Utopia Sales Reviewer

The Fraternal Order of UTOPIAAteneo de Manila University

School of LawEst. 1964

CHAPTER IINTRODUCTION

I. Definition of Sales

BUYER 2.) Subject Matter a) transfer ownership

SALE 1.) Meeting of the Minds b) delivery

SELLER 3.) Price c) pay

*It may be absolute or conditional.

Note: The condition should only refer to the obligation to pay the price and NOT:a. The obligation concerning the subject matter (a&b above)—which is the essence

of a K of sale. (Gaite)b. The whole contract—in which the case it is K to sell (Villanueva believes that a K

to sell and the K of sale are of the same genus and both covered by Art. 1458. However, recent rulings in the SC hold that they are different.)

Genius of Villanueva: Gaite gave 2 parameters in order for a condition in K of sale to be valid:

a. The condition must go into the payment of the price, and NOT the subject matter because you will be put as under the essence of K of sale.

b. The only time it can exist is when it is clearly stipulated.

II. Elements

1. Consent or meeting of the minds (to transfer of ownership in exchange for price)2. Determinate subject matter3. Price certain in money or its equivalent (Coronel)

III. Stages

1. Negotiation2. Perfection3. Consummation

Note: Technically, only 2 and 3 are the only lives of a K, since in negotiation there is no K yet.

IV. Nature of the Contract Created

1. Buyer “to give” Price

2. Seller “to give” Deliver Transfer ownership

Note: It is important to know that a sale is the obligation to give because being such, a breach of it can have the remedy of (a) specific performance and (b) rescission. An obligation “to do” cannot be subject to specific performance, ONLY rescission. Because

SALES REVIEWER - 1 -



specific performance in “to do” may amount to involuntary servitude, which is prohibited in the Constitution.

V. Characteristics of a K of Sale (it is enough that these characteristics exist at perfection)

1. Nominate and Principal Nominate means it has a particular name by law and governed by specific

provision (Title on Sale) Title given to a K is not significant; rather it’s the substance which is. Although a K of sale may be attached to another K, the test of being a

principal is whether it can stand on its own and does not depend on another K for its validity or existence.

2. Consensual This is a very important characteristic. Every K has two lives, perfection and

consummation. What perfects a K of sale is mere consent or meeting of the minds. Performance (e.g. paying the price or delivering the subject matter) goes into the consummation and is totally irrelevant to perfection.

As distinguished from:1. Solemn K – which requires not only consent, but also a particular

form of the K2. Real K – which requires not only consent, but also delivery

Upon the perfection of a K of sale, only the 3 obligations (2 for buyer and 1 for the seller) begin to exist. It doesn’t matter if there is no payment made yet nor transfer of ownership by delivery, nor ownership itself of the subject matter.

Being consensual, he who alleges the existence must prove it by competent evidence, as well as essential element thereof.

3. Bilateral As distinguished from unilateral, both parties here are obligated. (Seller:

transfer and deliver; Buyer: pay) The importance of this is that the power to rescind un a K of sale is implied

and need not be stipulated in the K.4. Onerous

Means that the consideration given is a valuable consideration (as distinguished from donation where the obligation is gratuitous)

Test of being onerous: It is objective. Any consideration in the normal commercial transaction, supports and transaction. In other words, valuable consideration is one which, from the objective point of view, on its own has rent values.

5. Commutative As distinguished from aleatory, it means that equal value is exchanged for

equal value. It refers to consideration as compared to the subject matter, in contrast to

onerous which refers only to consideration. Commutativeness is a subjective test. But it must not go into absurdity,

otherwise even if you feel that it is commutative, the substance of the K may say otherwise. Inadequacy of the price may show vice in consent, in which the said sale may be annulled, but such annulment is not for inadequacy of price, but rather for vitiated consent. Art. 14.

6. Title and Mode Title – legal basis by which to affect dominion or ownership




Mode – legal means by which dominion or ownership is created, transferred, destroyed, or modified.

Sale, by its creation, is just a title. It does not even touch dominion. Sale only provides the legal justification in the future on the part of the buyer to be able to claim ownership.

Sale by itself does not transfer or affect ownership; the most a sale does is to create the obligation to transfer ownership. It is tradition or delivery, as a consequence of sale that actually transfers ownership.

VI. As Distinguished From

1. Donation

Sale DonationConsideration Onerous—consideration is price

which is valuableGratuitous—consideration is liberality

Type Consensual—perfected by mere consent

Solemn—must comply with the formalities by law for perfection

2. Barter One of the parties binds himself to give one thing in consideration of the

other’s promise to give another thing. Rules to determine whether it’s a K of sale or a barter:

i. It is a barter where the value of the thing given as part of consideration exceeds the amount of money given or its equivalent.

ii. It is a sale, where the value of the thing given as part of the consideration equals or is less than the amount of the money given.

For practical legal purposes, the distinction between a sale or barter are practically academic since aside from the two separate rules applicable to barter (Arts. 1639-1640), as to all matter specifically provided for, barter shall be governed by the provision on sales.

Instance when knowing the differences is important:i. Statute of Frauds does not apply to barterii. Right to legal redemption to an adjoining owner covers only “resale”iii. Tax purpose

3. Contract for Piece of Work (POW)

Sale POWParties Buyer and seller Principal client and contractor

Subject Matter ServiceObligations a) to pay (buyer)

b) to deliver possession (seller)c) to transfer ownership (seller)

a) to pay (principal)b) to perform service (contractor)

Kind of Obligation To give To doBreach Can be subject to specific

performanceCannot be subject to specific performance

How will you differentiate a sale from a K of POW? (Here you will see the genius of Villanueva, makes you proud to be a brother…EXCELLENCE)

i. Art. 1467 gives us two sets of distinction: Habituality test – manufacturing in ordinary course of

business makes it a sale. When the manufacturer engages in the same activity in the ordinary course of business and does




not need to apply extra ordinary skills and equipment that would classify the underlying transaction as a K of sale.

Timing test – manufacturing upon special order of customers makes it a K of POW.

ii. In Celestino, the habituality test was upheld. BUT the SC interpreted that the test in 1467 is not one of timing or habit but a nature of work to be performed test. It must be of the nature that the products are not ordinary products of the manufacturer, and they would require the use of extraordinary skills or equipment to make it a K of POW.

iii. In EEL, the SC held that the habituality test is not controlling. The business of EEI was a staple undertaking, one that was considered ordinary and usual in their operations, and yet what they did was a POW. Then they held that the timing test in 1467 is actually a nature of the object test, meaning could the company manufacture the product in mass, would it make business sense to do so.

iv. In CIR, Tolentino talked about the intent test (more important test). If the parties intend that an object will be delivered without considering the work or labor of the part bound, it is a sale. But if the basis is the work that will be employed, it is a POW.

v. With all the tests enumerated, what should be used?vi. The habituality and timing tests seem to have been abandoned. What is

controlling then is the nature of the object test and the intent test. Both must be applied.

vii. HOWEVER, what if a seller offers 10,000 inclined erasers to a buyer who buys them because of the seller’s reputation, and upon agreement, the seller reaches under the table and offer the erasers, would that be a sale or a POW? (The tests seems to answer that it is the POW, because it does not make business sense to manufacture 10,000 erasers and obviously the intent here is for the seller’s skills.)

viii. Genius: The answer is a Sale. Why? Because a breach of a K of POW looks at the service, obviously, you cannot pay for service which has already been done as in this case. So that means that we are back to the timing test in 1467 (only if it is manufactured upon special order, will it become a POW). We have come into a full circle.

4. Agency to Sell

Sale Agency to SellBuyer himself pays for the object’s price. The agent is not obliged to pay the price,

merely to deliver the price received from the buyer.

Seller warrants

Not unilaterally irrevocable.

No personal liability as long as acting within his authority and the name of the principal (however, an agent may bind himself to the warranties of the seller).

Essentially revocable even in the presence of an irrevocability clause.

Profits belong to the seller. Any profit received must pertain to the principal, the agent disqualified from receiving personal profits.

Must comply with the Statute of Frauds to be enforceable.

Valid and enforceable in whatever from it may be entered into.

Nothing that is not written within the 4 Agent must always follow the principal.




corners of the K can bind the parties or can be the basis for damages.Essence: Transfer of title, and such transfer puts the transferee in the attitude or position of an owner and makes him liable to the transferor as debtor for the agreed price.

Essence: delivery into an agent is not as his property, but as property of the principal who remains the owner and has the right to control the sale and the proceeds.

Characteristics of an Agency1. Prepatory – meaning it is entered into in order to achieve other ends and other

relationshipsa. Types of Prepatory Ks

1. Agency to sell and agency to buy – give rise to a K of sale2. Distributorship agreement or an agreement to enter into a series of

Ks of sale – in this case, there is no price yet so it is NOT a K of sale2. Involves a personal obligation – therefore, it is not subject to specific

performance (like distributorship agreement)3. Fiduciary – based on confidence and trust, so it is not transmissible. (Death

extinguishes the K, except in agency coupled with an interest.)4. Revocable – because of its fiduciary nature. Any attempt to make it irrevocable is

void. Except in an agency coupled with an interest (when an agency is constituted as part of the mechanism for mortgage).

Principal in a K of Agency These are “essential clauses” contemplated by law, such as if these are present the

name of the K is not controlling. The acts of the agent bind the principal, the agent acts beyond his commission. Agent has no legal basis to receive anything on his own. Everything an agent

receives must be accounted for and returned to the principal. Agent is never liable for the price.

An agent cannot two principals, for this would violate the agency relationship. Genius: To determine whether it is a sale or one of agency, look at 2 things: delivery

and transfer of ownership. If these are made to be assumed in whole or in part by the agent, meaning if he bears the risk with regard to it, he cannot be an agent. An agent is never liable in whole or in part of the subject matter.

The price of any stipulation makes the price the liability of the supposed agent or makes him exposed to the risk of the price (e.g. an increase), then he could not have been an agent since an agent is not liable for any portion of the price.

5. Dacion en Pago A genus of sale and is governed by the law on sales. Shows us that a sale is both perfected and consummated. Dacion en pago

represents a perfected and consummated contract of sale. Differences

Sale Dacion en pagoPrincipal Accessory

Consensual RealTitle Mode

6. Lease

Sale LeaseDominion is absolutely disposed by the seller in favor of the buyer upon the payment of

Temporary disposition in favor of the lessee with the payment of rentals, but after the




the price. period of lease, the things revert back to the owner.

CHAPTER IIPARTIES TO A CONTRACT OF SALE

General Rule: Any person who is authorized under the law to oblige himself, may enter into a contract of sale.

Exceptions: 1. Minors and incapacitated persons

They do not have capacity to obligate themselves Effect of sale: Voidable Consequences:

o Capacitated person cannot seek annulment on the basis of the other party’s incapacity

o The incapacitated person, when properly represented is one who has legal standing to annul the contract.

Remedies for a voidable contract:o Specific performanceo Ratificationo Rescission – can be availed of by both parties; but minors need only to

restitute up to the extent he has been benefited Exceptions: necessaries (everything that is indispensable for sustenance and

refers only to things) To be a valid contract, it is required that:

o The K was perfectedo There was delivery of the necessarieso The minor must be the buyero Social standing must be considered

2. Sale by Married Couple Sale to third party Void if done without the consent of the other spouse. Sale between spouses

o Void (this applies even in legal redemption, compromises and renunciation)

o Exception When a separation of property was agreed upon in marriage

settlement When there has been a judicial separation of property agreed

upon between themo Rational

To prevent defraudation of creditors by transferring property to another spouse.

So dominant spouse won’t take advantage of the weaker spouse. Avoid an indirect violation of the prohibition against donation

between spouse.Note: This also applies between common law spouses.

3. Relative incapacity mandated by law. (This applies even to sale on legal redemption, compromises and renunciation because what you can’t do directly, you cannot do directly.)

Applies to:




o Guardian with respect to the property of the wardo Agents with respect to the property under his administration (unless

consented)o Administrator and executor with respect to the property of the estateo Public officer or employees with respect to the property of the stateo Public officer or employees with respect to property rights under

litigationo Lawyers with respect to the property of his client who is the subject of

litigation Effect of sale: Void because it is against against public policy (Rubias) The first 3 cases are ratifiable and the ;last 3 are non-ratifiable

o Ratifiable – by entering into a new K after relationship is ended; allowed because after the relationship is ended, the remaining evil is a private one.

o Non-ratifiable – even if prohibited relationship is not there, they cannot be allowed to agree into a new K because there is still public interest involving the sale reflecting the public institution itself.

Philtrust doctrine:o When a property is sold to a third person and it goes back to the

person prohibited, that transaction is presumed void. But you can show proof that there was no collusion, making the sale valid. (Lapse of time is material but not conclusive.)

o Even if the courts allow the sale which is prohibited, it is still void.o Even if the sale is beneficial to the other party, it is still void because

what is considered is merely the relationship in the K not the existence of fraud or advantage.

Naval doctrine: Hereditary rights are vested entirely in the heirs upon the death of the decedent. They are not among those covered under the prohibition since with regard to administrators and executors, the property must be property of the estate.

o Genius rebuttal of the Naval doctrine:o Although they are vested directly on the heirs and not under the

estate, the value of these rights are inextricably necessary to the value of the estate under the administration of the administrator. Therefore if he squanders or destroys the value of the estate, he actually destroys the value of the rights.

o Hereditary rights are never within the estate being administered because these are right pertaining directly to the heir. But even if you are buying just the “right”, its like buying the property already. You must not be allowed to do indirectly, what you can’t do directly. The SC based its decision that a hereditary right is technically not property itself.

With regard to lawyer-client relationship, the requisites are:o Lawyer-client relationshipo Object is property under litigationo Any kind of litigation whether adversarial or noto Does not necessarily mean actual litigationo During the pendency of the caseo This also applies to the case of judgeso The period is from the filing of the complaint until there is absolutely

no judicial proceeding of whatever nature pending with respect to the property. Even if it is final, executory and unappealable but there is




something pending before the courts even a motion for execution, the period has not ended.

Note: Contingency fee arrangements (always subject to the supervision of the courts):

o Payment based on a certain percentage of the property in litigation—valid. No property is being assigned here.

o Payment is a portion of the value of the properties—valid. Held to be so by the SC because the greater good it advances is greater than the public policy sought to be protected by Art. 1491. This contingency arrangement is in the nature of a dacion en pago, and is therefore under the law on sales.

CHAPTER IIISUBJECT MATTER OF THE SALE

Requisites (these must exist at the time of PERFECTION):1. It must be existing, or it may be future or even contingent

a. Requisites:i. Must be existing; or

Present object Emptio spei—sale of a mere hope or expectancy (BUT the sale

of a vain hope or expectancy is void.) Present object subject to a resolutory condition—upon the

happening of the condition, the parties shall return to each other what they have received

ii. Must come to existence (TEST: must be of such that it can come about under the present technological and scientific conditions of man)

Future thing having a potential of existence Emptio rei speretae—future thing subject to a suspsensive

condition (but if thing does NOT come into existence, the K is extinguished)

b. The absence of this requisite makes the K void under Art. 1409 (3). Remember that said provision talks about the QUALITY of the object, whether it has the capability to exist, and not necessarily that it is existing.

2. It must be licit.a. Licit—legal, when it is not outside the commerce of man and includes all

rights which are not intransmissible.b. Absence of this requisite makes the K void under Art. 1409 (1).

3. It must be determinate or at least determinablea. Determinate—specific or that which has been:

i. physically segregatedii. Particularly designated

b. Determinable—a generic thing which has:i. The capacity of being made determinateii. Without need of further/new agreement between the parties

In accordance with the principle of the obligatory force of K’s, that it is free from the whims and caprices, imagination or lack of it on the part of the parties

When both parties can imagine the same type of SM in their minds, almost the same in all other descriptions even as to a 3rd

party, then it satisfies this requirement.




Quantity is NOT important, ONLY when it is still possible to determine the quantity without the need of a new K between the parties (National Grains which was fucked up by Johannes Schuback)

Seller may NOT be the owner of the thing at the time of perfection. It is only at the time of delivery that it is essential that the owner owns the thing.

If a seller is NOT the owner of the thing he sold, the buyer cannot ask for specific performance because obviously, the seller here cannot perform. The only remedy left is rescission. BUT when at the time of perfection, the seller sells a subject matter over which he is not the owner, the subsequent acquisition of title by a seller validates the sale and title passes to the buyer by operation of law, provided there has been previous delivery of the subject matter by the seller to the buyer.

Yu Tek doctrine: Justice Trent ruled that there was no K of sale, even though the thing was obviously determinable. BUT he was speaking in the point of view of the SM (To understand this, imagine yourself to be a SM, and not one of the parties in the sale). Such that there can be no K of sale as to any genus of the thing until it is physically segregated from the rest. In short, there was no sale as to the SM, but there was a sale between the parties.

Legality of Sale:1. As to subject matter:

a. Various special laws declare certain sales of things illegal and therefore VOID (e.g. drugs)

2. Simulation of SM makes the K of sale VOID (when there is no intention whatsoever to give or receive the SM)

When motive nullifies the sale: Consideration is, as a rule, different from the motive of the parties, and when the primary motive is illegal, such as when the sale was executed over a parcel of land to illegally frustrate a person’s right to inheritance and to avoid payment of estate tax, the sale is void because illegal motive predetermines the purpose of the K. (Olegario)

CHAPTER IVPRICE

1. Consideration in a K of sale which plays a secondary role to the SM.2. Seller cannot unilaterally increase previously agreed purchase price.Requisites:

a. It must be reala. When at the time the minds of the parties met, the seller expected

and intended to receive the price and the buyer intended to pay for it

b. Must be with valuable consideration (NOT NOMINAL) If this is not present, it might be another K (e.g. donation) There is a presumption that every K of sale entered into is with

valuable consideration. BUT if the party who’s saying there s no true consideration, the burden of proof SHIFTS. (Ong and Bagnas)

When price is simulated/fictitious, or there is the absence of an expectation to receive payment by the seller and an intention to pay on the buyer, the K of sale is VOID, but it might be another kind of K.

When there is a false price, or there is a price but it is not the one agreed to by the parties but another price, the K of sale is VALID, but subject to reformation.




b. Must be in money or its equivalenta. “or its equivalent” must mean having the same characteristics as

moneyb. If not in money, it’s a VOID K of sale, but it may be another K like

barter or dacion, which is still governed by the law on sales, so it is as if there is a valid K of sale (this shows that price merely plays a secondary role).

c. In Republic vs. Phil. Resources Development, the buyer was allowed to pay in GI sheets. Did the SC do away with requirement no. 2? NO. The payment of the thing other than money was done at the consummation of the K of sale. At the time of perfection, it was only in money.

c. Must be certain or ascertainablea. Certain—when the amount is designated in pesos and centavosb. Ascertainable—to be ascertainable, the price must be:

i. Fixed in reference to other things.ii. Can be mathematically computed using a formula.iii. Must have been designated to be fixed by a 3rd party (this is a

suspensive condition, so if the 3rd party refuses to fix the price, the K is inefficacious).

a. If the 3rd person:i. Acted in bad faithii. Acted by mistake

….the courts can fix the price (this is the only time the courts can fix the price).

Note: Absence of 1 & 2 makes the K a no contract situation and the absence of 3 makes it inefficacious or it cannot be given effect, unless the party mutually agree on a new price. But if the other party has already sued the other party, the court cannot compel the parties to agree to a price.

Note: Also, even if the price has NOT been agreed upon, but the SM has already been delivered and appropriated, the buyer has to pay a reasonable price, depending on the circumstances of each case.

d. Manner of payment

a. Applies only when it is clearly implied in perfection that the money is NOT present value. The general rule is that it is presumed that the manner of payment is the present value.

b. Because if you do not agree upon the terms of payment, your minds have not met because you have not agreed upon the same value.

Inadequacy of price (Erenote vs. Bezone)1. Does not make the K void, EXCEPT:

a. Gross inadequacy to the point of being nominal (there is therefore no real price).

b. Judicial salesi. Requisites:

Inadequacy must be so gross to the point of being unconscionable

There must be proof that had the thing been resold, there would be a better price.

ii. Exception: when there is a right of redemption.




2. In sales a retro, gross inadequacy of price raises a presumption of equitable mortgage.

CHAPTER VFORMATION OF CONTRACT OF SALE

I. Policitacion of Preparatory Stage

Heirarchy of species in policitacion

1. Invitations An advertisement is an invitation to make an offer “unless it appears

otherwise,” which would make it an offer.

2. Offer/Acceptance It creates no relationship until it is accepted. Kinds:

a. General – an offer to sell or an offer to buy direct ed to everybody

b. Specific – an offer made to a particular person and cannot be taken advantage of or availed of by any other person other than the offeree

Characteristics (it is important to remember this shit!)a. It is within complete control of the offerorb. It cannot exist indefinitelyc. An offer with a period expires after the periodd. An offer with a condition ceases to exist when the condition

happense. An offer can ONLY be accepted absolutely and is indivisiblef. A modification is a counter-offer and destroys the first offer

3. Right of First Refusala. Under Ang Yu:

A transaction covering a specific property wherein a lessee is given an option to purchase the leased property in the event the lessor should desire to sell the same

It is similar to an option contract because it has a SM and consent. But different because it lacks price and separate consideration. Furthermore, in an option contract, the prospective buyer has the option. In right of first refusal, the person who has the right cannot exercise it at will. He must wait for the future sale.

It is always conditional. The condition being sale of the property in the future.

It is not even a contract, therefore not subject to specific performance and a breach of the right may only amount to recovery of damages under Art 19.

b. Under Equatorial and Paranaque: However, if the right of the first refusal is embedded to a

contract of lease, they become enforceable and therefore, subject to specific performance.

Even though there is no price, upon breach of the right (when it is sold to a 3rd person), the price will be based on the price it was sold.




The lessee will have the right to specific performance and ask for rescission of the sale. Provided there is a ground for rescission which is bad faith on the part of the buyer (if the buyer was in good faith, he will be protected)

NOTE: Paranaque further held that a buyer cannot be in good faith when there is a right of first refusal in a property because everybody who buys the property must examine it first.

4. Option Contracts A unilateral promise that grants to the optionee the privilege or right to

purchase the SM at a certain price within a period, for a separate consideration.

An option is not a Contract to Sell. It is only half a K to sell because it is either a unilateral obligation to sell or a unilateral obligation to purchase.

The consideration in an option contract must be separate and distinct from the purchase price. It can be anything of value.

Nietes Doctrine: An option contract is exercised by mere notice3 to the seller. Tender and consignation by the optionee is not needed.

2 Kinds of Option Contracts (the SM and price must have all the requisites):

a. Valid option contracti. Supported by a consideration separate and distinct from

the priceii. If it is accepted prior to the time it was withdrawn, it will

give rise to a valid K of saleb. Void option contract

i. There is lack of separate considerationii. Although it is void as an option contract, it is valid as an

offer (Sanchez doctrine)NOTE: However, in Montilla and Diamante, the SC held that an option contract without a separate consideration creates no contract. Principle of Double Acceptance in order that a void option contract will

give rise to a sale: 1st acceptance – this is needed to give rise to a void contract

while it is valid as an offer 2nd acceptance – giving rise to the contract of sale since the offer

was accepted Pre-Ang Yu doctrine: When an option K is supported by a separate

consideration, and is accepted as an option, the moment the option is exercised within the period, it gives rise to a K of sale. If the offeror withdraws the offer within the period, it will give rise to damages for breach of K.

Post-Ang Yu doctrine (plus the stupid cases of Equitable, Paranaque Kings): An offeror can withdraw the offer anytime within the option period regardless of the fact if there is a separate consideration or not. If it is with consideration it will give rise to damages under breach of K. If there is no consideration, it will give rise to tort under Art. 19 because there was no valid option K.

Therefore, Ang Yu actually reduces the option K to mean nothing because a valid option contract and a void option contract ahs been placed in the same category which can be destroyed at the will of the offeror.




NOTE: Although Ang Yu fucked up option contracts, it’s all obiter.

5. Mutual promise to buy and sell This is a Contract to Sell

II. Perfection :Offer and Acceptance

Perfection of a K of Sale Upon the meeting of the minds as to a valid SM and price which has all the requisites The offer must be certain and the acceptance absolute:

1. Certain offer – Price and SM with all the requisites2. Absolute acceptance:

a. Absolute “absolute” – offer is accepted without any qualification or counter-offers

b. Non-absolute (Villonco doctrine):i. Do minimis – the change in acceptance is so insignificant that

there is substantial absolute acceptance (e.g. Offer is pay in 2,000 days but acceptance is 1,999 days); or

ii. Nature of change - the change does NOT go into the SM or consideration (e.g. Offer is that payment should be done with the buyer in long pants but the acceptance is that buyer will pay in shorts)

NOTE: However, if the offer was pay and then cut your hair, and the acceptance did not include cutting the fair, this already goes into consideration and constitutes a counter-offer

When there is a suspensive condition, there is no perfected K of sale until the condition is fulfilled, In Romero, the SC held that an injured party can waive the condition and ask for specific performance or sue for rescission and refuse to proceed if the condition is imposed on the performance of an obligation.

In sale by auction, only when the auctioneer announces by the fall of the hammer or in customary manner is the sale perfected.

Earnest Money1. Part if the purchase price which is proof of the perfection of the contract2. However, in Spouses Doromal, the SC held that the proof is rebuttable and evidence

can be shown that the parties intended to treat “earnest money” differently.

Genius Villanueva: This is because under Roman Law, earnest money served as liquidated damages such that withdrawing from the sale means forfeiture of the earnest money now is still acceptable. This is why Doromal provides that earnest money is not a conclusive proof of the perfection of the contract, because the parties might intend it to be earnest money under the concept of Roman Law.

Differences between earnest money and option money:

Earnest Money Option MoneyPart of the purchase price Given as a distinct consideration

Given already while there is a sale (but take note of Spouses Doromal)

Applies to a sale not yet perfected

When given, buyer is bound to pay the balance When given, buyer is not required to buy

III. Form of Sales




General Rule: Form is not important for the validity of sale.

Exceptions:1. Power to sell a piece of land or interest therein must be in writing, otherwise the sale

thereof by the agent (even if the sale itself is written) is void2. Sale of large cattle must be in writing3. Sale of land by non-Christians is void if not approved by the Provincial governor

Statute of Frauds

General Rule: Form is important for enforceability

Coverage:1. A sale agreement which by its terms is not to be performed within a year from the

making thereof2. An agreement for the sale of foods, chattels, or things in action, at a price not less

than P5003. The sale of real property or of an interest therein

Exceptions to the Coverage1. Note or memorandum (it may be contained in 2 or more documents)

Requisites for a note or memoranduma. In writingb. Must contain the signature of the contracting party against whom the

contract is sought to be enforcedc. Must describe the SM and Price which has all requisitesNOTE: In an auction sale, even if the 2nd requisite is not met, if the auctioneer enters the sale in the entry book, the sale is taken out of the provisions of the Statute of Frauds

2. Partial performance The partial performance must either go to the SM or the price (not the

consideration!!!) Tender of payment is not considered partial performance because there is no

involvement of the party against whom the sale is to be enforced (this is an important element for partial performance to be valid)

However, tender of payment, accompanied by other acts such as building of improvements, possession and payment of taxes, may be considered partial performance (Ortega doctrine)

Claudel Doctrine: If the rights of the 3rd parties are involved, partial execution is not good enough for the sale to be taken out of the Statute of Frauds. There must be a memorandum. Why? Because there is no complicity on the part of 3rd parties who were not involved in the original transaction. NOTE: Claudel applies only to movables where possession is presumed ownership unlike in immovables where title is the basis.

3. Waiver This refers exclusively to the failure of the party to object to oral testimony

presented in court. The cross-examination on the contract is deemed a waiver

NOTE: In case the transaction falls under the exceptions, parol or oral evidence may be introduced to prove the existence of the contract.

CHAPTER VIPERFORMANCE OR CONSUMMATION OF THE CONTRACT OF SALE




I. Obligations of the Buyer and the Seller

Consummation: the state where either parties begin to perform their respective obligations. On the part of the seller, to deliver the thing and transfer ownership. On the part of the buyer, to pay the price.

NOTE: Always remember that in this stage, it is necessary that there is already a VALID contract of sale. In other words, if you have not mustered what constitutes a valid contract of sale, you’ll get lost.

A. Obligations of the Seller

1. To take care of the SM with proper diligence of a good father of the family Unless another standard of care is required Applied only when the SM is determinate

2. To deliver the fruits and accessories But until actual delivery, the buyer only has a personal right to the fruits

(meaning the seller can sell the fruits and the one buying the fruits has a better right)

Applied only when the SM is determinate3. Deliver the SM (Tradicion)

Twin effects of tradition:a. transfer of ownership b. seller is deemed to have fulfilled his obligations

Note: tradicion is a mode only when there is an underlying valid K of sale

Two Types of Delivery

a. actual or physical - thing sold is placed in the control and possession of the buyerb. constructive - seller transfers ownership without transferring physical possession

(achieved by mere consent of the parties)i. execution of public instrumentii. symbolic delivery - delivery of a thing which is a representation of the SM

(both parties must agree that the thing is a representation of the SM)iii. constitutum possesorium - when at the time of perfection, the seller had

possession of the SM in the concept of an owner and pursuant to the sale, hold physical possession thereof no longer in the concept of an owner

iv. tradition brevi manu - before the K of sale, the would-be buyer was already in the possession of the would be SM, and pursuant to the sale, he would not hold possession in the concept of an owner

v. tradition longa manu – delivery by agreement such as when the seller points the property

vi. delivery by negotiable documents of titlevii.seller allows buyer to exercise rights on the property

Requisites of a valid constructive delivery (specially in public instruments)a. there must be no stipulation that the execution of a public instrument will not

produce the effect of deliveryb. at the time of the execution of the public instrument, the SM was subject to the

control of the seller (Addison doctrine)c. such capacity, although existing at the time of the execution, must continue within a

reasonable time (Villablanca doctrine)




Exception to the Addison and Villablanca doctrines: When the public instrument was executed and there was no actual physical

possession, constructive delivery would still be ineffective if from the nature of the contract, the buyer knew that there were adverse claims/occupants in the property eh accepted the responsibility to set them out (Power doctrine)

Delivery through Carrier1. FAS – Free Alongside Ship

Seller pays all charges and is subject to risk until the goods are placed alongside the vessel

2. FOB – Free on Boarda. shipping point – delivery of the goods to the carrier, inside the vessel, is

equivalent to delivery of the buyerb. destination – only when vessel has arrived at the points of destination and

actual signals to the buyer that the goods are there that there is deemed to be delivery to the buyer

3. CIF – Cost, Insurance Freight The amount quoted by the seller and agreed to by the buyer covers not only

the cost of the merchandise but also insurance and freighta. majority school of thought – the carrier is an agent of the buyer (like FOB

shipping point)b. minority school of thought – the seller covers all the insurance and freight

making the carrier his agent (like FOB destination)

NOTE: These classifications are bullshit. Let me explain. They provide for very weak presumptions. The moment there is anything to the contrary to indicate the real intention of the parties, be it oral or written, then that intention governs regardless of the classification they placed on the transaction (General Foods Doctrine)

Types of Tradicion Concepts When it Comes to Immovables:REMEMBER: In every sale of an automobile, it is essential for validity that there be a description (metes and bounds of the area must be given)

1. Sale per unit of measure – sale of real estate made with a statement of its area, at the rate of a certain price for a unit measure (e.g. P3000 per square meter)

a. Effect: If it turns out that the area delivered is less, there is substantial breach. Remedies would be specific performance or rescission (But lack of area must not be less than 1/10 or else it would be considered substantial compliance

2. Lump sum sale – not at a rate of a certain sum for a unit of measure (e.g. P20M for that lot)

a. Effect: If it turns out that the area is less, there is not a ground for rescission since the only obligation is to delivery everything within the boundary

Sta. Ana Doctrine: Just because a statement of the measurement of the area is given, with the corresponding price, does NOT mean that it is a sale per unit of measure. The default rule is that it is a lump sum sale ONLY when it is expressly provided that the sale is at a certain price per unit of measure is it such kind of a sale.

Two Special Species of Sale in Movables1. Sale on Return

There is already a sale but it is subject to a resolutory condition




This is an exception to the general rule that once tradicion is effected, ownership is transferred

2. Sale on Approval This is an exception to the general rule that once tradicion is effected,

ownership is transferredNOTE: To be construed as a sale on return or sale on approval, there must be a clear agreement to such effect. It must be in writing and cannot be proved by parole evidence (Industrial Doctrine).

B. Obligations of the Buyer

1. Pay the price2. Accept delivery of the thing sold

If the buyer refuses to accept delivery, the seller only has to place the SM at the disposition of the buyer. Even if the latter has no possession and control, tradition is completed and the risk of loss is on the buyer. Acceptance by the buyer is NOT an integral part of delivery.

II. Double Sales

A. Movables Ownership shall be confirmed to the person who takes 1st possession in good

faith

B. Immovables Ownership shall be confirmed in accordance with the following hierarchy:

1. to the person who 1st registered under PD 1529 (Torrens System)2. To the person who is 1st in time and has priority in right provide the following

requisites concur (Radiowealth and Carumba):3. In accordance with Art. 1544 of the NCC:4. 1st in time, priority in right

NOTE: The rules on Double Sales do not apply if one of the contracts is a contract to sell. In a contract to sell, the condition goes into the essence of the contract, such that if it doesn’t happen, the contract is extinguished. In a contract of conditional sale, to which the rule on double sales apply, the condition attaches to the obligations, and the non-happening of which constitutes a breach which may be a ground for recession.

Genius of Villanueva: Theoretically, recession is the only remedy in case there is a breach of the conditions of a conditional contract of sale. This is because specific performance cannot be availed of since the obligation has been extinguished. However, if the non-happening of the condition is due to the seller’s fault, then the condition is deemed fulfilled and specific performance can be a remedy.

CHAPTER VIIDOCUMENTS OF TITLE

Documents of Title: 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 of 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 b endorsement or by delivery, goods represented by such document.

A type of constructive delivery




It must always be in writing The SM is always fungible

Two Functionsa. the document itself is a representation of possession and description which are

covered therebyb. it is the medium by which the goods described therein are delivered

Two Types1. Negotiable – containing the words of negotiability and written words like non-

negotiable does not destroy its being negotiable2. Non-negotiable

Basic Rule: Protect the purchaser in good faith for value. Even if the negotiation is a violation of the ownership of the principal owner, a purchaser in good faith is always protected.

Effects of Negotiation of a Negotiable DTa. acquisition of such title to the goods as the person negotiating the document to him,

had or had ability to convey a purchaser in good faith for valueb. acquisition of such title to the goods as a person to whose order the goods were to be

delivered by the terms of the document had or had ability to convey to a purchaser in good faith and for value

c. acquisition of the direct obligation of the bailee issuing the document to hold possession of the goods for him according to terms of the document as fully as if such bailee had contracted with him

Effects of transfer or assignment of a non-negotiable DT

The assignee acquires thereby as against he transferor:a. title to the goods, subject to the terms of any agreement with the transferorb. the right to notify the bailee who issued the document of the transfer thereof, and

thereby to acquire the direct obligation of such bailee to hold possession of the goods for him according to the terms of the document

Warranties on negotiation or assignment:a. referring to the DT itself

i. DT is genuineii. Right to negotiate or transfer the DTiii. That there is knowledge of any defect which would impair the validity or worth

of the documentb. referring to the goods

i. the goods existii. they are of merchantable quality

Note: Other than the breach of these warranties, there is NO cause of action to recover on the seller.

Rules on Levy/Garnishment of Goods Covered by DT

NEGOTIABLE NON-NEGOTIABLEJudgment creditors of the original owner cannot actually levy or execute upon the goods since ownership and possession of the document itself is equivalent to the holder having actual

Judgment creditors of the original owner can levy or execute upon the goods since possession and ownership of the DT does NOT necessarily bring title over the goods. It is the notification of the bailee of the assignment that it is the operative act that will




ownership and possession. transfer the goods, not allowing the levy.

CHAPTER VIIISALE BY A NON-OWNER OR BY OEN HAVING A VOIDABLE TITLE

WARNING: In the following discussion, note the difference between the time of perfection (where the seller may not be the owner) and consummation.

General Rule: 1505, which states that where the goods are sold by a person who is not the owner thereof, the buyer acquires no better title to the goods than the seller had. In other words, NO title, NO transfer. (The SC even held that a transfer by someone who does not own the SM is void.

Exceptions:1. When the owner is estopped by his conduct from denying the seller’s authority to

sell.2. When the contrary is provided for in recording laws (PD 1529)

This applies only to registered lands Chain of Title Theory: there must be 2 links in order for this exception to

apply. The 1st link is the 1st sale, where the buyer still has the opportunity to look behind the title of the seller. The 2nd link is the 2nd sale, where no amount of looking behind the title will a defect be seen since the name of the title corresponds to the person selling.

3. 1434: When the person who is not the owner of a thing sells or alienates or delivers it, and later the seller or grantor acquires title thereto, such title passes by the operation of law to the buyer or grantee

4. When the sale is made under statutory power of sale or under the order of a court of competent jurisdiction

Because the seller in these cases is NOT the owner.5. When the sale is made in a merchant’s store

Requisites to be a merchant store:a. there must be goods stored therein and in displayb. the store is actually engaged in buying and selling

6. 1506: Requirements in order that the sale is valid as to the buyera. seller must have voidable title at the time of executionb. title has not been avoidedc. buyer in good faith and for valued. there must have been tradition

7. Special right of resale Even when the title to the goods has already been transferred to the buyer,

the unpaid seller can enter into another sale and deliver the goods to a 3rd

person even if the former already lost ownership This will be elaborated under remedies

Article 559: Possession of movable property acquired in good faith is equivalent to title. But one who has lost or been unlawfully deprived of a movable may recover it from the person in possession of the same.

This rule is in accordance with the general rule in 1505 that when there is no title, there is no title.

But if the possessor acquired the movable in a public sale, the owner cannot obtain its return without reimbursing the price.

If the buyer acquired the movable from a merchant’s store, the owner cannot recover anymore even if he was unlawfully deprived or it was lost.




Unlawfully deprived – does NOT apply if the owner voluntarily participates in a sale and was the victim of fraud (EDCA Doctrine). What it means is the taking without the owner’s consent or participation (e.g. theft and robbery)

Rules on Sale by a Co-OwnerGeneral Rule:

If he sells the entire – the sale is void, but valid as to his spiritual share If he sells a definite portion – the sale is void, but valid as to his spiritual share (if

indeed the buyer would have still bought such share had he known that the definite portion sold would not be acquired by him

Exceptions:1. it does not apply when the SM is indivisible by nature or intent (Mindanao Doctrine)2. when the sale of a particular portion of a thing owned in common is with the consent

of the co-owners (Pamplona Doctrine)3. A co-owner who sells one of the 2 lands owned in common with another and how

does not turn ½ of the proceeds of the sale to the other co-owner, the latter may by law and equity lay exclusive claim to the remaining parcel of land (Imperial Doctrine)

CHAPTER IXLOSS, DETERIORATION, FRUITS AND OTHER BENEFITS

Application1. applies only when the SM is determinate2. applies to both movables and immovables

History

Civil Law Common LawOwnership is transferred by tradicion Ownership is transferred by the perfection of

the contractRisk of loss is borne by the buyer upon perfection

Res perit domino – the owner bears the loss

The Bocobo Commission adopted the Res Perit Domino rule and at the same time, retained the civil law concept that ownership is transferred by tradition. The result is a fuck-up.

Effects1. before perfection – risk of loss shall be borne by the would-be seller since he owns

the thing2. at the time of perfection – if the thing is lost, the contract shall be “without any

effect” and therefore the seller bears the risk of loss3. after perfection but before delivery –

a. Loss

Tolentino and Baviera Paras and PadillaLoss is with the seller because his estate has become less due to the loss. Buyer does not have to pay because a sale is reciprocal by nature and the seller cannot comply with his obligation anymore. The contract has become inefficacious.

Loss is with the buyer since even though the SM is lost, he is still obliged to pay the price. His obligation to pay was not extinguished.

Villanueva: The Tolentino & Baviera stance is more logical.




b. Deterioration, fruits & improvements – risk of deterioration and benefits of fruits and improvements shall be borne by the buyer. Although the seller has ownership, the benefits and improvements are for the benefit of the buyer. (So, in effect, the res perit domino rule applies only in loss and not in deterioration, fruits and improvements._

NOTE: Just remember this simple formula by the Genius Villanueva: the risk of loss, deterioration and improvement shall always be for the account of the person who has both title and beneficial interest over the SM. When the title and beneficial interest do not merge in the same party, the risk of loss, deterioration and improvement will be for the account of the person who has beneficial interest.

4. after delivery – risk is borne by the buyer who owns the thingExcept:

a. when the delivery of the goods has been made to the buyer and the ownership has been retained by the seller merely to secure the performance by the buyer of his obligations in the contract (even if the buyer does not own the thing, the risk of loss is still hers)

b. actual delivery had been delayed through either party’s fault (risk of loss is with the party at fault)

CHAPTER XREMEDIES OF PARTIES FOR BREACH OF CONTRACT OF SALE

I. In case of Movables

A. Remedies of the Seller

1. Specific performance and rescission2. Special remedies of an unpaid seller

Definition of an “Unpaid Seller”a. When the whole of the rice has not been paid or tenderedb. When a bill of exchange or other negotiable instrument has been received as

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

Note: This includes an agent of the seller.

Rights of the Unpaid Seller

a. applies even if the seller has lost ownership (there has been constructive delivery)b. applies even if the buyer has entered into a 2nd salec. the first 2 remedies must be first availed of before the next 2 remedies can apply:

i. possessory lien Requisites:

1. where the goods have been sold without any stipulation as to credit

2. where the goods have been sold on credit, but the term of credit has expired

3. where the buyer has become insolvent Instances when unpaid loses his possessory lien




1. he delivers the goods to a carrier or other bailee for the purpose of transmission to the buyer without reserving the ownership in the goods or the right to the possession thereof

2. the buyer or his agent lawfully obtains possession of the goods 3. by waiver thereof

Note: there is no need to notify the buyer and the right may be exercised even if the unpaid seller is an agent or bailee

ii. stoppage in transitu – allowed only if the buyer becomes insolvent which must be proved (insolvent - buyer is unable to pay his debts as they fall due)

When are goods “in transit”?1. from the time they are delivered to a carrier or other bailee for

the purpose of transmission to the buyer, until the buyer or his agent in that behalf, takes delivery of them from such carrier or bailee

2. if the goods are rejected by the buyer, the carrier or other bailee continues in possession of them, even if the seller has refused to receive them back

When are goods not “in transit”?1. if the buyer or his agent obtains delivery of the goods before

their arrival at the destination2. if after arrival of the goods, the carrier or other bailee

acknowledges to the buyer or his agent that he holds the goods on his behalf and continues in possession of them as bailee of the buyer or his agent; and it is immaterial that further destination for the goods may have been indicated by the buyer

3. if the carrier of other bailee wrongfully refuses to deliver the goods to the buyer or his agent

How is the right exercised?1. by obtaining actual possession of the goods2. by giving notice of his claim to the carrier or other bailee in

whose possession the goods are:a. at the point of notice, the carrier has no choice but to

hold the goods for the disposition of the sellerb. if the notice was given to the carrier’s principal, enough

time must be given for the principal to inform the carrier When are the rights inapplicable?

1. when the goods are NOT in transit2. when there is a waiver of the right

iii. special right to resell Requisites for the right to apply

1. the goods are of perishable nature2. where the seller expressly reserves the right of resale in case

the buyer should make default3. where the buyer has been in default in the payment of the price

for an unreasonable time Effects

1. destruction of ownership of the 1st buyer even without court intervention

2. even an innocent 3rd person will not be protected if the 1st buyer sells the goods to such 3rd person

3. the unpaid seller can sell the goods to another even if he is not the owner of the goods




4. any deficiency in the 2nd sale will be paid by the 1st buyer Unpaid seller cannot directly or indirectly buy the goods (1533)Note: Giving of notice is not essential for the validity of the resale. It is relevant only in an issue involving the question of whether the buyer had been in default for an unreasonable time before the resale was made.

iv. special right to rescind Requisites for application

1. it was expressly reserved in case the buyer should make default, or

2. the buyer has been in default in the payment for an unreasonable time

Effects1. destruction of ownership of the 1st buyer even without court

intervention2. even an innocent 3rd person will not be protected if the 1st buyer

sells the goods to such 3rd person3. seller may recover from the buyer any loss caused by the

breached contract Difference between ordinary rescission and special right to

rescind: Generally, ordinary rescission needs court intervention. The special right to rescind does NOT need court intervention.

Note: Giving of notice is not essential for the validity of the resale. It is relevant only in an issue involving the question of whether the buyer had been in default for an unreasonable time before the resale was made. (However, in view of the UP case, notice must be given every time there is rescission.)

B. Remedies of the Buyer

1. Specific performance and rescission 2. Furthermore, the buyer may suspend payments in anticipation of breach unless the

seller gives security for the return of the price in a proper case

C. Recto Law and Art. 1484

1. Rationale: to remedy the abuses committed in connection with the foreclosure of chattel mortgages and was meant to prevent mortgagees from seizing the mortgaged property, buying it at a foreclosure sale for a low price, and then brining suit against the mortgagor for a deficiency judgment

2. Coveragea. sale of personal property payable on installmentsb. levy doctrine: to be under Art. 1484, there must be 2 or more installmentsc. The SC in Zayas applied the Recto Law in financing. However, the peculiar

circumstances in Zayas was that there was an original sale contract and the credit was merely assigned to the financing company. In other words, financing per se is not covered by the Recto Law. There must be an underlying contract of sale.

3. RemediesNote: The vertical barring effect states that once a remedy is chosen among the 3 enumerated here and it takes effect, the seller cannot choose another remedy

a. Specific performance




When deemed chosen: Filing of an action for specific performance in court

Horizontal barring effect: NONE. You can recover the whole unpaid balance. (This is true even if the action instituted has the same effect as foreclosure, as wherein a mortgage property has been attached and sold, since it is NOT technically a foreclosure.)

Choosing specific performance vertically bars the other remedies EXCEPT if after choosing specific performance the same has become impossible, rescission may be availed of.

b. Rescission When deemed chosen

1. filing an action for rescission in court2. taking actual possession or filing replevin coupled with a

manifest intention of rescission. Horizontal barring effect

1. Seller cannot seek further action on the purchase price (since he already has possession of the SM and rescission by its nature involves mutual restitution returning any amount previously paid, unless there is a stipulation that the installments paid shall not be returned which is valid insofar as it is not unconscionable under the circumstances.

2. Furthermore, damages may be awarded to the extent of the loss

c. Foreclosure When deemed chosen: upon actual sale; before that, the seller can

still collect the installments due (specific performance) Horizontal barring effect: once foreclosure is chosen, the seller

cannot anymore recover any unpaid balance of the price (that is the essence of the Recto Law)

“Unpaid balance of the price”: is all encompassing and includes not only the purchase price but stipulations in the contract for damages, interests and attorney’s fees (Eustaquio Doctrine)

Eustaquio Doctrine: does not apply to a perverse buyer-mortgagor or one who refuses to surrender the chattel to the seller to allow the latter to foreclose. In such a case, the seller is allowed to recover expenses and attorney’s fees incurred in trying to obtain possession. (Ridad Doctrine).

Cruz Doctrine: It is not true that after foreclosure, Art. 1484 prohibits further action only ‘against the purchaser.’ It applies also against recovering the deficiency (e.g. by foreclosing on the other mortgages made by the buyer) from 3rd parties.

Borbon Doctrine: This is a situation which is the reverse in Cruz. To circumvent Cruz, what if foreclosing on the other mortgages is instituted? This CANNOT be done. The reason is not because of the barring effect in 1484, but because of the principal in credit transactions that seeking specific performance is deemed a wavier of the foreclosure of the chattel mortgage.

II. In case of Immovables

A. Remedies of the Seller

1. Specific performance and rescission




2. An anticipatory breach entitles him to rescission3. Failure of the buyer to pay the purchase price entitles the seller to rescind the

contract of sale upon judicial or notarial demand (1529). But the SC in some cases refused to allow rescission even if proper on equity grounds.

B. Remedies of the Buyer

1. Specific performance and rescission2. Suspension of payment because of disturbance or reasonable grounds to fear such

disturbance3. In case of subdivision and condominium projects, the developer may not forfeit

previous payments if the buyer desists from paying installments due to the failure of the developer to develop the subdivision or condominium. The notice of demand for refund and notice of intent not to remit further payments can be made at the same time.

C. Maceda Law

1. Rationale: protects buyer of real estate on installment payments against onerous and oppressive conditions

2. Coverage: (both contracts of sale and contracts to sell)a. Residential real estateb. Residential condominium units

Note: By express provision of law, the Maceda Law not only covers rates but also financing. Also, the meaning of installments in the Levy doctrine applies also here.

3. Items not covered:a. Commercial real estateb. Industrial real estatec. Non-residential condominium unitsd. Agricultural lands

Note: Art. 1529, 1191 and the law on suspensive conditions govern the first 3. CARP governs the last.

Rights under the Maceda Law

At least 2 years Installment Period Less than 2 Years Installment PeriodStatutory Grace Period: To pay without additional interest, the

unpaid installments with a grace period of 30 days for every 1 year of installment paid.

Right to make use of the grace period can only be exercised every 5 years of the contracts life and its extension.

Statutory Grace Period: To pay without additional interest, the

unpaid installments with a grace period of 60 days from the date of the installment became due.

Jurisprudential Grace Period: The seller could cancel the contract only

after 30 days after receipt of the notarial notice of cancellation or rescission by the buyer. Within the 30 days, buyer may still pay. (But in this case, interest and penalties may be included unlike in the statutory grace period.)

Jurisprudential Grace Period: The seller could cancel the contract only

after 30 days after receipt of the notarial notice of cancellation or rescission by the buyer. Within the 30 days, buyer may still pay. (But in this case, interest and penalties may be included unlike in the statutory grace period.)

If the contract is cancelled, seller shall




refund 50% of the total payments made after 5 years of installment, an additional 5% every year but not to exceed 90% of total payments.

Note: It is only after the refund is the cancellation or rescission complete. Unlike when it is less than 2 years where the cancellation or rescission is complete upon the lapse of the jurisprudential 30-day grace period.

Any stipulation contrary to the Maceda Law is null and void. The notice of rescission or cancellation may be by notarial act, meaning it need not

be judicial. (However, note that the McLaughlin implies that the notarial act is not needed if it is a “notice of cancellation”).

In determining whether it is more or less than 2 years, the number of years is not controlling. What determines the period is the application of payments, whether they cover 2 years or not.

CHAPTER XIRESCISSION: CONTRACT OF SALE VS. CONTRACT TO SELL

WARNING: The following discussion is a poor attempt to synthesize the sales on rescission. Proceed at your own risk.

Rescission A remedy by the party in reciprocal obligations where there is a breach on the part of

the other party This does not cover the rescission which pertains to rescissible contracts where lesion

is the main consideration The breach of contract which falls under rescission must be “substantial breach”

because of the doctrine that substantial compliance is deemed to be full compliance The effect of rescission is mutual restitution (but stipulations which say that

installments paid shall not be returned is valid insofar as they may not be unconscionable under the circumstances)

Only the injured party (which may be a 3rd person) may demand for rescission

Distinction between a contract of sale and a contract to sell

Contract of Sale Contract to SellPerfection gives rise to reciprocal demandable obligations

Perfection only give rise to reciprocal suspensive conditional obligations (non-demandable until the condition happens). Consequently, the non-happening of the condition extinguishes the obligation.

Delivery transfers ownership. Even after the happening of the suspensive condition (which is full payment of the price) ownership is still not transferred, until a contract of sale is entered into and there is delivery.

Non-payment of the price by the buyer or the non-delivery of the SM by the seller would constitute resolutory conditions

Non-happening of the suspensive condition, which is payment of the price, prevents the obligation to sell n the part of the seller from




and may be a basis for rescission. materializing at all. Rescission can be availed of only in case of substantial breach.

Principle of substantial breach has no application since the non-happening of the condition, substantial or not, ipso jure prevents the obligation from arising.

NOTE: Remember this concept, it will be relevant in the following discussion.

Provision granting a party a right to rescind will be superfluous since by law, it is inherent in this contract.

Rescission is irrelevant. Non-happening of the condition of full payment prevents the sale from materializing, so there is nothing to rescind.

Under the law and jurisprudence, a contract which contains a stipulation that ownership is reserved in the seller and not to pass to the buyer until full payment of the purchase price is a contract to sell.

Also, the SC in Dignos, held that in a contract to sell, there must be a right granted to the seller to extra-judicially rescind or cancel the contract in case of default. Absence of such a stipulation makes the contract one of sale.

Note: However, in some cases, the SC held that the contract is a contract to sell even in the absence of such stipulation.

Rules on rescission and what law governs1. 1191 is the general rule in rescission2. 1191 does NOT apply to contracts to sell. No positive action is required in a contract

to sell because the non-happening of the condition destroys the contract. Therefore, there is nothing to rescind.

3. Also the following are NOT under 1191:a. movables under the Recto Law since such law governsb. immovables

4. Immovables are governed generally by 1529 which states that “in the sale of immovable properties, even though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or by notarial act. After the demand, the court may not grant him a new term.”

5. However, those immovables covered under the Maceda Law are governed by such laws. Furthermore, the Maceda Law also covers Contract to Sell and allows rescission to such contracts (which is a complete turn-around of the general rules in 1-4 above)

Rules on rescission and substantial breach1. The general rule is that rescission is proper when there is substantial breach2. Since 1191 and 1529 does NOT apply to a contract to sell, even if there is substantial

breach in a contract to sell, rescission is not proper because the non-happening of the condition of full-payment prevents the sale from materializing. There is no contract to rescind at all.

3. However, the SC in cases falling under the Maceda Law (where being a contract of sale and a contract to sell fall under the same law), applied substantial compliance principles to contracts to sell. This is because the Maceda Law promotes a higher value. (So take not of the coverage of the Maceda Law.)

4. We can conclude therefore that only those contracts to sell which fall under the Maceda Law may be rescinded and where substantial compliance principles are applicable.




Rules on rescission and when it takes effect1. it is generally judicial and requires court action except when it is extra-judicial (the

contract contains the stipulation: in case of default by 1 party, the other party may rescind by mere written notice (without need of going to court)

2. those under 1529 (take note of this provision’s coverage above) require that there be a demand for rescission either by judicial or notarial act)

3. since rescission is not applicable to contracts to sell, logically, notice need not be given when the contract is a contract to sell

4. under the Maceda Law, for rescission to take place, there need only be the expiration of the 30-day grace period after notarial notice of rescission or cancellation has been given to the buyer (but take note that the case value refund must be paid for rescission to take effect when installments have been paid for more than 2 years)

5. Furthermore, since under the Maceda Law, contracts to sell may be rescinded (which is against rule number 3), the SC in UP and Palay held that even in contracts to sell, a minimum requirement for rescission is notice to the buyer (this refers to situations where rescission is allowed in contracts to sell like those under the Maceda Law)

Note: The rationale why notice is required even in contracts to sell may be seen in 1545, since the law grants the seller the option to waive the breach, and still accept payments, then notice must be given to the buyer that the seller is not waiving.

Note: What complicated matters is that the SC used the principles of justice and equity to make rescission applicable to contracts to sell, even though by their nature, rescission is not a remedy in those types of contracts. Also, the Maceda Law was made applicable to both contracts of sale and to sell, which produced a number of mix-up principles.

CHAPTER XIICONDITIONS AND WARRANTIES

Reason: Why they are lumped together:1. to provide how each behaves differently in sales2. to distinguish it from warranties

Distinguish:

Conditions WarrantiesWhen a condition is imposed in the perfection of the contracts, failure to comply means a failure of the contract to materialize. When the condition is imposed on the performance of the contract, the injured party may either refuse to proceed with the sale or waive the condition. Non-happening of the condition is not a breach, so there can be no damages.

Non-fulfillment of a warranty constitutes a breach and damages may be awarded

Applies to a buyer and seller Applies only to the seller because it pertains to the SM

Goes into the root of the existence of the obligation

Goes into the performance of the obligation

Must be stipulated May form part of the contract by express provision of the law

Applicable to other contracts Applies only to sales contracts




The only time a condition amounts to a breach is when there is an express promise that the condition will happen. The condition becomes a warranty and damages may be awarded in case of breach.

It is important to discuss warranties because rescission on the part of the buyer can ONLY happen if there is a breach of the seller’s warranties.

Kinds of Warranties1. EXPRESS (it is essential to look at the wordings to determine the extent of the

warranty)a. It must be an affirmation of fact or any promise by the seller relating to the

thing, SM of the saleb. The natural tendency of such affirmation or promise is to induce the buyer to

purchase the same; andc. The buyer purchases the thing relying thereon

Note: A statement of opinion (seller’s talk) is not a warranty, UNLESS The seller is an expert and such was relied upon by the buyer.

2. IMPLIED Every contract has these warranties and the 3 requisites in express warranties

need not be present By express stipulation, an agent of the seller may bind himself to such

warranties

a. Warranty that the seller has a right to sell and transfer ownership Applies only in the consummation stage It is an essential warranty and CANNOT be waived It goes into the obligation to transfer ownership

b. Warranty against eviction Goes into the obligation to deliver possession Warrants that the buyer shall enjoy legal and peaceful possession of

the SM Requisites to say that there is a breach of the warranty:

i. buyer is dispossessed of the property in whole or in partii. by final judgmentiii. based on a cause of action prior to the sale or an act imputable

to the selleriv. seller must be made either a co-defendant or a 3rd party

defendantNote: However, even if all the requisites are present, but there is acquisitive prescription prior to the sale and is completed after the transfer, the seller shall not be liable for eviction. This is because the buyer did not do anything to prevent the prescription.

Waiver of the warranty:i. Seller in bad faith (aware of the claims) – any waiver is VOIDii. Seller in good faith (no knowledge of the risk)- General: seller shall ONLY pay the value of the thing sold at

eviction (NO DAMAGES)- Specific: if buyer knew of the specific risk, the seller will not be

liable, but only as to that specific riskGenius of Villanueva: In effect therefore, there is no such thing as waiver of this warranty. A general waiver is no waiver at all because the seller still has to pay. In a specific waiver, there is nothing to waive




because when you know that a problem exists and you still buy, there’s nothing to waive.

This warranty applies to judicial sales

c. Warranty against non-apparent servitudes Applies only:

i. with the servient estateii. the immovable sold is encumbered with any non-apparent

burden or servitude not mentioned in the agreementiii. the nature of the servitude is such that it must be presumed

that the buyer would not have acquired it had he been aware thereof

When not applicable: if the non-apparent burden or servitude is recorded in the Registry of Property UNLESS there is an express warranty that the thing is free from all burdens and encumbrances

Prescriptive Period (depends on the ground):i. action for rescission or sue for damages – 1 year from execution

of the deedii. action for damages – 1 year from the knowledge of burden or

servitude

d. Warranty against hidden defects Applies only when:

i. the thing is newii. it is an intangibleiii. the defect is hiddeniv. the defect should go to the utility of the thing or it will render

the SM unfit for the purpose it was purchasedv. had the buyer been aware of the defect, he would not have

purchased Effect: Buyer may elect between withdrawing from the contract and

demanding a proportionate reduction of the price with damages in either case

Loss of the thingi. if due to the defect

- seller was aware: seller shall bear the loss, return the price, refund expenses for the contract and damages

- seller was not aware: same liability except NO damagesii. if NOT due to the defect

- seller was aware: buyer may demand the price he paid less the value which the thing had when it was lost plus damages

- seller was not aware: same liability except no damages waiver of the warranty

i. seller is in bad faith – still liable, the waiver is voidii. seller is in good faith – loss will not make the seller liable

Prescriptive period: 6 months from the delivery of the thing sold This applies only to judicial sales

e. Redhibitory defects on animals Applies only to movables Redhibitory defect of such nature that expert knowledge is not

sufficient to discover it




General Rule: defect in one animal does not affect the other even if they were bought as a team UNLESS it appears that the buyer would not have bought if there was a defective one

This warranty does NOT apply to animals sold at fairs or public actions or livestock sold as condemned

Void sale of animals:i. those suffering from contagious diseasesii. if the use or service which they acquired has been stated an

they were found to be unfit Prescriptive period: 40 days from the date of delivery to the buyer

Specific Implied Warranties in the Sale of Goods1. Warranty

a. Where buyer makes known to the seller the particular purpose for which the goods are acquired and it appears that the buyer relies on the seller’s skill or judgment

b. Where the goods are brought by description from a seller who deals in goods of that description

Note: In case of breach and in the absence of special circumstances showing proximate damage of a greater amount, the measure of damage is the difference between the value of the goods at the time of delivery and the value they would have had if they had answered to the warranty

2. Sale of Goods by Samplea. There is an implied warranty that the goods shall be free from defect

rendering them unmerchantable which would not be apparent on reasonable examination of the sample.

CHAPTER XIIIEXTINGUISHMENT OF SALE

Preliminaries The same grounds for extinguishment of obligations apply to sale. However, payment

or performance does not extinguish a contract of sale itself since the relationship between the buyer and seller remains

Redemption is a mode of extinguishment to a contract of sale

Kinds of Redemption1. Conventional2. Legal

Conventional Redemption

Definition: When the seller reserved for himself the right to repurchase the thing sold with the obligation to return the price of the sale, the expenses of the contract, any other legitimate payments made by reason of the sale, and the necessary and useful expenses made on the thing sold. In short, a right of repurchase or a sale a retro.

Distinguished from an Option Contract

Option Contract Right of RepurchaseA principal contract Not even a contract, it cannot exist apart from a main

contract of saleNeeds a separate consideration The question of consideration is irrelevant since there




is not even a contract Seeks to establish a contract of sale Seeks to destroy a contact of sale in existenceExercisable by notice of exercise Exercisable by tender of payment or consignationPeriod may be anytime Maximum period cannot exceed 10 years

When does a sale a retro exist?1. only at the time of perfection

a. if at a point other than perfection, it is an option2. it must be by express stipulation

Can the existence of a sale a retro be proved by parole evidence? The SC held that even though a sale a retro is part of the sale, there is no requirement

that it must be in a memo. (Remember: all that is required in a memo is SM and price with all the requisites plus the signature of the party upon which the sale is sought to be enforced.) The existence of the memo allows the introduction of parol evidence to prove the existence of the sale a retro.

Also, parol evidence may be used if no objection was made to its presentation in trial.

Period of Redemption1. no period agreed upon – 4 years from the date of the contract2. if there is a period agreed upon – that period, but it must not exceed 10 years3. if the period is void for exceeding 10 years – period is 10 years

How Redemption Effected1. returning to the buyer the price of the sale2. paying the expenses of the contract, and any other legitimate payments made by

reason of the sale3. paying the necessary and useful expenses made on the thing sold

Note: ONLY tender of payment is sufficient. If the buyer is nowhere to be found, the money must be consigned to the court.

Effect When No Redemption is Made1. buyer a retro acquires full ownership ipso jure2. nothing stops the period of redemption from running (not even non-payment of the

rice by the buyer!), EXCEPTa. the pendency of the action brought in good faith and relating to the validity of

a sale a retro (Ong Doctrine)b. Art. 1606, which grants a 30-day redemption period after judgment in a case

where the issue is: whether a contract is a sale a retro or an equitable mortgage

Note: if the issue is whether a contract is a sale a retro or an absolute sale, then there is no 30-day redemption period

Equitable Mortgages in Relation to a Sale a Retro Definition: One which although lacking in some formality, or form of words, or other

requisites demanded by a statute, nevertheless reveals the intention of the parties to charge real property as security for a debt, and contains nothing impossible or contrary to law.

Requisites:i. that the parties entered into the contract denominated as a contract of sale;

andii. their intention was to secure an existing debt by way of mortgage

Distinguish:




Equitable Mortgages Sale a RetroAncillary to a contract of loan Not an ancillary to any contractRemedy of non-payment of the loan is foreclosure

If the right of repurchase is not exercised, the buyer becomes the owner ipso jure

Why is this in sales? The practice nowadays is that instead of equitable mortgage, the parties enter into a sale a retro (which in fact is an equitable mortgage in disguise), such that upon failure to pay the loan, foreclosure proceedings need not be instituted. In mortgages, there is a public policy that failure to pay the loan does not automatically transfer ownership to the mortgagee (pactum commisorium). To circumvent this, lenders enter into an equitable mortgage disguised as a sale a retro. That is why a sale a retro is construed to be a true equitable mortgage, the expiration of the purported period of redemption does NOT ipso jure transfer ownership to the purported buyer. There must be a foreclosure proceeding. Furthermore, if there is a subsequent sale to an innocent 3 rd person, the latter will not be protected since there was voidable title on the person who sold to him (But take note of the Chain of Title theory). In case of doubt, a sale a retro is treated as an equitable mortgage.

Legal Redemption

Definition: The right to be subrogate upon the same terms and conditions stipulated in the contract, in the place of one who acquires a thing by purchase or dation in payment, or by any other transaction whereby ownership is transmitted by onerous title.

Instances of Legal Redemption1. among co-heirs – in sale of hereditary rights2. among co-owners – in sale of the indivisible co-owner’s share3. among adjoining owners

a. in rural landb. in urban land

4. sale of credit in litigation – debtor is given the right to extinguish the assignment of credit by reimbursing the assignee for the price the latter paid, the judicial costs, and interest.

5. other cases by lawa. redemption by homesteadb. redemption of sales taxc. redemption by judgment debtord. redemption in extra-judicial foreclosuree. redemption in judicial foreclosure

Period in which to exercise the right 30 days which will ONLY begin to run when the following requisites concur:

o There is a written notice (which may be in any form)o Given by the seller

Note: these are strict requirements such that not even registration in the Register of Deeds will do the trick

o The written notice by the seller must pertain to a perfected contract of sale (Spouses Doromal Doctrine)

Note: this is a stupid doctrine because the law also talks of a would-be seller which implies an unperfected contract of sale

Exceptions (that the running of the period is only upon written notice by the seller):1. when there is laches (Alonzo and Pilapil Doctrine)




2. if the co-owner himself was the agent to effect the sale to a 3 rd party thereby having knowledge thereof (Distrito Doctrine)

Note: The exceptions do not reverse the strict requirements of written notice by the seller. Its just that under the special circumstances in those cases, they were exempted (Alonzo Doctrine).

CHAPTER XIVASSIGNMENT

Assignment the sale of credits and other incorporeal rights Distinguished from sale because of the SM. In sale, the SM is tangible. In assignment

it is intangible. Otherwise both are the same. Like sale, assignment includes all accession and accessories. It needs constructive delivery to transfer ownership.

Binding Effect To bind 3rd persons, an assignment must be in a public instrument. Furthermore, if it

covers real rights, there must be registration in the Registry of Deeds. Without public instrument, the assignment would still be valid but enforceable only

as between the assignor and assignee and their successors-in-interest. An assignment of a document of title does NOT bind the bailee unless specific notice

of transfer is given.

Effect of Assignment of Credit If debtor pays the creditor without knowledge of the assignment, payment shall

releases the former from further obligations. If assignment is made w/o the debtor’s knowledge, debtor may set up against the

assignee the compensation which would pertain to him against the assignor of all credits prior to the assignment and also later ones until he has knowledge of the assignment.

If the debtor consented to the assignment, compensation cannot be set up unless the assignor was notified by the debtor at the time he gave his consent, that he reserved his right to compensation.

If there is communication of the assignment by the creditor, and the debtor did not consent, the latter may still set up the compensation of debts previous to the assignment but not subsequent ones.

Warranties Warranty against hidden defects is NOT applicable There is a warranty of the existence of the credit at the time of the sale EXCEPT if it

has been expressly sold as a doubtful account There is NO warranty regarding the solvency of the debtor except:

o There is a stipulation to that effecto The insolvency of the debtor was prior to the assignment and of common

knowledgeNote: Either way, the warranty shall cease 1 year after the maturity of the credit.

Effect of Assignment of Credit in Litigation The debtor shall have a right to extinguish it by reimbursing the assignee for the

price the latter paid, the judicial costs, and the interest on the price from the day on which the credit was paid




Such right can be exercised by the debtor within 30 days from the demand by the assignee for payment

The right does not exist in the following:a. assignment of creditor or incorporeal right to the co-heir or co-owner of the

rights assignedb. assignment to a creditor in payment for his credit; andc. assignment to the possessor of a tenement of piece of land which is subject to

the right in litigation assignedNote: “in litigation” means from the time a complaint concerning the credit is answered

CHAPTER XVTHE BULK SALES LAW

Rationale: To prevent a situation where merchants would cheat their creditors by hurriedly selling their business and vanish into thin air, with the creditors left holding the bag while the buyer in good faith and for value is protected

Coverage (applies only to merchandising concerns)1. any disposition or encumbrance of a stock of goods, wares, merchandize provisions

or materials otherwise than in the ordinary course of trade and the regular prosecution of the STMAer

2. any disposition or encumbrance of all or substantially all of the business or trade theretofore conducted by the STMAer

3. any disposition or encumbrance of all or substantially all of the fixtures and equipments used in the business of the STMAer

Note: As long as the transcription fails within any of the 3 transactions, it is a Bulk Sale. Intention of the seller, and good or bad faith is irrelevant.

Exceptions1. if the STMAer delivers a written waiver of the provisions of the law from creditors as

shown by verified statements2. doesn’t apply to executors, administrators, receivers, assignees in insolvency, or

public officers, acting under process

Obligations of the Seller when the transaction is a Bulk Sale1. prepare an inventory of amount of indebtedness and list of creditors 10 days before

the sale2. send notice to the creditors 10 days before the sale3. at the STMA, submit to the STMAer a sworn statement of creditors4. immediately thereafter, apply the proceeds to the creditors5. within 10 days after the STMA, submit to the DTI6. going through STMA must not be nominal

Effect of failure of doing the obligations (in accordance with the order above)]1. no criminal and civil consequences2. void transaction and criminal sanction

a. The transaction is void here not because of the Bulk Sales Law but of Common Law Principle that if the price of a sale is nominal, it is not real, making the contract void.




Obligations of the Buyer: There is no obligation and generally no criminal liability. However, since non-compliance of the BSL may lead to declaring the sale fraudulent and void, he is not entitled to the goods delivered to him.

CHAPTER XVIRETAIL TRADE LIBERALIZATION ACT OF 2000

Retail Trade Law1. habitual selling of merchandise, commodities, or goods2. to the general public3. for consumption

a. By jurisprudence, “for consumption” des not include sale to industrial and commercial establishments. In effect, the SC says that not only should you look at the nature of the goods, but also the purpose for which the goods were brought. (Balmaceda, Goodyear and BF Goodrich)

b. However in Marsman, the SC looked at the nature of the goods and the nature of the buyer. Such that diesel, not being a consumer item, is not a consumer good. (It is an auxiliary good because it is a factor in the production of other goods and satisfy wants only indirectly.)

Note: Absent one of the elements takes the sale out of the Retail Trade Law.

Exempted Transaction1. sales by a manufacturer, processor, laborer, or worker to the general public of the

products manufactured, processed or produced by him is his capital does not exceed P100,000

2. sales by a farmer or agriculturist selling the products of his farm regardless of capital3. sales in restaurant operations by a hotel owner or inn-keeper irrespective of the

amount of capital, provided that the restaurant is incidental to the hotel business4. sales to the general public, through a single outlet owned by a manufacturer or

products manufactured, processed or assembled in the Philippines, irrespective of capitalization

5. sales to industrial and commercial users or consumers who use the products bought by them to render service to the general public and/or produce or manufacture goods which are in turn sold by them; and

6. sales to the government and/or its agencies and government-owned and controlled corporations

Categories of Retail Trade EnterprisesA. Less than $2.5M B. $2.5M-$7.5M; store not less than $30KC. Above $7.5M; store not less than $830KD. High-end or luxury products with a capital of $250K per store

When Aliens May Invest in Retail Trade1. under category A, beginning 26 March 20022. under category B, C, D

Grandfather Rule Since the old RTL, prohibited non-100% owned corporations or partnership from

engaging in retail trade, how would you determine citizenship of shares of the selling corporation when they are held by another entity?




The rule is that shares belonging to corporations or parties at least 60% of the capital is owned by Filipinos, is Filipino. But if it is less, then only the number of shares corresponding to such percentage shall be Filipino.

Application of Anti Dummy Law ADL penalizes Filipinos who permit aliens to use them as nominees or dummies to

enjoy privileges reserved for Filipinos or Filipino corporations. Aliens are prohibited from employment in retail trade or establishments engaging in

such EXCEPT when:a. it is highly technicalb. no Filipino can do itc. with the President’s consent

Note: Later PD 175 allowed the election of aliens as members of the Board of Directors, in partially nationalized activities in proportion to their allowable participation in the capital of such activities.

There in the presence of God, I knew how my love

and I could be freed from the powers of darkness

- Mina

[For Titania]
