the terms of
any agreement with the transferor.

Under article 1515

-Where a negotiable document of title is transferred for value by delivery,

and the endorsement of the transferor is essential for negotiation, the transferee
acquires a right against the transferor to compel him to endorse the document unless a
contrary intention appears.
Unauthorized Negotiation
The validity of the negotiation of a negotiable document of title is not impaired if:
a) That the negotiation was a breach of duty on the part of the person making the
negotiation

b) That the owner of the document was deprived of the possession of the same by
loss, fraud, theft, conversion, accident, mistake or duress.
Assignment of Non-negotiable Document of Title
1. How Assignment Made

A non-negotiable document cannot be negotiated and the endorsement of such a

document gives the transferee no additional right (Art. 1511, Civil Code)

A non- negotiable document constitutes an incorporeal rights, its sale constitutes

an assignment which under Art. 1624 is perfected by mere consent, but which
under Art. 1625 would require its appearance in a public instrument, otherwise it
shall produce no effect as against 3rd persons.

2. Effects of Transfer by Assignment

In the assignment of a non negotiable document of title, there is no legal

relationship between the assignee and the bailee until the latter in informed by
the former of the assignment of the covering document of title.

The assignee merely steps into the shoes of his immediate assignor.

Example

A document of title contained the words deliver to Mr. X.

a.) May it be negotiated?

b.) Supposed it is indorsed by Mr. X, may it be negotiated?
Answer

It is non- negotiable

a.) No, but it may be transferred

b.) The indorsement is useless and does not give the indorsee any additional right.
There is in this case only a transfer or assignment.
Warranties of Seller of Document of Title
(Art. 1516)
a. The document is genuine

b. He has a legal right to negotiate or transfer it

c. He has no knowledge of any fact which would impair the validity or worth of the
document
d. He has a right to transfer the title to the goods
e. The goods are merchantable or fit for a particular purpose, whenever such
warranties would have been implied if the contract of the parties had been to
transfer without a document of title the goods represented thereby

Effects When Owner of the Documents of Title has No legal Title to the Goods
1) When goods covered by non-negotiable document.

Where the owner had neither lost nor been unlawfully deprived of the goods, the
assignee-buyers title to the goods is preferred even against the owner who can
no longer recover the goods;

If the owner had lost or been unlawfully deprived of the goods, the owner may
recover against the assignee-buyer, even when the latter is in good faith and
bought for value;

2. When goods covered by negotiable document.

By issuing such negotiable document the bailee has constituted himself as an
agent to possess the goods for the benefit of the holder of the document as his
principal, then it becomes apparent that the same principles under Art. 559 would have
to apply.
Rules of Levy/Garnishment of Goods

Even executed in a public instrument- does not transfer possession or title over
the goods covered by the document of title, until actual notification is made to the
bailee of the transfer or assignment of the goods, actions can be taken by the
original owner to defeat the transfer of the title and/or possession of the goods

The possession of the document itself is equivalent to the holder having actual
ownership and possession of the goods covered thereby.

The goods are treated inseparable from the negotiable document of title covering them,
and vice- versa.

CHAPTER 8
SALE BY NON-OWNER OR BY ONE HAVING VOIDABLE TITLE
Reported by JERIC FLORES

When Seller is not Owner of the Subject Matter

At Perfection

-Sale is consensual in nature since it is perfected or comes into legal being by

mere consent and not by performance of an act, such delivery in real contracts, nor
does it require the payment of price for its validity
-Consent or perfection of the sale is manifested by meeting of the offer and the
acceptance of three items

1) Subject Matter

2) Price

3) terms of payment of the price

Note:

- Ownership of the subject matter by the seller at the time of perfection is not essential
requirement for the validity of the sale.
At Consummation

Article 1505 of the Civil Code provides that where goods are sold by a person
who is not the owner thereof, and who does not sell them under authority or with
the consent of the owner, the buyer acquires no better title to the goods than the
seller had

The article does not say that the sale of goods by non-owner renders the contract
void, it only describes the consequences when delivery under a sale is effected
when the seller is not the owner of the thing delivered

As the Supreme Court held

It is a well-settled principle in law that no one can give what one does not have
Sale by Co-Owner of the Whole Property or Definite Portion Thereof

The rule in co-ownership is that one of the co-owners may claim any right, title or
interest to a particular portion of the thing owned in common.

A co-owner has no right to sell a divided part of the real estate. Although he is the
owner of an undivided half of a tract of land, he has a right to sell and convey an
undivided half, but he has no right to divide the lot into two parts.

Exceptions to Rule on Effect of Sale of Definite Portion by Co-Owner

General Rule

The effect of the sale of the entire property owned in common by one of the coowners, to be void as a sale of the whole property or any definite portion thereof,
but valid as to the co-owner sellers spiritual share, is subject to a number of
exceptions

Exceptions
(1) It does not apply to a situation where the subject matter is indivisible in nature or
by intent
Mindanao Academy, Inc. vs. yap
- One of the co-owners sold the school and its properties owned in common with other
co-owners, the Court held that the sale of the entire property owned in common by one
of the co-owners was void, and could not even be binding as to the spiritual share of the
seller since the prestation ivolved in the sale was indivisible, therefore incapable of
partial annulment.

(2) when a sale of particular portion of the thing owned in common is with the
consent of the other co-owners, the legal effect is different

Pamplona vs. Moreto

-The Court held that when there has been no express partition of the subject matter
owned in common, but the co-owners who sells points out to his buyers boundaries of

the part he was selling, and the other co-owners make no objection, there is in effect
already a partial partition, and the sale of the definite portion can no longer be assailed
by the other co-owners

(3) Co-owner who sells one of the lands owned in common with another coowner, and does not turn-over one-half of the proceeds of the sale to the other
co-owner, the latter by law and equity may lay exclusive claim to the remaining
parcel of land.

(4) Binding effect of registration under the Torrens System.

Cruz vs. Leis

- The Court held that although a co-owner may validly sell only her co-ownership
interest, and that the sale of the entire property or of a particular portion thereof is void,
nevertheless, when Torrens title to the conjugal property indicates that the wife is the
only owner thereof being described as a widow, then one who buys such property
from the wife in good faith and for value, will acquire valid title thereto.
Exception to Rules on Legal Effects of Sale by a Non-Owner
When real owner estopped

When a person who is not the owner of a thing sells or alienates title thereto,
such title passes by operation of law to the buyer or grantee.

Bucton v. Gabar
*where the seller sold a parcel of land to the buyer at the time the seller was not yet the
owner of the land sold, the acquisition after one year by the seller of said ownership of
said land was automatically transferred to the buyer, and the seller was estopped from
questioning the title of his buyer.
Recording Law

Except on the effect of registration of chattel mortgage and its subsequent

foreclosure and sale at public auction, and the jurisprudential rules that have
come to govern the hierarchy of claims on shares of stock of a corporation, there
are at present no other recording laws pertaining to movables that provide the
same principle as registration as the operative act principle applicable to
registered land under the Property Registration Decree.

Statutory Power; Judicial Sale

Judgments of courts divesting the registered owner of title and vesting them in the other
party are valid although the courts may not be the owner of the land. Also, the sale by a
sheriff of land levied upon at public auction would validly transfer ownership to the
highest bidder
Sale of Merchant Store

Article 1505 of the Civil Code

- A person who buys a thing at a merchants store after the same has been put on
display thereat, acquires a valid title to the thing although his predecessors in interest
did not have any right of ownership over it.
Sale by a Seller Who has Voidable Title on the Subject Matter Sold
- Article 1506 Where the seller of goods has a voidable title thereto, but his title has not
been avoided at the time of sale, the buyer acquires a good title to the goods, provided
he buys them in good faith, for value, and without notice of the sellers defect of title.

CHAPTER 9
LOSS AND DETERIORATION, FRUITS AND OTHER BENEFITS
Reported by MARC ANGELO BANTUG and ADONIS CENTENO

1) The thing is lost before perfection

Seller bears the loss
o It should be the owner of the subject matter of the sale that should
bear the risk of loss; but they maintained the civil law principle that
ownership can only be transferred by delivery.
2) The thing is lost at the time of perfection
Thing is lost at the time of perfection: Contract is void and inexistent
Thing only partially lost: Vendee may elect between withdrawing from the
contract or demanding the remaining part, paying its proportionate price
(Art. 1493)
If the thing should have been lost in part only, the buyer may choose
between withdrawing from the contract and demanding the remaining part,
paying its price in proportion to the total sum agreed upon.
In sale of specic goods, and without the knowledge of the seller, the
goods have perished in part or have wholly or materially deteriorated in
quality as to be substantially changed in character, the buyer may treat the
sale as either avoided, or as valid in all of the existing goods or in so much
thereof as have not deteriorated, and as binding the buyer to pay the
agreed price for the goods in which the ownership will pass, if the sale
was divisible.
3) The thing sold is lost after perfection, but before delivery:
GENERAL RULE: Who bears the risk of loss is governed by the
stipulations in the contract.
IN THE ABSENCE OF ANY STIPULATION:
o First View: Buyer bears the loss as an exception to the rule of res
perit domino.

 Note: Considered to be the better view since the vendee

stands to benefit in case of improvements, fruits, accessions,
and accessories as provided under Art. 1538 in relation to
Art. 1189, NCC.
Exceptions:
a. When the object sold consists of fungible goods for a
price fixed according to weight, number, or measure.
If no delivery yet, the seller bears the loss, unless the
buyer is in mora accipiendi
b. Seller is guilty of fraud, negligence, default, or
violation of contractual terms
c. Object is generic
o Second View: Where the ownership is transferred by delivery, the
application of axiom res perit domino, imposes the risk of loss upon
the vendor; hence, if the thing is lost by fortuitous event before
delivery, the vendor suffers the loss and cannot recover the price
from the vendee
4) The thing is lost after delivery:
Buyer bears the loss
CASE:
Pedro Roman vs. Andres Grimalt
G.R. L-2412 April 11, 1906
Facts:
The Parties verbally agreed upon a sale of a schooner for a sum P1500.00 payable in 3
installments, but subject to the condition that the seller must clear the title to the vessel,
before the buyer would commit to buy at the agreed price. The seller then went about
clearing his title to the schooner and prepared it for delivery to the buyer. But before
delivery to the buyer could be done, the schooner sunk during a severe storm. The
seller(Roman) demanded for the payment of the purchase price as agreed upon on the
ground that: The sale was already perfected and binding as between vendor and
vendee when they have agreed as to the thing which is the object of the contract and as
to the price, even though neither has been actually delivered.
Issue:
Whether or not the contention of Roman was correct?
Held:

The court held that the facts clearly show that no sale had been perfected, and
therefore the loss of the vessel must be borne by its owner and not by a party who only
intended to purchase it.The Court to support this, stated that ownership is not
considered transmitted until the property is actually delivered and the purchaser has
taken possession of the same and paid the price agreed upon, in which case the sale is
considered perfected. Although the Court used the word perfected,such a statement of
course belied the consensual nature of the contract of sale, perfected by mere consent
without need of delivery. Hence, Romans contention is untenable
Norkis Distributors Inc. vs. Court of Appeals, and Nepales
193 SCRA 694
February 1991
FACTS:
On September 20, 1979, private respondent Alberto Nepales bought from the Norkis
Distributors, Inc. (Norkis) in its Bacolod branch a brand new Yamaha Wonderbike
motorcycle Model YL2DX with Engine No.L2-329401K Frame No.NL2-0329401, color
maroon, which was then on display in the Norkis showroom. The Branch Manager
AvelinoLabajo agreed to accept the P7,500.00 price payable by means of a Letter of
Guaranty from the Development Bank of the Philippines (DBP), Kabankalan. Hence,
credit was extended to Nepales, and as security for the loan, he executed a chattel
mortgage on the motorcycle in favor of DBP. Labajo issued the Norkis Sales Invoice No.
0120 perfecting the contract of sale, and Nepales signed the same to conform to the
terms of the sale, while the unit remained in Norkis' possession. On November 6, 1979,
it was registered under Alberto Nepales name in the Land Transportation Commission.
On January 22, 1980, the motorcycle was delivered to a certain Julian Nepales who
was allegedly the agent of Alberto Nepales but the latter denies it. The record shows,
however, that Alberto and Julian Nepales presented the unit to DBP's AppraiserInvestigator Ernesto Arriesta at the DBP offices in Kabankalan, Negros Occidental
Branch. On February 3, 1980, the motorcycle met an accident at Binalbagan, Negros
Occidental while being driven by a certain ZacariasPayba. The unit was a total wreck,
was returned, and stored inside Norkis' warehouse.
On March 20, 1980, DBP released the proceeds of private respondent's motorcycle loan
to Norkis in the total sum of P7,500. As the price of the motorcycle later increased to
P7,828 in March, 1980, Nepales paid the difference of P328 and demanded the delivery
of the motorcycle. Norkis failed to deliver the unit, and Nepales filed an action for
specific performance with damages in the RTC of Himamaylan, Negros Occidental.
Norkis answered that the motorcycle had already been delivered to private respondent
before the accident, hence, he should bear the risk of loss or damage as owner of the
unit. The lower court ruled in favor of Nepales, and the Court of Appeals affirmed the
decision but deleted the award of damages "in the amount of P50.00 a day from
February 3, 1980 until payment of the present value of the damaged vehicle." Norkis
concedes that there was no "actual" delivery of the vehicle, but insists that there was

constructive delivery of the unit upon the issuance of the sales invoice, upon the
registration of the unit in Nepales name, and upon the issuance of the official receipt.
ISSUE:
Who should bear the risk of loss?
COURT RULING:
Affirming the decision of the Court of Appeals, the Supreme Court reiterated that Article
1496 of the Civil Code which provides that "in the absence of an express assumption of
risk by the buyer, the things sold remain at seller's risk until the ownership thereof is
transferred to the buyer," is applicable in the case at bar for there was neither an actual
nor constructive delivery of the thing sold.
The Court of Appeals correctly ruled that the purpose of the execution of the sales
invoice dated September 20, 1979 and the registration of the vehicle in the name of
Alberto Nepales with the Land Transportation Commission. was not to transfer the
ownership and dominion over the motorcycle to him, but only to comply with the
requirements of the DBP for processing private respondent's motorcycle loan. The
circumstances in the case itself more than amply rebut the disputable presumption of
delivery upon which Norkis anchors its defense to Nepales' action.

CHAPTER 10
REMEDIES OF PARTIES
Reported by ZAZ AGELI QUIAMCO and KARIZSA HATAB

CHAPTER 11
REMEDIES OF RESSCISSION AND
CANCELLATION FOR IMMOVABLES:
CONTRACT OF SALE VERSUS CONTRACT TO SELL
Reported by AYA ARCE and EUNICE DEL ROSARIO

ARTICLES 1381-1389
Basis
Nature
Applicabl
e
Principles

Prescripti
ve Period

Economic damage / lesion

Subsidiary
- Return the thing + fruits +
price with interest
- Rescission can be carried
out only when he who
demands rescission can
return whatever he may be
obliged to restore
Four years (Art. 1389)

ARTICLE 1191
Substantial breach of contract
Principal
- Return the thing + fruits +
price with interest
- Rescission can be carried
out only when he who
demands rescission can
return whatever he may be
obliged to restore
Ten years (written contract)

WHAT IS NOT COVERED?

-

Rescissible contracts defined in Articles 1381-1389 of the Civil Code

Basis: Economic damages (lesion)
Nature: Subsidiary; cannot be instituted except when the party
suffering damage has no other legal means to obtain reparation for the
damage sustained

WHAT IS COVERED?
-

Article 1191 of the Civil Code

Article 1592 of the Civil Code, regarding rescission in case of sales of
immovable properties on installments
Applies even when there is no stipulation on automatic rescission
Maceda Law
PD No. 957, Section 23

WHAT IS RESCISSION/RESOLUTION?
-

A.

B.

To rescind is to declare a contract void at its inception and to put on

end to it as though it never was; it is not merely to terminate the
contract and release the parties from further obligations to each other,
but to abrogate it from the beginning and to restore the parties to their
relative positions as if no contract had been made.
It is predicated on breach of faith by the other party that violates the
reciprocity between them; the breach contemplated here is the
obligors failure to comply with an obligation already extant, and does
not cover the failure of a condition to render binding that obligation

It must be based on substantial breach

Based on Article 1234: If the obligation has been substantially
performed in good faith, the obligor may recover as though there has
been a strict and complete fulfillment, less damages suffered by the
obligee.
Courts have the power to fix a period to allow the defaulting party an
opportunity to comply with the obligation, especially when the breach
constitutes mere negligence (culpa), as distinguished from fraud or
malice (dolo)

The primary consequence of an effective

exercise of the remedy of rescission or resolution
would be mutual restitution, but it may be
stipulated against and that stipulation would be
enforceable to the reasonable extent

A provision regarding the forfeiture of amounts paid in a contract of

sale is valid being in the nature of a penal clause, and within the ambit
of the freedom of the parties to stipulate

C.The power to rescind is given only to the injured

party

D.

Because rescission is predicated on a breach of faith by the other party

that violates the reciprocity between them
Mutual restitution is required to bring back the parties to their original
situation prior to the inception of the contract; thus, rescission can
only be carried out when the one who demands rescission can return
whatever he may have obliged to restore

GENERAL RULE: Rescission is judicial in nature

Based on the principle that no man may, even one with a valid and
lawful cause of action, take the law into his own hands and must resort
to the aid of the courts to enforce his rights.
In the case of immovables, the general provisions of Article 1911
should give way to the particular provisions of Article 1592 which

provides that when there has been a demand made on the buyer for
rescission either judicially or by notarial act, the court may not grant
him a new term.
EXCEPTION: If there is an express stipulation in the contract that
rescission in case of default by one party may be resorted to by the
other party extrajudicially

E. Rescission requires a positive act on the part of

the injured party

It is legally possible that he may waive rescission and proceed with

specific performance
Thus, Art. 1592 requires the injured party to make a demand, either by
judicial or notarial act, even if there is a stipulation in the contract of
the parties

CONTRACT OF SALE VERSUS

CONTRACT TO SELL
1.IMPORTANCE OF PROPER CHARACTERIZATION
OF CONTRACT TO SELL

a. Determine the set of laws that govern such contracts, including the
appropriate remedies available to the contracting parties.
b. Primary obligation:
CONTRACT OF
CONTRACT TO
SALE
SELL
To Give
To do
c. The Supreme Court itself has not definitely decided on the proper
classification of contract to sell. This lead to conflicting ruling on
important issues related to such contracts mainly on the appropriate
remedies available to parties in case of breach

2.RECENT RULINGS THAT CONSIDER CONTRACTS TO

SELL NOT COVERED BY THE GENUS SALE
a. Coronel v CA
Contract to sell may not be considered a contract of sale because
the 1 st element is lacking, which is consent or meeting of the minds.
They defined contract to sell as: a bilateral contract whereby the
prospective seller, while expressly reserving the ownership of the
subject property despite delivery thereof to the prospective buyer,
binds himself to sell the said property exclusively to the prospective

buyer upon fulfillment of the condition agreed upon, that is, full
payment of the purchase price.
b. PNB v CA
contract to sell is akin to a conditional sale where the effi cacy or
obligatory force of the vendors obligation to transfer title is
subordinated to the happening of a future and uncertain event so that
if the suspensive condition does not take place, the parties would stand
as if the conditional obligation had never existed.
c. David v Tiongson
The contract which states that: deed of sale and corresponding title
would be issued only after full payment, is considered a perfected
contract of sale and grated the remedy of specific performance.
d. Gomez v CA
A contract of sale may either be absolute or conditional. One form of
conditional sales is what is not popularly termed as contract to sell
where ownership or title is retained until the fulfillment of a positive
suspensive condition
e. Leano v CA
In contract to sell real property on installment, the full payment of the
purchase price is a positive condition, and that transfer of ownership
and title would occur after full payment of the price.
f. CarrascosoJr v CA
if the suspensive condition is fulfilled, the contract of sale is thereby
perfected such that if there had already been previous delivery of the
property subject of the sale to the buyer, ownership thereto
automatically transfers to the buyer by operation of law, without any
further at having to be performed by the seller.
The confusing use of terms by the Supreme Court undermined the
jurisprudential rules pertaining to the remedies available to the
parties.

3.RULINGS CHARACTERIZING CONTRACT TO SELL

a. Rationale for Parties Entering into Contracts to Sell
So as to protect the seller against a buyer who intends to buy the
property in installment by withholding ownership over the property
until the buyer effects full payment therefor.
b. "On Where" the Suspensive Condition is Pinned Determines
Nature of a Sale
1) Not every modality introduced in the sale contract would necessarily
be a condition.
2) The main ingredient in Contract to Sell: existence of stipulation or
agreement imposing a suspensive condition on the effectivity or
demandability of the contract itself.

3) The failure of the suspensive condition to the seller from happening

in a conditional sale gives the buyer the right to either:
refuse to proceed with the agreement or
waive that condition (Art 1545 Civil Code)
4) The usual form of such an agreement is making the fulfillment of the
buyers obligation to pay in full the purchase price as the condition
upon which:
Only then shall arise a demandable sale contact; - CONTRACT TO
SELL
The obligation of the seller to sell the subject matter shall only
then arise CONTRACT TO SELL
The obligation of the seller to transfer the ownership of the
subject matter sold shall then arise. CONTRACT OF
CONDITIONAL SALE
c. Requisite Stipulations for Contract to Sell
1. Reservation of Ownership by Seller
The essence of true CONTRACT OF SALE is the passing of
ownership of the subject matter. It is generally passed through
tradition.
In CONTRACT TO SELL, delivery of the subject matter does not
pass ownership to the buyer even though he possesses the same,
under the stipulation that ownership shall pass upon full
payment.
Tradition does not determine the nature of the contract, but is
pursued only as a consequence of the contract.
2. Agreement as to Deed of Absolute Sale
Chua v CA: the absence of formal deed of conveyance is strong
indication that the parties did not intend immediate transfer of
ownership, but only a transfer after full payment, thus a contract
to sell.
However in Dignos v CA: when there is no stipulation to the
effect that title to property is reserved in the seller until full
payment of the purchase price, nor a stipulation that seller may
unilaterally rescind the contract, then it is NOT a contract to sell.
3. Reservation of Right to Extrajudicially Rescind in Event of Nonfulfillment of Condition
If there has been previously delivery of the subject matter to the
buyer and the buyer refuses to voluntarily return the subject
matter, the seller would have to seek court action to recover
possession.
Rescission is not necessary however if the subject stipulation is
not provided, then an action for replevin must be filed to court by
virtue of Article 433 actual possession under a claim of
ownership raises a disputable presumption of ownership and the
true owners must resort to judicial process for the recovery of
the property.
Earnest money does not determine whether it is a contract of
sale or a contract to sell.

4.SUBSTANTIAL BREACH ISSUE RELEVANT ONLY IN

CONTRACT OF SALE
CONTRACT OF SALE
Rescission can be
availed of only in case
there has been
substantial breach

CONTRACT TO SELL
The doctrine of substantial breach has no
application, since non-happening of the
condition by whatever means or reason,
substantial or not, ipso jure prevents the
obligation to sell from arising.

In contract to sell, acceptance of partial payment cannot be deemed

waiver of the right to cancel the contract
Also, it is only fair and just that the buyers be allowed to recover what
they had paid n expectancy that the condition would happen;
otherwise, there would be unjust enrichment on the part of the seller.
Nothing in the law justifies the seller to undertake a radical change of
posture to justify the re-selling of the property previously sold under a
Contract of Conditional Sale, to hold that pending the happening of
the condition, that the contract was dependent on the sellers not
changing their minds about selling the property.

5.CRUX OF DISTINCTION
Conditions for the
extinguishment of
obligations
Performance
stage (delivered)

Executory stages
(not yet
delivered)

CONTRACT OF SALE
Negative Resolutory
Condition

CONTRACT TO SELL
Positive Suspensive
Condition

Delivery would transfer

ownership to buyer;
rescission must be done
judicially

By express agreement,
delivery of the subject
matter does not transfer
ownership to buyer; no
court intervention is
needed to rescind the
contract. Court
intervention necessary
only for replevin in case
buyer refuses to
voluntarily return the
subject matter.

Mere notarial notice of

rescission, the contract
may be rescinded (Art
1592)

Mere
notice
cancellation would
suffi cient
under
rulings.

of
be
SC

GOVERNING PROVISIONS AND

PRINCIPLES FOR REMEDIES OF
RESCISSION AND CANCELLATION
PRE-MACEDA LAW PERIOD
ARTICLES 1191, 1591, AND 1592 OF THE CIVIL CODE

These articles, as well as Articles 1380 et seq. have no application to a

contract to sell
In contracts to sell, where ownership is retained by the seller and is not
to pass until the full payment of the price, such payment is a positive
suspensive condition, the failure of which is not a breach, casual or
serious, but simply an event that prevented the obligation of the vendor
to convey title from acquiring binding force (Manuel v. Rodriguez, 109
Phil. 1 [1960])
The non-fulfillment of the condition of full payment rendered the contract
to sell ineffective and without force and effect (Ong v. CA, 310 SCRA 1
[1999])
The Supreme Court, however, has applied the said provisions to contracts
to sell involving immovables under the principle of equity
But formal notice is still required in cancellation of contracts to sell

MACEDA LAW PERIOD

Whether it be a contract of sale or contract to sell, the actual rescission or

cancellation thereof shall take place thirty (30) days from receipt by the
buyer of the notice of cancellation or the demand for rescission of the
contract by a notarial act
The protective mantle of the Maceda Law to buyers of residential real
estate would not serve to validate a contract to sell which is void for
failure of the parties to agree on the manner of payment of the purchase
price (Boston Bank of the Philippines v. Manalo, 482 SCRA 108)
The rules under Maceda Law are applicable only to issues of rescission
between the seller and the buyer, and do not overcome prevailing issues
when it involves a controversy between two buyers of the properties
bought (Lim v. CA, 182 SCRA 564)
The Maceda Law only applies when there is substantial breach; rescission
for casual or slight breaches is prohibited, even in cases involving
contracts to sell (SiskaDevt Corp. v. Offi ce of the President, 231 SCRA
674)

RECAP OF THE RULINGS

A.

AT PERFECTION (CONTRACT TO SELL)

1. Required stipulations
Full Payment is a suspensive condition on the obligation of seller to
transfer ownership of subject matter
Ownership of subject matter shall remain with the seller until full
payment of the price
Specific right is granted to the seller to extrajudicially rescind or
cancel the contract in case of default
2. Stipulation on execution of deed of absolute sale
Stipulation or promise that seller shall execute a deed of
absolute sale in favor of the buyer upon full payment (considered
reservation)
CONTRA: if there is no stipulation that title is reserved by the
seller and that seller may unilaterally & extrajudicially rescind
the contract upon default.
3. Stipulation on Payment of Price
Suspensive condition, failure is not a breach (casual or serious)
but an event that prevents the obligation of the seller to convey
title from acquiring obligatory force
CONTRA: substantial compliance with obligation, cancellation
cannot be effected

B.

DURING CONSUMMATION STAGE

Legal Effect
of Delivery

CONTRACT OF
SALE
Title to property
passes to the
buyer

Legal Effect
Full Payment

Legal Effect

Considered a

CONTRACT TO SELL
Title is reserved to the seller until
full payment
Constitutes the happening of a
condition that convert it to an
executor contract
If delivered: ownership transferred
ipso jure
If not yet delivered: allows the buyer
to demand for specific
performance
CONTRA: no perfected contract still;
it merely give rise to an action to
enforce the obligation of the seller
to enter into a contract of sale; no
transfer of ownership yet eve when
delivery made
not really a breach but an event that

of NonPayment

breach and when

substantial in
nature would
allow the seller
to rescind the
sale

prevents the obligation of the

vendor to convey title
CONTRA:
notice of rescission or cancellation
must be made on buyer to effect
extinguishment
in residential real estate, nonpayment constitute merely a casual
breach (does not extinguish contract
to sell and court may extend equity
rights to buyer

C.REMEDIES AVAILABLE
Recovery of
subject
matter
previously
delivered
Nonhappening of
the
condition

Basis of
rescission
Amounts
paid

Laws
Applicable

CONTRACT OF SALE
seller cannot recover unless
contract is resolved or
rescinded by court action

CONTRACT TO SELL
no action necessary other
than recovery of
possession (in case buyer
refuses to voluntarily
deliver)
Conditional Sale: may be
Prevents the contract
waived and may seek
from coming into
specific performance
existence (neither
rescission or specific
performance may be
pursued)
Conditional sale: substantial Breach is completely
breach
irrelevant
Forfeiture of amounts paid
Amounts paid must be
when expressly provided for returned (no basis to
retain since no breach)
CONTRA: equity
principles, substantial
breach and court
discretion for rescission
have been made to apply
to contract to sell
involving residential
immovable
BUT: extinguishment can
only have legal effect if
notice of cancellation is
given to the buyer
Articles 1191 and 1592
Article 1181 and 1545
If with suspensive
Article 1191 of casual or

condition: Article 1545

(rescission or waiving)

Maceda Law

serious breach complete

irrelevant (CONTRA:
residential real estate)

Requirements on Maceda Law on grace period, cash

surrender value and prescribed manner of notarial
rescission or cancellation must always apply,
whenever contracts involve installment sales of
residential real estate and residential condominium
unit.

CHAPTER 12
CONDITIONS AND WARRANTIES
Reported by MELANIE BARRIOS, TIMOTHY CHARLES CHEN
And HARRIZ DELA CRUZ

Conditions
A condition is a future and an uncertain event which may or may not happen, upon
which depends the rising or extinction of an obligation. May be suspensive or resolutory.
The fulfillment of a suspensive condition gives rise to the birth of the obligation; while
the fulfillment of the resolutory condition extinguishes a subsisting obligation.

Distinction between a condition imposed on the perfection of the contract and a

condition imposed on the performance of an obligation.
The failure to comply with the first results in the failure of the contract
The failure to comply with the second, i.e., where the obligation of the other party to a
contract of sale is subject to any condition which is not performed, gives the injured
party two alternative remedies: the option to either refuse to proceed with the sale or to
waive the condition as mandated under Article 1545; and that the choice is not with the
obligor but with the injured party.
Warranties forms part of the conditions imposed on the performance of an obligation in
a contract of sale.

Distinctions between Conditions and Warranties

Warranty is a collateral undertaking in a sale, express or implied, that if the property
sold does not possess certain incidents or qualities, the buyer may either consider the
sale void or claim damages for breach of warranty. The warranty is a contract in which
the implied promise is that the seller will pay damages if the property does not possess
the characteristics warranted, or if the protection is not furnished, and the consideration
for this promise is the making of the contract of sale.

Non-fulfillment of a warranty constitutes a breach of the contract, whereas

Non-happening of the condition, although it may extinguish the obligation upon which it
is based, generally does not amount to a breach of the contract of sale.

Where the ownership in the things 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. Remedy of the buyer in case of
failure of the seller to do his obligation is to either refuse to proceed with the contract or
to waive that condition.
On the other hand, if the party has promised that the condition should happen or be
performed, the other party may also treat the non-performance of the condition as a
breach of warranty because such stipulation would elevate the condition to a warranty,
and the non-happening of the condition would itself constitute a breach of such
warranty, and would entitle the injured party to sue for damages.
Condition generally goes into the root of the existence of the obligation whereas a
warranty goes into the performance of such obligation, and in fact may constitute an
obligation in itself
Condition must be stipulated by the parties in order to form part of an obligation, while a
warranty may form part of the obligation or contract by provision of law, without the
parties having expressly agreed thereto
Condition may attach itself either to the obligations of the seller or of the buyer whereas,
warranty, whether express or implied, relates to the subject matter itself or to the
obligations of the seller as to the subject matter of the sale.

Express Warranties; requisites:

-

It must be an affirmation of fact or any promise by the seller relating to the

subject matter of the sale;
The natural tendency of such affirmation or promise is to induce the buyer to
purchase the thing; and
The buyer purchases the thing relying on such affirmation or promise thereon

The decisive test is whether the seller assumes to assert a fact of which the buyer is
ignorant of.
However, an affirmation of the value of the thing, or any statement purporting to be a
statement of the sellers opinion only, shall not be construed as a warranty, unless the
seller made such affirmation or statement as an expert and it was relied upon by the
buyer. Article 1341 provides that a mere expression of an opinion does not signify
fraud, unless made by an expert and the other party has relied on the formers special
knowledge.
The law allows considerable latitude to sellers statements, or dealers talk; and
experience teaches that it is exceedingly risky to accept it at its face value. The Court
held that assertions concerning the property which is the subject of a contract of sale, or
in regard to its qualities and characteristics, are the usual and ordinary means used by
sellers to obtain a high price and are always understood as affording to buyers no
ground for omitting to make inquiries, thus if the buyer relies upon such an affirmation
whose interest might so readily prompt him to exaggerate the value of his property does
so at his peril, and must take the consequences of his own imprudence.

Implies Warranties; defined

Those which by law constitute part of every contract of sale, whether or not the parties
were aware of them, and whether or not the parties intended them.
An implied warranty is inherent in a contract of sale. It is presumed to exist although
nothing has been mentioned about it. It is deemed incorporated in the contract of sale.
However, implied warranties may be modified or suppressed by agreement of the
parties.

Although only a seller is bound by the implied warranties of law, nevertheless, by

express contractual stipulation, an agent of the seller may bind himself to such
warranties.
Relevant Discussions
1. Warranty that seller has right to sell
There is an implied warranty on the part of the seller that he has a right to sell the thing
at the time when the ownership is to pass.
There can be no legal waiver of such warranty without changing the basic nature of the
relationship, for the warranty on the part of the seller that he has the capacity to sell is
the essence of sale; unless, it amounts to clear assumption of risk on the part of the
buyer.
However, this warranty is not applicable to render liable a sheriff, auctioneer,
mortgagee, pledge, or other person professing to sell by virtue of authority in fact or law,
for the sale of a thing in which a third person has a legal or equitable interest.

2. Warranty Against Eviction

There is an implied warranty on the part of the seller that when the ownership is to pass,
the buyer shall from that time have and enjoy the legal and peaceful possession of the
thing. The seller shall answer for the eviction even though nothing has been said in the
contract on the subject.

a. When there is breach of warranty against eviction

There is a breach of warranty against eviction when the following conditions are
present:
-

Purchaser has been deprived of, or evicted from, the whole or part of the thing
sold;
Eviction is by a final judgment;
The judgment is in favor of the plaintiff which is based a right prior to the sale or
event after the sale if the cause of eviction is due to an act or acts imputable to
the seller; and
Seller has been summoned and made co-defendant in the suit for eviction at the
instance of the buyer.
Buyer has not waived the sellers warranty against eviction. (Pineda)

The warranty cannot be enforced until a final judgment has been rendered. The buyer
need not appeal from the decision in order that the seller may become liable for
eviction. The buyer is not required to resist the action for eviction taken against him
since the warranty is a covenant on the part of the seller, and by having given the seller
proper notice of the eviction (i.e., by making him a party to the case) the buyer is
deemed to have complied with what is incumbent upon him, the seller must then take
the lead to resist the claim of the third party on the subject matter of the sale.

There can be no breach of warranty against eviction if the buyer was well aware of the
presence of other claimants such as tenants at the time the buyer entered into the sale
transaction.
Breach of warranty against eviction cannot be enforced against the seller if the buyer
merely furnished the seller a copy of the opposition of the buyer filed in an eviction suit
against him, without going through formally summoning the seller to be a party to the
case. The notice required by law is not merely giving notice but that the seller should be
made parties to the suit at the instance of the buyer, either by way of asking that the
seller be made a co-defendant or by the filing of a third-party complaint against the
seller.

b. Eviction in part.
Should the buyer lose, by reason of the eviction, a part of the thing sold of such
importance, in relation to the whole, that the buyer would not have bought it without said
part, the buyer may demand the rescission of the contract; but with the obligation to
return the thing in the same condition when it was acquired, instead of enforcing the
liability of the seller for eviction.
Same rule applies if two or more things have been jointly sold when it clearly appears
that the buyer would not have purchased one without the other.
The reason why rescission is available only in case of partial eviction is because there
is still something left of the property in the hands of the buyer which can be returned. If
the eviction is total, the buyer cannot return the property to the vendor because a third
claimant has taken over the whole property because in rescission, the one demanding it
must be able to return what he received. Mutual restitution is required.

c. Particular causes given by law

When adverse possession had been commenced before the sale but the prescriptive
period is completed after the transfer, the seller shall not be liable for breach of warranty
against eviction.
The property must be susceptible to prescription. If the thing purchased is not
susceptible to prescription like lands registered under the Real Property Registration
Decree, prescription will not lie. Hence, the particular cause given by law, such as
prescription, will not be applicable.
If the property is sold due to nonpayment of taxes which was not made known to the
buyer before the sale, the seller is liable in case of eviction.

d. Applicability to Judicial Sales.

In case of judicial sales, the judgment debtor is also responsible for eviction unless it is
otherwise decreed in the judgment. However, in several cases, it was held that, in
execution sales, the rule of caveat emptor applies; the sheriff does not warrant the title
to the property sold by him, and it is not incumbent upon him to place the purchaser in
possession of the property. Such buyer at such sales takes the property subject to the
superior right of other parties.

e. Amounts for which Seller is liable in case of eviction.

Under Article 1555, in case eviction occurs, the buyer shall have the right to demand of
the seller:
-

Return of the value which the thing sold had at the time of the eviction, be it
greater or lesser than the price of the sale;
Income or fruits, if buyer has been ordered to deliver them to the party who won
the suit against him;
Costs of the suit which caused the eviction, and, in a proper case, those of the
suit brought against the seller for the warranty;
Expenses of the contract, if the buyer has paid them; and
Damages and interests and ornamental expenses, if the sale was made in bad
faith.

f. Waiver of Warranty and Effects thereof

Article 1548 provides that the contracting parties to a contract of sale may increase,
diminish, or suppress the implied warrant against eviction. However, the effect of this
waiver depends on the nature of such waiver, whether it is general or specific waiver,
and whether done in good faith or bad faith on the part of the seller.
Under Article 1553, if the seller acted in bad faith then any stipulation exempting the
seller from the obligation to answer for eviction shall be void.
On the other hand, if the buyer merely renounces the warranty in general terms, without
knowledge of a particular risk, and eviction should take place, the seller shall only pay
the value which the thing sold had at the time of the eviction.

Thus, a general waiver of the warranty does not create the effect of waiver but merely
limits the liability of the seller to the value of the thing sold at the time of eviction.
-

Here, the buyer makes a waiver of eviction without knowledge of the risk of
eviction or the details of the cause of eviction. Every waiver of warranty against
eviction is presumed to be a simple waiver. That the waiver was merely
conscious, that is, the buyer had waived his right to the warranty against eviction
and its consequences.

Should the buyer have made the waiver with knowledge of the risks of eviction and
assumed its consequences, the seller shall not be liable.
-

Here, there is an intentional and deliberate waiver. The waiver was not merely
conscious but was full with absolute knowledge of the risks of eviction.

When the waiver is of a specific case of expected eviction, the waiver has the effect of
wiping out the warranty as to that specific risk, but not as to eviction caused by other
reasons not covered in the waiver.
Even when there is no specific waiver, a buyer cannot take refuge on the warranty
against eviction when he purchases the land fully aware of a claim by a third party on
the title to the land and who was in actual possession thereof; when the buyer cannot
show that he is a buyer in good faith, the buyer is not entitled to the said warranty.

WARRANTY AGAINST NON-APPARENT SERVITUDE (Art. 1560)

Servitude or easement is an encumbrance imposed upon an immovable for the

benefit of another immovable belonging to a different owner. (Art. 615)
Requisites:
a) The immovable sold is encumbered with any non-apparent burden or servitude, not
mentioned in the agreement; and
(b) The nature of such non-apparent burden or servitude is such that it must presumed
that the buyer would not have acquired it had he been aware thereof.

When warranty not applicable

(a) If the servitude is apparent;
(b) the servitude is mentioned in the agreement;
(c) If the non-apparent burden or servitude is recorded in the Registry of Deeds, unless
there is an express warranty that the thing is free from all burdens and encumbrances;
(d) Vendee had knowledge of servitude.

Remedy and Prescription

A. Either:
(1) Rescission w/ damages; or
(2) Indemnity w/ damages
B. After one year:
Only action for damages to be counted from the date on which burden was discovered.

WARRANTY AGAINST HIDDEN DEFECTS (Art. 1561)

Redhibition avoidance of such sale on account of some vice or defect in the thing
sold, which render its use impossible or so inconvenient and imperfect that it must be
supposed that the buyer would not have purchased it had he known the vice.

HIDDEN DEFECT - is one which is unknown or could not have been known to the
buyer.

The seller shall be responsible for warranty against hidden defect only when:
(a) The nature of the hidden defect is such that it should render the subject matter unfit
for the use for which it is intended; or
(b) Should diminish its fitness for such use to such an extent that, had the buyer been
aware thereof, he would not have acquired it or would have given a lower price for it.

Requisites:
(a) Defect must be hidden;
(b) Defect must exist at the time the sale was made;
(c) Defect must ordinarily have been excluded from the contract;
(d) Defect must be important or serious (render the thing unfit or considerably
decreases fitness);
(e) The vendee must give notice of the defect to the vendor within reasonable time;
(f) Action must be instituted within the statute of limitations. (6 months from delivery of
the thing sold or 40 days from delivery of animals);
(g) There must be no waiver of warranty on the part of the vendee.

Where defect is made known:

(1) warranty does not cover defects which the buyer must have observed;
(2) defects which is not obvious but of which the seller tells the buyer, OR which the
buyer knows or should have known;
(3) not applicable to second hand goods EXCEPT if seller made misrepresentation or
acted in bad faith;

(4) The seller may bind himself against patent or obvious defects if the intent to do so is
clearly evident.

Remedies and Prescription

A. Accion Redhibitoria:
(1) withdrawing from the contract;
(2) avoidance of the sale due to vice in the thing sold;
B. Accion Quanti Minoris:
(1) Proportionate reduction of price
Actions on warranties against hidden defects shall be barred after six (6) months from
the delivery of the thing sold.

IF THE THING IS LOST

(A) If the thing sold should be lost as a consequence of the hidden faults:
(i) If the seller was aware of them, he shall bear the loss, and shall be obliged to return
the price and refund the expenses of the contract, with damages; or
(ii) If seller was not aware of them, the seller is obliged only to return the price and
interest thereon, and reimburse the expenses of the contract which the buyer might
have paid, but not for damages. (Art. 1568)

(B) If thing is lost through a fortuitous event or through the fault of the buyer,
then:
(i) If the seller was not aware of the hidden defects, the buyer may demand from the
seller the price which he paid, less the value which the thing had when it was lost;
(ii) If the seller acted in bad faith, in addition he shall pay damages to the buyer. (Art.
1569)

APPLICABILITY TO JUDICIAL SALE (Art 1570)

The warranty against hidden defects shall be applicable to judicial sales, except that the
judgment debtor shall not be liable for damages.

WAIVER
If there has been a stipulation exempting the seller from hidden defects, then:
(a) If the seller was not aware of the hidden defects, the loss of the thing by virtue of
such defect will not make the seller liable at all to the buyer; or
(b) If the seller was fully aware of such defect, such waiver is in bad faith, and the seller
would still be liable for the warranty.

CAVEAT VENDITOR
(let the seller beware) the vendor is liable to the vendee for any hidden defaults or
defects in the thing sold, even though he was not aware of. (Art 1566)

CAVEAT EMPTOR
(let the buyer beware) buyer be aware of the supposed title of the vendor and one
who buys without checking the vendors title takes all the risks and losses consequent
to such failure.

SALE OF ANIMALS

SALE OF TEAM (Art 1572)

The redhibitory defect of one shall only give rise to its redhibition, and not that of the
others; UNLESS it should appear that the buyer would not have purchased the sound
animal or animals without the defective one. The latter case shall be presumed when a
team, yoke, pair, or set is bought, even if a separate price has been fixed for each one
of the animals composing the same.

When sale of animals is void (Art. 1575)

(1) Contagious disease;
(2) Those found unfit for the use or or service stated.

REDHIBITORY DEFECT OF ANIMALS (Art 1576)

Requisites:
(1) Defect must only be hidden;
(2) Defect must be of such nature that expert knowledge is not sufficient to discover it.
(However, if the veterinarian failed to discover it through his ignorance, or failed to
disclose it to the buyer through bad faith, he shall be liable for damages.)

IF ANIMAL DIES (Art 1578)

(1) If the death occurs after three (3) days or the defect is patent or visible, vendor is not
liable.
(2) If caused by fortuitous event or by fault of buyer, and the animal has vices, article
1569 applies.

Remedies and Prescription

(i) Accion Redhibitoria
(ii) Accion Quanti Minoris
40 days from the date of delivery to the buyer.

WARRANTY AS TO FITNESS OR QUALITY OF GOODS (Art 1562)

(i) WARRANTY OF FITNESS is a warranty that the goods are suitable for the special
purpose of the buyer which will not be satisfied by mere fitness for general purpose.

(a) Where the buyer, expressly or by implication, makes known to the seller the
particular purpose for which the goods are acquired, and
(b) it appears that the buyer relies on the sellers 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;

(ii)WARRANTY OF
MERCHANTABILITY is a warranty that goods are reasonably fit for the general
purpose for which they are sold.

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

Requisites:
(a) That the buyer sustained injury because of the product;
(b) That the injury occurred because the product was defective or unreasonably unsafe;
and
(c) The defect existed when the product left the hands of the seller.

SALE BY SAMPLE (Art 1565)

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.

SALE BY DESCRIPTION
Where the goods are bought by description from a seller who deals in the goods of that
description, there is an implied warranty that the goods are of mechantable quality.

BUYERS OPTION IN CASE OF BREACH OF WARRANTY (Art. 1599)

*alternative remedies
(a) 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;
(b) Accept or keep the goods and maintain an action against the seller for damages;
(c) Refuse to accept the goods, and maintain an action against the seller for damages;
(d) 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.

WAIVER OF REMEDIES
When 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 of 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.

OBLIGATION OF THE BUYER ON THE PRICE

(i) 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.
(ii) 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.

REFUSAL OF SELLER TO ACCEPT RETURN OF GOODS

Where the buyer is entitled to rescind the sale and elects to do so, and 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 of the Civil Code.

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.

ADDITIONAL TERMS OF WARRANTIES FOR CONSUMER GOODS

(a) Set forth the terms of warranty in clear and readily understandable language and
clearly identify himself as the warrantor;
(b) Identify the party to whom the warranty is extended;
(c) State the products or parts covered;
(d) State what the warrantor will do in the event of a defect, malfunction or failure to
conform to the written warranty and at whose expense;
(e) State what the consumer must do to avail of the rights which accrue to the warranty;
and
(f) Stipulate the period within which, after notice of defect, malfunction or failure to
conform to the warranty, the warrantor will perform any obligation under the warranty.

Subsidiary Liability of the Retailer

The retailer shall be subsidiarily liable under the warranty in
case of failure of both the manufacturer and distributor;

The remedy of the retailer in such case would be to proceed against the distributor or
manufacturer.

Enforcement
The warranty rights can be enforced by presentment to the immediate seller either the
warranty card or the official receipt along with the product to be serviced or returned to
the immediate seller. No other documentary requirement shall be demanded from the
purchaser.

Duration of Warranty
The seller and the consumer may stipulate the period
within which the express warranty shall be enforceable. But if the implied warranty on
merchantability accompanies an express warranty, both will be of equal duration.
Any other implied warranty shall endure not less than sixty (60) days nor more than one
(1) year following the sale of new consumer products.

Breach of Warranties
(i) In case of breach of express warranty, the consumer may elect to have the goods
repaired or its purchase price refunded by the warrantor.
(ii) In case the repair of the product in whole or in part is elected, the warranty work
must be made to conform to the express warranty within thirty (30) days by either the
warrantor or his representative.
(iii) The thirty-day period, however, may be extended by conditions which are beyond
the control of the warrantor or his representatives.
(iv) In case the refund of the purchase price is elected, the amount directly attributable
to the use of the consumer prior to the discovery of the non-conformity shall be
deducted.
(v) In case of breach of implied warranty, the consumer may retain the goods and
recover damages, or reject the goods, cancel the contract and recover from the seller
so much of the purchase price as has been paid, including damages.

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

CHAPTER 13
EXTINGUIHMENT OF SALE
Reported by EDNA OLIVEROS, MARIANO ARROYO
And MARY JOYVINELLA FLORIDO

GROUNDS
same grounds whereby obligations in general are extinguished:
payment or performance
loss of the subject matter
condonation or remission
confusion or merger of rights or creditor and debtor
compensation
novation
annulment
rescission
fulfillment of a resolutory condition
prescription

2.conventional redemption only applies to contract of sale

3.legal redemption only applies to contract of sale

CONVENTIONALREDEMPTION
seller reserved the right to repurchase thing sold

coupled with obligation to return price of the sale, expensed of contract &
other legitimate payments and the necessary & useful expenses made on the thing sold

right must be recognized in the deed of sale; must be the same contract

OPTIONTOPURCHASE

right to repurchase the thing sold granted to the vendor in a separate instrumentfrom
the deed of sale

EQUITABLEMORTGAGE

a contract with right to repurchase is equitable mortgage if the following

requisitesconcur:
price of sale with right to repurchase is unusually inadequate
seller remains in possession as a lessee or otherwise
upon / after expiration of right to repurchase, another instrumentextending the period of
redemption is executed
buyer retains for himself a part of the purchase price
seller binds himself to pay taxes on thing sold

real intention of parties is to secure the payment of a debt or performanceof other

obligation

IN CASE OF DOUBT IN DETERMINING WHETHER IT IS EQUITABLE

MORTGAGEOR SALE A RETRO (WITH RIGHT OF REPURCHASE IT SHALL BE
CONSTRUEDAS EQUITABLE MORTGAGE)

WHATTOLOOKFORINDETERMININGNATUREOFCONTRACT
1.language of the contract
2.conduct of parties to reveal real intent

REMEDYAVAILABLETOVENDOR: ask for reformation of contract

RATIONALEBEHINDPROVISIONONEQUITABLEMORTGAGE:

1.Circumvention of usury law

2.Circumvention of prohibition againstpactum commissorium creditor cannotappropriat
e the things given by way of pledge or mortgage; remedy here isforeclosure
real intention of parties is that the pretended purchase price is money loaned &
tosecure payment of the loan, sale withpacto de retrois drawn up

PERIODOFREDEMPTION
No period agreed upon 4 years from date of contract
When there is agreement should no exceed 10 years; if it exceeded, valid
only for the first 10 years.
When period to redeem has expired & there has been a previous suit on the natureof
the contract seller shill has 30 days from final judgement on the basis
thatcontract was a sale with

pacto de retro: rationale: no redemption due to erroneousbelief that it is equitable

mortgage which can be extinguished by paying the loan.
When period has expired & seller allowed the period of redemption to expire
seller is at fault for not having exercised his rights so should not be granted a new period

EFFECTWHENTHEREISNOREDEMPTIONMADE:
jurisprudence before the NCC: buyer a retro automatically acquires full ownership
u n d e r p r e s e n t a r t 1 6 0 7 : there must be3 judicial orderbefore ownership
of realproperty is consolidate in the buyer a retro

HOWISREDEMPTIONEFFECTED:
Seller a retro must return first pay thefollowing:
the price of the thing sold
expensed of the contract and other legitimate payments made by reasonof the sale
necessary and useful expensed made on the thing sold
Valid tender of payment is sufficient
Mere sending of notice without valid tender is insufficient
Failure to pay useful & unnecessary expenses entitled vendee to retain landunlessactual
reimbursement is made

INCASEOFMULTI-PARTIES

1.When an undivided thing is old because co-owners cannot agree that it be allotted
toon of them vendee a retro my compel the vendor to redeem the whole thing
2.When an undivided thing is sold by co-owners / co-heirs, vendors a retro may
onlyexercise his right over his respective share; vendee a retro may demand that
theymust come to an agreement first and may not be compelled to consent to a
partialredemption

3.When rights for co-owners over an undivided thins is sold as regards to their
ownshare vendee retro cannot compel one to redeem the whole property
4.Should one of the co-heirs/co-owners succeed in redeeming the property
suchvendor a retro shall be considered as trustee with respect to the share of the
other co-owners/co-heirs.

FRUITS

1.what controls is the stipulation between parties as regards the fruits; if none
2.at time of execution of the sale a retro there should be visible or growing fruits there
shall be no pro-rating at time of redemption of no indemnity was paid by thevendee a retro
3.at time of execution sale a retro there should be no fruits but there are fruits at
timeof redemption pro-rated
between vendor a retro & vendee a retro giving thevendee a retro a part corresponding to
the time he possessed the land.

LEGAL REDEMPTION

right to be subrogated upon the same terms and conditions stipulated in the contractin
the place of one who acquires the thing by purchase or bydationin payment or byother
transaction whereby ownership is transmitted by onerous title.
among co-heirs
any of heirs sells hereditary right to stranger before partition
any of the co-heirs may be subrogated to the rights of the purchaser byredeeming said
hereditary right: reimburse buyer of the price of the sale
co-heirs has 1 month from receipt of notice in writing

among co-owners
any or all of co-owners sells their shared to 3rdperson

any co-owner may exercise right of redemption by paying reasonableprice of property to

the buyer
if 2 or more co-owners desire to exercise right of redemption, they mayonly do so in
proportion to the share they may respectively have in the thing owned in common

DISTINCTIONBETWEENRIGHTOFREDEMPTIONOFCO-HEIRSFROMCO-OWNERS

CO-HEIRS
Heir may redeem for himself alone the
hereditary right sold by a co-heir
Sale of hereditary right (1088) over no
particular object

CO-OWNERS
Co-owner may redeem property but even
if uses his own funds, redemption inures
to the benefit of other co-owners
Sale of interest in particular property

among adjoining owners

rural land

where piece of rural land has an area not exceeding 1 hectare, adjoiningowner has right
to redeem unless grantee does not own a rural land
if 2 or more adjacent lot owners desire to exercise right to redeem, owner of adjoining
lot with smaller area shall be preferred
if 2 or more adjacent lit owners desire to exercise right to redeem & bothhave same lot
area, one who first requested shall be granted
urban land
when piece of land is small & cannot be used for any practical purpose &brought
merely for speculation, owner of adjoining land can redeem

2 or more owners of adjoining lot desire to exercise right to redeem,owner whose

intention towards use of land shall be preferred.
sale of credit litigation
whena credit or other incorporeal right in litigation is sold, debtor shallhave a right to
extinguish it by reimbursing the assignee for the price thelatter paid therefor plus judicial
costs, interest
debtor may exercise right within 30 days from assignee
demandspayment from him

WHENPERIODOFREDEMPTIONBEGINSTORUN

right of legal pre-emption of redemption shall be exercised within 30 days from noticeby
the buyer
2.deed of sale not to be recorded in RD unless accompanied by affidavit that buyer has
given notice to redemptioners
3.when there is actual knowledge, no need to give written notice; period of
redemptionbegins to run from actual knowledge

OTHERINSTANCESWHENRIGHTOFLEGALREDEMPTIONISGRANTED
Redemption of homesteads
Public Land Act
Land acquired under free patent homestead
Subject to repurchase by wife, legal heirs within 5 years from date of conveyance
Granted by law, need not be stipulated
Redemption in tax sales
incase of tax delinquency/failure to pay tax assessments, property isforeclosed
delinquent payer has 1 year to redeem by paying to the revenue DistrictOfficer the
amount of tax delinquencies, & interest or purchase price.

Redemption by judgement debtor

1 year to redeem by paying purchaser at public auction with interest

4.Redemption in extrajudicial foreclosure

1 year from date of sale and registration

5.Redemption in judicial foreclosure of mortgage

no right to redeem is granted to debtor mortgagor
except when mortgagee is bank of a banking institution
90 days after finality of judgement

CHAPTER 14
ASSIGNMENT
Reported by ISAAC DAVID GATCHALIAN and MARY JOICE ZAMORA
Article 1624 of the Civil Code
assignment is in fact the sale of credits and other incorporeal rights
Article 1458 of the Civil Code

defined credits and other intangible things within the human commerce
are the proper object of contract of sale

assignment technical term to be used ( Deed of Sale of Shares of Stock ->

Deed of Assignment of Shares of Stock)
Assignment like sale is:
1. Nominate
2. Consensual
3. Reciprocal
4. Onerous
5. Commutative Contract
Paras included in assignment both gratuitous and onerous transfer of credits and
other incorporeal right
Required the formalities of donation if the assignment is gratuitous
Tolentino defined assignment as one where the assignor:
by legal cause, such as sale, dation in payment, exchange or donation,
and without the need of the consent of the debtor, transfers his credit and
its accessory rights to another, known as the assignee, who acquires the

power to enforce it to the same extent as the assignor could have

enforced against the debtor
Tolentino observed:
assignment not always sale
It may be sale, but at times it may constitute a dation in payment, such as
when a debtor, in order to obtain a release from his debt, assigns to his
creditor a credit he has against a third person, or it may constitute a
donation as when it is gratuitous title
It may be merely by way of guaranty, as when the creditor gives it as a collateral to
secure his own debt in favor of the assignee, without transmitting ownership
The character it may assume determines its requisites and effects, its regulation,
and the capacity of the parties to execute it
The obligations between assignor and assignee will depend upon the juridical
relation which is the basis of the assignment
With the adoption of Chapter 8 of the Civil Code on the Title on Sales
Assignment should only cover sales of credits and intangible property
Nyco Sales Corp. v. BA Finance Corp
An assignment of credit is the process of transferring the right of the
assignor to the assignee, who would then be allowed to proceed against the
debtor. It may be done either gratuitously or onerously, in which case, the
assignment has an effect similar to that of sale.
South City Homes, Inc. v. BA Finance Corp
Assignment of credit is an agreement by virtue of which the owner of a credit,
known as the assignor, by a legal cause, such as sale, dacion en pago,
exchange or donation, and without the consent of the debtor, transfers his credit
and accessory rights to another, known as the assignee, who acquires the power
to enforce it to the same extent as the assignor could enforce it against the
debtor.
*except in donation, even in all other instances when the form of assignment is
being used, the transaction is covered by the Law on Sales
Sale and Assignment are legally the same contracts but with different names
Assignment and sale are under the same genus of Sale
Chapter 8 of the Laws of Sales under the Civil Code is specifically dedicated for
Assignment of Credits and Other Incorporeal Rights
Assignment vs. Sales

 Transfer of Ownership
1. By tradition and not by perfection
2. There should be execution of public documents as intangibles cannot physically
be transferred
Accessories and Accession
Includes all rights such as:
Guaranty
Mortgage
Pledge
Preference
Warranties
1.
Against hidden defect N/A because intangibles has no physical existence
2.
Existence and legality of credit there is warranty except when what is sold is
doubtful account
3.
Solvency of debtor no warranty, unless:
a. Stipulated
b. Insolvency was prior to assignment and of common knowledge (shall not
last for 1 year)
4.
One who assigns inheritance right without enumerating rights shall be
answerable for his character as an heir
5.
One who sells certain rights for lump sum, shall be answerable for legitimacy of
the whole in general but not for each of the various parts
As to Breach of Warranty
A. In good faith
1. expenses of the contract; and
2. other legitimate payments made by reason of assignment
B. In bad faith
1. expenses of contract;
2. other legitimate payments;
3. useful and necessary expenses; and
4. damages
Assignment of Credit or Incorporeal Right in Litigation

 Speculative
Presumption is that one who buys a credit under litigation is buying for
purposes of speculation
Law would rather benefit the debtor of such credits rather than the one who
merely speculates for profit
When credit or incorporeal right in litigation is assigned or sold, debtor has a right
to extinguish it by reimbursing the assignee for the price the buyer paid plus
interest
right to redeem to be exercised within 30 days from demand by assignee for
payment
Right to Redeem by Debtor not Available in the following circumstances:
1. assignment of credit or incorporeal right to co-heir or co-worker
2. assignment to creditor in payment of his credit
3. assignment to possessor of tenement or piece of land which is subject to right in
litigation assigned

CHAPTER 15
THE BULK SALES LAW
Reported by NENITA GASMIN and MARIA BELEN AL NAMIT

Bulk Sales Law (Act No. 3952, as amended by RA 111)

Intended as a species of bankruptcy and fraudulent transactions law meant to
protect supply creditors or businessmen against preferential or fraudulent
transfers done by merchants
Primarily aims to compel the seller in bulk to execute and deliver a verified list of
his creditors to his buyer, and notice of intended sale to be sent in advance to
said creditors, and to use the proceeds to cover outsatnding liabilities
Certainly a short statte but very vital that it can kill giant transaction
Covers all transactions whether than in good faith or not that fall within the
description of bulk sale
An exercise of States Police Power ( Liwanag v. Menghraj)

Transactions Covered by Bulk Sales Law

Section 2 of the Law defines the 3 types of transactions which are treated as
bulk sales, as any sale, transfer, mortgage or assignment of:
(a) A stock of goods, wares, merchandise, provisions or materials not in the ordinary
course of trade and the regular prosecution of the business of the seller,
mortgagor, transferor or assignor (Extraordinary sale of goods)

(b) All, or substantially all, of the fixtures and equipment use in and about the
business of the seller, mortgagor, transferor or assignor (Ordinary sale of fixture
and equipment)
(c) All, or substantially all, of the business or trade theretofore conducted by the
seller, mortgagor, transferor or assignor (Sale of business enterprise)
Bulk Sales Which are Not Covered by the Law
(a) If the seller, transferor, mortgagor or assignor produces and delivers a written
waiver of the provisions of the Law from his creditors as shown by verified
statements
(b) Transactions effected by executors, administrators, receivers, assignees in
insolvency, or public officers, acting under legal process

Goods and Merchandise refer to things and articles which are kept for sale by a
merchant
Fixtures the chattels which merchants usually possess and annex to the premises
which are occupied by them in order to enable the latter to store, hand and display their
goods and wares
Obligations of Sellers / Encumbrancers When Transaction is a Bulk Sale:
(a) To deliver a sworn statement of listing of creditors
Must be done before receiving from the buyer, mortgagee, or his/its
agent or representative, any part of the purchase price thereof
For a partnership firm, a written statement of:
i. Names and addresses of all creditors to whom said seller or
mortgagor may be indebted
ii. Description of the amount of indebtedness due or owing, or to
become due or owing by said seller or mortgagor to each of said
creditors
(b) Pro-Rata application of proceeds
Apply the purchase or mortgage money to the pro-rata payment of
bona fide claims of the creditors as shown in the verified statement
(c) Written advance disclosure to creditors
The seller, transferor, mortgagor or assignor shall:

i.

At least 10 days before the sale, transfer or encumbrance

execution of a mortgage upon any stock of goods, wares,
merchandise, provisions or materials, make a full detailed
inventory thereof and to preserve the same showing the
quantity and, so far as possible with the exercise of due
diligence, the cost price to the seller, transferor, mortgagor or
assignor of each article to be included in the sale, transfer or
mortgage

ii.

Notify every creditor whose name and address is set forth in

the verified statement at least 10 days before transferring
possession thereof , of the price, terms and condition of the
sale, transfer and mortgage or assignment

(d) Bulk transfers for nominal value

It shall be unlawful for any person, firm, or corporation, as owner of
any stock of goods, wares, merchandise, provisions or materials, in
bulk, to transfer title to the same without consideration or for a
nominal consideration only.

CHAPTER 16
RETAIL TRADE LIBERALIZATION ACT OF 2000
Reported by RAE CHRISTOPHER GAOAT, EUNICE LIGAY
And JOANA MARIE CAWIGAN

The Retail Trade Liberalization Act of 2000

Importance of Retail Trade

Retailers are essential as a producer, because thru them the infinite variety of articles,
goods and commodities needed for daily life are placed within the easy reach of the
consumers. Retail Dealers perform functions of capillaries in the human body, thru
which all needed food and supplies are ministered to members of communities
comprising the nation. The retailer, therefore, from the lowly peddler, the owner of sarisari store, to the operator of a department store or supermarket is so much a part of
day-to-day existence.
Liberal Policy under RTLA of 2000
Retail Trade Liberalization Act of 2000 (RTLA 2000) was enacted to law on March 7,
2000, which specifically took place of, and thereby repealed the Retail Trade
Nationalization Law.
Retail Trade Nationalization Law

Retail Trade Liberalization Act of 2000

Allowed only Filipino citizens and Liberalized the Philippine retail industry to
juridical entities which are 100% encourage Filipino and foreign investors
owned by Filipinos to engage in retail to forge and efficient and competitive

trade, sprang from deep, militant and

positive nationalistic impulse which
sought to protect citizen and country
from the alien retailer.

retail trade sector in the interest of

empowering the Filipino consumer
through lower prices, higher quality
goods, better services and wider choices.

Definition and Coverage of Retail Trade

A. Elements of Retail Trade
RTLA of 2000 defines retail trade as any act, occupation or calling of habitually
selling direct to the general public merchandise, commodities or goods for
consumption. The elements of retail trade would therefore include the following:
a) Habitual act or business of selling
- Engaging in the selling of merchandise as an incident to the primary
purpose of a corporation does not constitute retail trade
b) To the General Public
- The activities of the Seller must be such that the target clientele or
customers must not only be a particular person or group of persons
c) Of merchandise, commodities, goods for consumption
- The Supreme Court exclude from its coverage merchandise and goods
which are not consumer goods
- The IRR of RTLA 2000 define consumption as the utilization of
economic goods in the satisfaction of want resulting in immediate
destruction, gradual decay or deterioration or transformation into other
goods
B. Exempted Transactions
Although all three (3) elements of retail may be present, the following transactions,
or series of transactions, are exempted from the coverage of retail trade under
RTLA 2000, thus:
a) Sales by a manufacturer, processor, laborer or worker, to the general
public of the products manufactured, processed or produced by him if
his capital does not exceed 100,000.00;
b) Sales by farmer or agriculturist, of the products of his farm, regardless
of capital;
c) Sales in a restaurant operations by hotel owner or inn-keeper
irrespective of the amount of capital, provided that the restaurant, is
incidental to the hotel business;
d) Sales to the general public, through a single outlet owned by a
manufacturer of products manufactured, processed or assembled in

the
Philippines, irrespective of capitalization;
e) Sales to industrial and commercial users or consumers who use
products bought by them to render service to the general public and/or
produce or manufacture of goods which in turn sold by them;
f) Sales to the government and/or its agencies and government-owned
and controlled corporations

C. Special Exempted for Former Natural Born Filipinos

A natural-born citizen of the Philippines who has lost his Philippine citizenship but
who resides in the Philippines shall be granted the same rights as Filipino citizens
for the purposes of retail trade under RTLA of 2000.
Categories of Retail Trade Enterprises
For the purposes of determining who are qualified to invest in retail trade in the
Philippines, RTLA 2000 provides four (4) categories of retail trade based on capital
level, namely:
Category A Enterprises with paid up capital, of peso equivalent of less
USD 2.5 million;

than

Category B- Enterprises with minimum paid up capital of peso equivalent

of
USD 2.5 million, but less than USD 7.5 million, provided that in no
case shall
the investments for establishing a store be less than the peso
equivalent of USD 30,000.00;
Category C- Enterprises of the paid-up capital of the peso equivalent of
USD 7.5 million or more, provided that in no case shall the investments for
establishing a store be less than the peso equivalent of USD 830,000.00;
and
Category D- Enterprises specializing in high-end or luxury products with a
paid-up capital of the peso equivalent of USD 250,000.00
When Aliens May Invest and/or Engage in Retail Trade
The following are rules on who may invest or engage in retail trade enterprises in
the Philippines:
1.

Filipino Citizens

Former natural-born Filipino citizens who reside in the Philippines

Domestic partnership, associations, and corporation, which are wholly

owned by Filipino citizens, may:

(a) Engage directy in all forms of retail trade;or

(b) Invest wholly in local enterprises that will engage in all forms and in all categories of
retail trade.

2.Other than in the Exempted Transactions (where there are no restrictions on foreign
investment or engagement)

Alien individual, foreign partnerships, associations and corporations, and

foreign-owned domestic partnerships associations and corporations:

may not engage or invest in retail trade enterprises under Category A (paid-up capital
of less than US$2.5 Million) which are reserved exclusively for the inclusions under
No. 1.

3. Other than in the Exempted Transactions (where there are no restrictions on foreign
investment or engagement)

Foreign-owned domestic partnerships, associations and corporations:

-Upon registration with the Securities and Exchange Commission (SEC) and
Department of Trade and Industry (DTI); and

Foreign-owned single proprietorships

-Upon registration with the DTI, may invest in retail trade enterprises as follows:

(a) Category B (minimum paid-up capital of US$ 2.5 Million, but less than US$ 7.5
Million), as follows:

(i) Limited to not more than 60% of total equity of such retail enterprise within the first
two (2) years after the effectivity if this Act (up to Mar. 25, 2002)

(ii) May wholly own 100% such retail enterprises within two (2) years after the effectivity
of this Act (i.e. starting Mar. 26, 2002)

(b) May wholly own retail enterprises under Category C (paid-up capital of US$ 7.5
Million or more) provided that the investments for establishing a store is not less than of
US$ 830,000.00. However, to determine compliance with the investment requirement
per store, it shall include the value of assets, tangible or intangible.
(c) May wholly own retail enterprises under Category D like those specializing in highend or luxury products with a paid-up capital of US$ 250,000.00 per store.
High-end or luxury products shall refer to goods which are not necessary for life
maintenance and whose demand is generated in large part by the higher income group.
Examples are: jewelry, designer clothing, bag and footwear, wearing apparel, leisure
and sporting goods, and electronics and other personal effects.

I. Grandfather Rule- a process of characterizing the citizenship of shares in one

corporation held by another corporation by attributing the controlling interest of
individual stockholders in the second year of corporate ownership.
Under Category A- no amount of foreign equity is allowed
Under Category B,C and D- it is allowed only when they comply with the capital and
per-store investments requirements.

The Securities and Exchange Commission has adopted a rule that:

-It shall be considered as Philippine Nationality if the shares belong to corporations and
partnerships at least 60% of the capital of which is owned by Filipino citizens.
- If the percentage of Filipino ownership in the partnership or corporation is less than
60%, only the number of shares corresponding to such percentage shall be counted as
Philippine nationality.
Sec. 3(a) of the Foreign Investment Act of 1992 defines:
Philippine National a corporation organized under Philippine laws of which at least
60% of the capital stock outstanding and entitled to vote is owned and held by citizens
of the Philippines.

Retail Trade Liberalization Act of 2000 provides for a more liberal policy towards foreign
investment and foreign participation in retail activities. It can be expected to follow a
more liberal application of the grandfather rule under the DOJ-SEC formula when
determining the nationality of equity investments made by judicial entities into an
operating corporation.
II. Requirements of Foreign Investors

The foreign investor shall maintain in the Philippines the full amount the
prescribed minimum capital unless the SEC and DTI has notified of its
intention to repatriate its capital and cease operations in the Philippines.

It shall secure a certification from the Bangko Sentral ng Pilipinas (BSP)

and DTI, which will verify inward remittance of capital investment.

It will be subjected to penalties or restrictions for failure to maintain full

amount.

III. Foreign Investors Acquiring Shares of Stock of Local Retailers

Net worth of more than US$ 2.5 Million under Category B may purchase
only up to 60% within the first two (2) years of the effectivity of this Act.
Thereafter, may acquire the remaining percentage consistent with the
allowable foreign participation.

IV. Public Offering of Shares of Stock

Category B and C- foreign equity exceeds 80% to offer a minimum of

thirty percent 30% to the public through stock exchange within eight (8)
years from start of operations.

Foreign Retailers

An individual who is not a Filipino citizen, or a corporation, partnership

or association that is not wholly-owned by Filipinos engaged in retail
trade.1
Anent foreign corporations, the Corporation Code provides that a foreign corporation is
one formed, organized or existing under any laws other than those of the Philippines. 2
Worth mentioning is how a foreign corporation is determined, there are two (2) tests,
namely the (a)Incorporation Test which deems a corporation domestic when so
incorporate d in the Philippines irrespective of nationality of its stockholders and the (b)
Control Test which would apply at times of war in determining corporate nationality for
purposes of National Security, hence, citizenship of the controlling stockholders
determines the nationality.3
1. Prequalification Requirements
The foreign retailer is allowed to organize or establish an entity that will engage in the
retail trade business or invest in a retail store in the Philippines; it must possess all of
the following qualifications:
(a) A minimum New Worth of (i) $200 Million of the registrant corporation in
Categories B and C; and (ii) $50 Million of the registrant corporation in Category
D.
(b) Five (5) retailing branches or franchises, in operation anywhere around the
world unless such retailer has at least one (1) store, capitalized at a minimum of
$25 Million.
2. Application for Prequalification
A request for prequalification duly signed and acknowledged under oath by
an authorized officer of the foreign retailer mentioned in the preceding section, must be
submitted to the Board of Investments before filing a formal application to engage in
retail or invest in a retail store.4

1 Sec. 1 (d), Rule I, IRR.

2 Sec. 123, Corporation Code
3 Filipinas Cia. De Seguros v. Christian Huenfeld & Co., 89 Phil. 84
4 Sec. 2, Rule IV, IRR.

The application must be accompanied by a certification by the proper official of the

home state of the applicant-foreign retailer or the local embassy/consulate of the homecountry, to the effect that the laws of such state allow or permit reciprocal rights to
Philippine citizens.
3. Branches/Stores
a. Direct Opening of Branches/Stores
Registered foreign retailers falling under Categories B and C may open
branches and stores in the Philippines provided that investments must be no less
than the peso equivalent of $830, 000.00. Such is required when at least 51% of
the outstanding capital stock of any existing retail store is acquired by a single foreign
retailer.5
b. Acquiring/Investing in Existing Retail Stores
No transfer of shares to any such foreign investor shall be recorded in the
corporate books thereof, unless a Certificate of Compliance with Prequalification is
presented.6
4. Promotion of Locally-Manufactured Products
10 years after the effectivity of the Retail Trade Liberalization Act of 2000, at least
30% percent of the aggregate cost of the stock inventory of foreign retailers falling
under Categories B&C, and 10% for Category D shall be made in the Philippines.
5. Prohibited Activities of Qualified Foreign Retailers
Qualified foreign retailers shall not be allowed to engage in certain retailing
activities outside their accredited stored through the use of mobile or rolling stores or
carts, the use of sales representatives, door-to-door selling, restaurants and sari-sari
stores and such other similar retailing activities.7
6. Binding Effect of License to Engage in Retail on Private Parties
In the case of Dando v. Fraser the Supreme Court held:

5 Sec. 3, Rule IV, IRR.

6 Sec. 2 Rule IV, IRR.
7 Sec. 10, R. A. 8762

The existence of a license is binding on private individuals and it is conclusive

evidence of ownership of the retail business as far as private parties are concerned. 8
The said ruling had been applied in the Retail Trade Nationalization Act and is deemed
to have the same effect on the Retail Trade Liberalization Act.
PENALTY CLAUSE
Any person who shall be found guilty shall be imposed a penalty of
(a)Imprisonment of not less than six (6) years and one (1) day but not more than eight
(8) years;and (b)Fine of not less than P1 Million Pesos but not more than P20 Million.
APPLICATION OF ANTI-DUMMY
Criminal sanctions are imposed on the President, Manager, Board Member or
Persons in Charge of violating entity and causing the latter to forfeit its privileges,
rights and franchises.
Aliens are prohibited from intervening in the management, operation,
administration or control of nationalized business, whether as officers, employees or
laborers, with or without remuneration. Aliens may take part in technical aspects,
provided no Filipino can do such technical work, and with express authority from the
President of the Philippines.9
However, the Supreme Court held in King v. Hernaez10 the Anti-Dummy Law is broad
enough as to consider the prohibition on employment of aliens even in non-control
positions subject to the previously stated exeptions.
In Luzon Stevedoring Corp. v. Anti-Dummy Board, 11 the High Court held that the
Anti-Dummy Law covered only employment in wholly nationalized businesses and not in
those that are only partly nationalized.
In Talan v. People12the courtdecided that allowing a common-law Chinese husband to
take part in management of the retail business would be a violation of the Law.
8 227 SCRA 126 (1993).
9 Sec. 2-A, Anti-Dummy Law
10 4 SCRA 792 (1962).
11 155 SCRA 213 (1987).
12 169 SCRA 586 (1989).

A donation or giving of money by a foreigner to a citizen of the Philippines for purposes

of investment that is done in good faith is not a violation of the law.
IMPLEMENTING AGENCIES
1. Department of Trade and Industry
The Department of Trade and Industry is the agency authorized to pre-qualify all
foreign retailers. It is its duty to monitor and regulate of foreign sole proprietorships,
partnerships, associations, or corporations allowed to engage in retail trade.
2. Department of Justice and Securities Exchange Commission
The Secretary of Justice shall issue rulings and opinions pertaining to the Retail
Trade and Liberalization Law. The Securities Exchange Commission may also issue its
rulings and opinions being charged with the supervision and control of partnerships,
associations and corporations.
3. Special Commercial Courts
The Special Commercial Courts (The SEC then) now have jurisdiction over
special cases attendant of qualifying circumstances expressly provided for in Sec. 5 (a),
(b)&(c) and Sec. 6 (d) of P. D. 902 A.

Act No. 4122 (RECTO LAW)

INSTALLMENT SALES LAW
Reported by MARIA CRISTINA LOPEZ

What is the Installment Sales Law?

Commonly known as the Recto Law. It is embodied in Art. 1484 of the NCC
which provides for the remedies of a seller in the contracts of sale of personal property
by installments.

Note: Art. 1484 of the NCC incorporates the provisions of Act No. 4122 passed by the
Philippine Legislature on Dec. 9, 1939, known as the "Installment Sales Law" or the
"Recto Law," which then amended Art. 1454 of the Civil Code of 1889.

To what does the Recto Law apply?

This law covers contracts of sale of personal property by installments (Act No.
4122). It is also 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. (PCI Leasing and Finance Inc. v. Giraffe-X Creative Imaging, Inc., G.R. No.
142618, July 12, 2007)

What are the alternative remedies in case of sale of personal property in

installments?

1. Specific Performance: Exact fulfillment should the buyer fail to pay

General Rule: If availed of, the unpaid seller cannot anymore choose other remedies;
Exception: if after choosing, it has become impossible, rescission may be pursued
2. Rescission: Cancel the sale if buyer fails to pay 2 or more installments Deemed
chosen when:
a. Notice of rescission is sent
b. Takes possession of subject matter of sale
c. Files action for rescission

3. Foreclosure: Foreclose on chattel mortgage if buyer fails to pay 2 or more

installments
General Rule: Actual foreclosure is necessary to bar recovery of balance - Extent of
barring effect: purchase price

Exception: Mortgagor refuses to deliver property to effect foreclosure; expenses

incurred in attorneys fees, etc.

RATIONALE:
The object of Recto Law was to remedy the abuses committed in connection with
the foreclosure of chattel mortgages and was meant to prevent mortgagees from seizing
the mortgaged property, buying it at foreclosure sale for a low price and then bringing
suit against the mortgagor for a deficiency judgment.
Under Article 1484 of the New Civil Code, 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 buyer fail to pay any installment;
2. Cancel the sale, should the buyers failure to pay cover two or more
installments;
3. Foreclose the chattel mortgage on the thing sold, if one has been constituted,
should the buyers failure to pay cover two or more installments.
The remedies have been recognized as alternative, not cumulative, in that
the exercise of one would also bar the exercise of the others. They cannot also
be pursued simultaneously.
If the seller should foreclose on the mortgage constituted on the thing
sold, 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.
The provisions of Recto Law are applicable to financing transactions
derived or arising from sales of movables on installments, even if the underlying
contract at issue is a loan because the promissory note has been assigned or
negotiated by the original seller.