SALES - Villanueva

DEFINITION (Art. 1458)

PARTIES OBLIGATIONS

SELLER

BUYER

(1) TO TRANSFER OWNERSHIP

(2) TO DELIVER POSSESION

(3) TO PAY

SUBJECT MATTER

PRICE

GENERAL PRINCIPLES

CONSENT

Meeting of Minds Real Obligation

Real Obligations

SALE

2

ESSENTIAL CHARACTERISTICS OF SALE:

NOMINATE

PRINCIPAL

CONSENSUAL

BILATERAL/

RECIPROCAL

ONEROUS

COMMUTATIVE

vs.

TITLE

vs.

vs.

vs.

vs.

vs.

vs.

Innominate

Solemn Real

Unilateral

vs.

Gratuitious

Mode

Accessory

Aleatory

vs.

Prefaratory

3

SALES versus DONATION

CONSENSUAL SOLEMN

ONEROUS/ COMMUTATIVE

GRATUITOUS

ESSENCE: BOTH INVOLVE THE TRANSFER OF

OWNERSHIP/POSSESSION OF

SUBJECT MATTER

(i.e., 4th Requisite of

Form for validity)

(i.e., Pure Liberality as consideration)

4

SALES versus BARTER:

BARTER IS SALE, BUT WITH THE PRICE BEING REPLACED

WITH AN OBLIGATION TO TRANSFER

OWNERSHIP/POSSESSION OF ANOTHER SUBJECT MATTER

THEREFORE: BARTER GOVERNED BY LAW ON SALES

BUT: NOT COVERED BY STATUTE OF FRAUDS

5

SALES versus DACION EN PAGO:

DACION IS PROCESS OF EXTINGUISHMENT OF PRE-EXISTING OBLIGATION (CONTRACTS)

ESSENTIALLY: DACION GOVERNED BY LAW ON SALES

DACION NOVATES THE ORIGINAL CONTRACTUAL

RELATIONS INTO A FULLY EXECUTED SALE

(a) There must be delivery of subject matter in lieu of an

pre-existing obligation;

(b) There must be difference between prestation due and

what is give in substitute;

(c) There must be a clear meeting of minds that the pre-existing obligation is extinguished by reason of

the prestation substituted.

Lo v KJS Eco. Formwork System Phil.,

Inc., 413 SCRA 182 (2003)

6

SALES vs. CONTRACT FOR PIECE-OF-WORK:

Ineluctably, whether the contract be one of sale or one for a Piece of Work, a transfer of ownership is involved

and a party necessarily walks away with an object.

Commission of Internal Revenue v. Court of Appeals, 271 SCRA 605 (1997)

K for Piece-of-Work: Service is the Subject Matter

Although there is the primary obligation to

pay fee (or price), the main motivation is the

reputation, skill, mastery of contractor.

Engineering & Machinery Corp. v. Court of Appeals, 252 SCRA 156

(1996)

BUT: THERE CAN BE NO CONTRACT FOR PIECE-OF-WORK FOR PAST SERVICE RESULTING IN THE CREATION OF THE OBJECT

(ALWAYS A SALE)

7

SALES vs. AGENCY TO SELL/BUY

AGENCY REPRESENTATIVE

FIDUCIARY Essentially revocable

Fruits and of principal

AGENT

NOT PERSONNALY LIABLE FOR THE OBLIGATION CREATED BY THE SALE CONTRACT

NOT OBLIGED TO PAY THE PRICE

DOES NOT ASSUME THE RISKS OF

OWNERSHIP TO THE OBJECT OF SALE

8

SALES vs. AGENCY TO SELL/BUY Contd

THEREFORE:

AGENT is deemed to be Seller/Buyer when contracted to assume Risks and

Obligations contrary to his representative/

fiduciary role:

(a) HE ASSUMES OBLIGATION TO PAY THE PRICE

(b) SUBJECT MATTER

RISKS OF LOSS

INSURABLE INTEREST

MAINTENANCE

9

SALE versus LEASE:

LEASE ESSENTIALLY INVOLVES THE

TEMPORARY ENJOYMENT OF POSSESSION OF THE SUBJECT MATTER

TREATED AS SALE ON

INSTALLMENTS WHEN LEASE

STRUCTURED IN SUCH A WAY AS

TO AVOID APPLICATION OF THE

RECTO LAW

10

FEW INSTANCES:

PARTIES TO A SALE (The Essential Element of CONSENT)

GENERAL RULE: All Parties Having Capacity to Contract Can Be Valid Parties To a Sale

EXCEPTIONS:

(a) Minors, Demented, Deaf-Mutes Sale is Voidable

- Purchase of Necessaries

- Emancipation

(b) Spouses (Art. 1490)

- Sales to Third Parties Sale by One Spouse Void

- Sales to Each Other Void

Except: When marriage governed by Complete Separation of Property Regime

By Pre-nuptials

By Judicial decree 11

OTHER RELATIVE DISQUALIFICATIONS (Art. 1491)

Guardian Wards

Agent Principal

Except: When granted express power to buy principals property

Administrator/

Executor Estate under administration

Public Officers Government property under

their jurisdiction

Judges/Justices/

Court Officers Property falling in their jurisdiction

Lawyers Clients property in litigation

Except: Contingency fee arrangement

BUT NOT: Purchase of Inheritance Rights

12

SUBJECT MATTER (OBLIGATION to Transfer Ownership and Deliver Possession)

1. POSSIBLE THING

2. LICIT

3. DETERMINATE DETERMINABLE

vs.

vs.

vs.

Impossible things

Illicit

Non-Determinable

GENERICS

RATIONALE: Transfer of Ownership/Possession of the Subject Matter is the ESSENCE of SALE

Obligation should therefore not be illusory

To comply with the Obligatory Force principle in Contract Law

13

PRICE & OTHER CONSIDERATION (The Obligation to Pay)

1. REAL/TRUE vs. FALSE (Reformation)

vs. SIMULATED (Void)

2. Money or its Equivalent vs. PURE vs. NOMINAL VALUABLE CONSIDERATION LIBERALITY CONSIDERATION

4. MANNER OF PAYMENT

vs. UNASCERTAINABLE ASCERTAINABLE

3. CERTAIN

RATIONALE: Must comply with Obligatory Force principle in Contract Law

Must meet Onerous and Commutative characteristics of SALE

14

UNASCERTAINABLE vs.

STAGES IN LIFE OF SALE

NEGOTIATION

Covers the period from the time the prospective contracting parties indicate interest in the contract up to the time immediate before the contract is perfected.

PERFECTION

Takes place upon the concurrence of the essential elements of the Sale which are:

the meeting of the minds of the parties as to the object of the contract upon the price.

CONSUMMATION It begins when the parties perform their respective

undertaking under the perfected contract of sale, culminating in the extinguishments thereof.

Jovan Land, Inc. v. CA, 268 SCRA 160 (1997)

San Miguel Properties Philippines, Inc. v. Huang, 336 SCRA 737 (2000)

15

POLICITACION STAGE

Invitations to make Offers (Proposals)

OFFERS

ACCEPTANCES

AGENCY TO SELL/TO BUY

OPTION CONTRACTS

RIGHTS OF FIRST REFUSAL

AGREEMENTS TO ENTER INTO SERIES OF SALES

MUTUAL PROMISES TO BUY AND SELL (Contracts to Sell of the First Type)

16

RULES ON OFFERS:

1. Offer is at the complete will of Offeror, who may destroy

it at will prior to acceptance

2. Will disappear or lapse upon the happening of the condition or period placed upon it

3. When floated unconditionally, will be extinguished

through the passage of reasonable time

4. Cannot be accepted partially or even substantially

Counter-offer extinguishes original Offer

5. Legal effect of acceptance is taken only from point of view of Offeror

Offeror may still extinguish Offer at any time before he has

knowledge of Acceptance

6. Only a certain Offer when met by an Absolute Acceptance will give rise to a valid SALE.

17

CERTAIN OFFER

(a) CONTAINS A CLEAR PROMISE TO SELL/TO BUY

(b) COVERS A SUBJECT MATTER THAT IS: Possible thing

Licit

Determinate or Determinable

(c) COVERS A PRICE OR CONSIDERATION Real

Valuable

Certain or Ascertainable

With Manner of Payment/Performance agreed upon

18

ABSOLUTE ACCEPTANCE

(a) NO CONDITION OR AMENDMENT OF THE TERMS OF THE OFFER

(b) MAY CLARIFY

(c) BUT NEVER TOUCH ON THE TERMS/COVERAGE OF SUBJECT MATTER

AND TERMS/COVERAGE OF PRICE

19

OPTION CONTRACT:

ACCEPTANCE of OFFER to give on Option to Buy/to Sell

CONSIDERATION: Anything separate and distinct from Price

SUBJECT MATTER: Option or Privilege to Sell/ Purchase:

AN OBJECT: AT A PRICE: - Possible - Real - Licit - Valuable

- Determinate/ - Certain/

Determinable Ascertainable

20

1. If no separate consideration, Option Contract

void, but may constitute certain Offer which can

be withdrawn by Offeror, but if accepted before

withdrawal would give rise to a valid Sale

(Sanchez v. Rigos doctrine)

2. If withdrawal of option/offer whimsical or

arbitrary, could give rise to damage claim under

Art. 19 of Civil Code

3. When there is separate consideration, an

Option Contract deemed perfected:

Ang Yu Asuncion v. Court of Appeals 238 SCRA 602 (1994)

21

(a) If exercised within option period, gives rise to Sale, which can be enforced by specific performance

(b) Would be a breach of the Option Contract, for Offeror to withdraw the offer during the agreed period, but withdrawal destroys nevertheless the Option

Ang Yu Asuncion v. Court of Appeals contd

22

Optionee-Offeree may not sue for specific

performance on the Sale since it has failed

to reach its own perfection stage

Optioner-Offeror, however, renders himself

liable for damages for breach of option

(c) But if, however, Optioner-Offeror withdraws

Offer even during option period before its

acceptance (i.e., exercise):

RIGHT OF FIRST REFUSAL

OFFEROR BOUNDS HIMSELF TO FIRST

OFFER SUBJECT MATTER TO OFFEREE

FOR SALE

IN THE EVENT OFFEROR EVER DECIDES

TO SELL IT

SUBJECT MATTER

Possible thing

Licit

Determinate/Determinable

PRICE: THAT WILL THEN (HAPPENING OF CONDITION) BE AGREED UPON

23

ESSENCE:

CONDITION:

DOCTRINES ON RIGHTS OF FIRST REFUSAL

Ang Yu Asuncion v. Court of Appeals

Generally, RFRs would be none contracts, for lack of cause or consideration, or failure to agree

the valid Price for the expectant contract

Merely innovative juridical relation

RFR

Cannot be enforced by specific performance

Not being a Contract, it lacks essence of

consensuality, obligatory force or mutuality

Breach allows recovery of damage based on Art. 19

principle of Abuse of right

24

Equatorial Realty Dev., Inc. v. Mayfair Theater 264 SCRA 483 (1996)

DOCTRINES ON RFR contd

When RFR attached to a valid principal contract

(e.g. Lease), its enforcement takes its vitality from

the obligatory force of the principal contract

Such RFR, when breached may be enforced, at the

Price at which Subject Matter sold to Third Party

The Third-Party Buyers purchase may be rescinded under accion pauliana, i.e., entered into

in breach and in fraud of Optionees contractual right

25

Paraaque Kings Enterprises v. CA 268 SCRA 727 (1997)

DOCTRINES ON RFR contd

RFR is complied with by first offering the Subject

Matter to the Optionee and negotiating for a Sale

There is no obligation to reach a sale,

obligation is to negotiate in good faith

Only when negotiations do not ripen into a Sale,

can Subject Matter be offered to Third-Party

Buyer, but at same price and terms asked of the

Optionee

Otherwise, must re-offer under new terms to

Optionee

26

AGREEMENTS TO ENTER INTO FUTURE SALE

OR SERIES OF SALES:

- National Grains Authority v. IAC, 171 SCRA 131 (1989)

- Johannes Schuback v. Court of Appeals, 227 SCRA 719 (1993)

(1) DISTRIBUTION/ SUPPLY AGREEMENT

27

ESSENCE:

An Agreement to enter into a series of Contracts of Sale

Obligations to do To enter into a Contract of Sale

(2) MUTUAL PROMISES TO BUY AND TO SELL (CONTRACTS TO SELL)

MUTUAL PROMISES TO BUY AND SELL (CONTRACTS TO SELL)

1. AGREEMENTS TO ENTER INTO CONTRACT OF

SALE UPON HAPPENING OF THE CONDITIONS

Essentially, contains Obligations to do: to enter into a Sale

2. CONDITIONAL CONTRACT OF SALE WHERE THE

BILATERAL OBLIGATIONS TO BUY AND SELL HAVE

BEEN AGREED UPON, BUT SUBJECT TO SUSPENSIVE

CONDITION

Condition usually is the full payment of the

price

28

PERFECTION STAGE

PERFECTION HAPPENS WHEN A CERTAIN OFFER HAS BEEN MET BY AN ABSOLUTE ACCEPTANCE

THE ONLY POINT IN TIME TO DETERMINE THE VALIDITY OR INVALIDITY OF A CONTRACT OF SALE

ESTABLISHES THE CONTRACTUAL PRINCIPLES OF:

CONSENSUALITY

MUTUALITY OR OBLIGATORY FORCE RELATIVITY

29

Birth sets the essence of the Sale

FORM OF SALE

GENERALLY: None, because Sale is consensual contract

FOR ENFORCEABILITY: STATUTE OF FRAUDS

1. Sale which by its terms is not to be

performed within one (1) year.

2. Sale of Movables, at least P500

3. Sale of Immovables, at any price

Must be in writing signed by the party sought to be bound

30

FORM OF SALE contd

Memo must contain Description of:

(a) SUBJECT MATTER

Possible thing

Licit

Determinate/

Determinable

(b) PRICE

real

valuable

certain/ascertainable

manner of payment provided

OR PARTIALLY EXECUTED (Estoppel)

OR WAIVER OF ADDUCEMENT OF ORAL EVIDENCE AT TRIAL

31

(c) SIGNED BY THE PARTY SOUGHT TO BE CHARGED

Exception: Electronic Document

FORM OF SALE contd

What Constitutes Partial Execution?

(a) Performance Must

Touch Upon

Subject Matter

Price

Cannot Cover Other Consideration

(b) Must Involve/Compromise Party Sought to be Charged

32

FORMS THAT VOID CONTRACT OF SALE:

1. SALE OF REALTY THROUGH AGENT:

AGENTS AUTHORITY MUST BE IN WRITING

SALE VOID: - EVEN IF DEED OF SALE IN WRITING and/or NOTARIZED

- EVEN IF THERE HAS BEEN

PARTIAL/ FULL PAYMENT

- EVEN IF THERE HAS BEEN

DELIVERY OF SUBJECT MATTER

- EVEN IF SALE REGISTERED

33

OTHERWISE:

SALES OF IMMOVABLES

1. PRIVATE DOCUMENT NEEDED TO BE ENFORCEABLE BETWEEN PARTIES

EXCEPT: PARTIAL EXECUTION/WAIVER

2. MUST BE IN A PUBLIC INSTRUMENT

-TO BIND THE PUBLIC

-TO BE REGISTRABLE WITH REGISTRY OF DEEDS

3. FOR REAL ESTATE, MUST BE REGISTERED TO BE VALID

AND BINDING AGAINST THE WORD

34

- Authority of Agent must be in writing VOID

- Bound by actual possession situation, otherwise not in good faith

CONSUMMATION STAGE

EFFECTS OF CONDITIONS

EXPRESS WARRANTIES

IMPLIED WARRANTIES

(3) REMEDIES

(1) PERFORMANCE DELIVERY OF

SUBJECT MATTER

PAYMENT OF PRICE

(5) EXTINGUISHMENT

CONVENTIONAL REDEMPTION (SALE A RETRO)

EQUITABLE MORTGAGES

LEGAL REDEMPTION

(2) RISK OF LOSS

(4) CONDITIONS AND

WARRANTIES

SPECIFIC PERFORMANCE

RESCISSION

DOUBLE SALES RULE

SUBDIVISION LOTS &

CONDO UNITS RULES

RECTO LAW

MACEDA LAW

35

OBLIGATIONS OF SELLER

1. TO PRESERVE THE THING WITH DILIGENCE OF A

GOOD FATHER OF A FAMILY

2. TO DELIVER THE SUBJECT MATTER

3. To DELIVER FRUITS, ACCESSORIES AND

ACCESSIONS

4. To COMPLY WITH WARRANTIES

OBLIGATIONS OF BUYER

1. TO PAY THE PRICE

2. TO ACCEPT DELIVERY OF SUBJECT MATTER

36

DELIVERY OF SUBJECT MATTER

TRADITION AS THE MODE TO TRANSFER OWNERSHIP

- Actual or Physical Delivery

- Constructive Delivery

37

MAGIC OF TRADITION

Fulfillment of the Primary

Obligation of the Seller

Transfer Ownership/

Possession to the Buyer

EXECUTION OF PUBLIC INSTRUMENT

- No Contrary Stipulation/ Intention

- Seller Must Have Control

- Passage of Reasonable Time

EXCEPTION: WHEN BUYER TAKES THE RISK

DOCTRINES ON CONSTRUCTIVE DELIVERY

Produces the Same Magic of Actual Delivery

CONSTRUCTIVE DELIVERY CONSTITUTUM POSSESORIUM

TRADITIO BREVI MANU

TRADITIO LONGA MANU OR SYMBOLIC DELVERY

39

DELIVERY THROUGH CARRIER

- FAS - FOB

- CIF

DOCUMENTS TO TITLE

DELIVERY FOR

INTANGIBLES

Public Instrument

Transfer/Negotiation of the Title Evidences the Intangible

Enjoyment of Rights and Privileges with

the consent of the Seller

RULES ON DOUBLE SALES UNDER ART. 1544

1. FOR MOVABLES:

First to Possess, in good faith

Oldest Title, in good faith

Then: First in time, priority in rights

2. FOR IMMOVABLES:

First to Register, in good faith

First to Possess, in good faith

Oldest Title, in good faith

Then: First in time, priority in rights

40

REQUISITES FOR ART. 1544 TO APPLY Cheng v. Genato, 300 SCRA 722 (1998)

(a) The two (or more) sales transactions must

constitute valid Sales;

(b) The two (or more) sales transactions must pertain

to exactly the same Subject Matter;

(c) The two (or more) Buyers at odds over the rightful

ownership of the Subject Matter must each

represent conflicting interests; and

(d) The two (or more) Buyers at odds over the rightful

ownership of the Subject Matter must each have

bought from the very same Seller

Consolidated Rural Bank (Cagayan Valley), Inc. v. CA, 448

SCRA 347 (2005)

41

EFFECTS OF ART. 1544 REQUISITES

Not applicable where one of the

Sales is Void

Not applicable to Contracts to Sell

Not applicable if first sale is the

Subject Matter and the second sale

is the redemption right to the

Subject Matter

42

DOCTRINES ON ART. 1544 DOUBLE SALES RULES

(a) Rules under Art. 1544 are addressed to the

Second Buyer, who is mandated to do

positive things if he hopes to win at all

Carbonell v. CA, 69 SCRA 99 (1976)

Uraca v. CA, 278 SCRA 702 (1997)

Consolidated Rural Bank (Cagayan Valley), Inc. v. CA, 448

SCRA 347 (2005)

First Buyer wins by being first (first in

time) and does not need the benefits

of Art. 1544

43

DOCTRINES ON ART. 1544 contd

(b) First Buyer wins by virtue of greater doctrine of first in time, priority in rights

(c) Second Buyer must register his purchase while in good faith if he hopes to win:

(d) First Buyer, who is always in good faith,

when he registers ahead, wins became

second buyer in hopeless

(e) Even if Second Buyer was first to possess in good faith, the subsequent registration by First Buyer prevails

Taedo v. CA, 252 SCRA 80 (1996)

44

(f) Knowledge of the First Buyer of the

second sale does not adversely affect

First Buyer, nor does it constitute

registration in favor of the Second Buyer

(g) However, knowledge of the Second Buyer

of the first sale, would place him not only

in bad faith, but would constitute

registration in favor of the First Buyer

Cruz v. Cabana, 129 SCRA 656 (1984)

45


(h) It seems that Second Buyer must have

paid in full the Price to gain the benefit

under Art. 1544, as the Court defines the

meaning of good faith to include having paid full value

Heirs of Aguilar-Reyes v. Spouses Mijares, 410 SCRA 97 (2003)

Tanongon v. Samson, 382 SCRA 130 (2002)

Balatbat v. CA, 261 SCRA 128 (1996)

Agricultural and Home Extension Dev. v. CA, 213 SCRA 536 (1992)

46


GLOBAL RULES ON DOUBLE SALE FOR REAL ESTATE

I. First to Register, in Good Faith and for Value, his

Purchase of Land registered under the Torrens

System wins, for registration is the Operative Act (Does not matter whether he is First or Second Buyer)

II. For Unregistered Land, as between a

conventional prior purchase, and a second

purchase at public auction, the first

Conventional Buyer wins, since the Buyer at

public sale is bound by the provisions of the

Rules of Court that says he only takes whatever

is the remaining title of the judgment debtor.

47

III. The Rules of Double Sale under Art. 1544 shall

apply, only when the requisites under Cheng v.

Genato are present, as follows:

1. First to Register in good faith

But this can only apply to unregistered

land, because Rule I applies to registered

land.

2. First to Possess in good faith, or

3. Oldest Title, in good faith

IV. First in time, priority in rights applies last

48

GLOBAL RULES ON DOUBLE SALE contd

SALE AND DELIVERY BY NON-OWNER

GENERAL RULE: Nemo Dat Quod Non Habet

SPECIAL RULES:

1. Sale and Delivery, with subsequent acquisition of title by owner (Art. 1434), ipso jure transfers title to Buyer

2. Sale by Co-Owner

- particular portion

- whole property

3. Estoppel on the Part of the True Owner (Art. 1426)

49

3. Chain of Title Theory under the Torrens

System

4. Sales by Court Authority

5. Sales in Merchant Stores

6. Sales by One Having Voidable Title Prior

to Annulment

7. Sale under Documents of Title

SALE AND DELIVERY BY NON-OWNER contd

50

RULES FOR DETERIORATION, FRUITS

AND IMPROVEMENTS

RULES HAVE NO APPLICATION IS SUBJECT MATTER IS MERELY DETERMINABLE (Art. 1263)

ROMAN LAW DOCTRINE: Buyer bears the consequences of

Deterioration, but

benefits from the Fruits

and Improvements

Arts. 1480, 1163-1262

Arts. 1189, 1537 and 1538

51

RULES WHEN SUBJECT MATTER LOST:

1. BEFORE PERFECTION: Res Perit Domino Roman v. Grimalt, 6 Phil. 96 (1906)

2. AT TIME OF PERFECTION: Seller (Arts. 1493 and 1494)

Sale is rendered inefficacious

52

General Rule: For Goods, risk borne by Seller under Res perit domino rule

Chrysler Phil. v. CA, 133 SCRA 567 (1984) Union Motor Corp v. CA, 361 SCRA 506 (2001)

Loss by Fault of a Party (Arts. 1480, 1504, 1538)

LOSS BY FORTUITOUS EVENT: Two Schools of Thought

Arts. 1480, 1163, 1164, 1165

Arts. 1504, 1538, and 1189

SUBJECT MATTER LOST: contd

53

3. AFTER PERFECTION BUT BEFORE DELIVERY Arts. 1164, 1189, and 1262(

SUBJECT MATTER LOST: contd

4. AFTER DELIVERY: BUYER BEARS RISK, UNDER

Res Perit Domino

Art. 1504

Song Fo & Co. v. Oria, 33 Phil. 3 (1915)

Lawyer's Coop v. Tabora, 13 SCRA 762 (1965)

Lawyer's Coop v. Narciso, 55 O.G. 3313)

EXCEPT: When retention of Possession by

Seller for purpose of securing

payment of the Purchase Price

54

REMEDIES FOR CONTRACTS OF SALE

1. REMEDIES OF UNPAID SELLER OF GOODS

Possessory lien (Arts. 1526-1529, 1503, 1535)

Stoppage in transitu (Arts. 1530-1532, 1535, 1636[2])

Special Right of Resale (Art. 1533)

Special Right to Rescind (Art. 1534)

55

2. RECTO LAW: SALES OF MOVABLES ON INSTALLMENTS

(a) Meaning of Installment Sale Levy v. Gervacio, 69 Phil. 52 (1939)

(b) Contracts to Sell Movables Not Covered Visayan Sawmill Co., Inc. v. CA, 219 SCRA 378 (1993)

(c) Nature of Remedies of Unpaid Seller

Remedies under Art. 1484 are not cumulative, but alternative and exclusive.

Borbon II v. Servicewide Specialists, Inc., 258 SCRA 634 (1996)

Seeking a writ of replevin consistent with all three

remedies Universal Motors Corp. v. Dy Hian Tat, 28 SCRA 161 (1969)

56

(d) REMEDY OF SPECIFIC PERFORMANCE: No bar to full recovery

Tajanglangit v. Southern Motors, 101 Phil. 606 (1957)

RECTO LAW: contd

Even when it is mortgaged property that is

sold on execution.

Southern Motors v. Moscoso, 2 SCRA 168 (1961)

Even with replevin and recovery of the

subject property, the action may still be for

specific performance.

Industrial Finance Corp. v. Ramirez, 77 SCRA 152 (1977)

57

(e) NATURE OF REMEDY OF RESCISSION

RECTO LAW: contd

Inherent Barring Effect of Rescission

Surrender of mortgaged property not equivalent to rescission.

Vda. de Quiambao v. Manila Motors Co., Inc.,

3 SCRA 444 (1961)

Stipulation on non-return of payments

is valid provided not unconscionable.

Delta Motor Sales Corp. v. Niu Kim Duan,

213 SCRA 259 (1992)

58

(f) REMEDY OF FORECLOSURE

RECTO LAW: contd

(i) Third Party Mortgage Ridad v. Filipinas Investment, 120 SCRA 246 (1983)

(ii) Assignor-Assignee; Financing Transactions Zayas v. Luneta Motors, 117 SCRA 726 (1982)

When seller assigns his credit to another,

the assignee is likewise bound by the terms of

the Recto Law.

Borbon II v. Servicewide Specialists, Inc., 258 SCRA 634 (1996).

59

(iii) H-V Barring Effects of Foreclosure

Foreclosure on the chattel mortgage

prevents further action on the supporting

real estate mortgage.

Cruz v. Filipinas Investment & Finance Corp.,23 SCRA 791 (1968)

Borbon II v. Servicewide Specialists, Inc., 258 SCRA 634 (1996)

RECTO LAW: contd

(iv) Amounts Barred from Recovery Macondray & Co. v. Eustaquio, 64 Phil. 446 (1937)

(v) Perverse Buyer Filipinas Investment & Finance Corp. v. Ridad, 30 SCRA 564 (1969)

60

(g) PURPORTED LEASE WITH OPTION TO BUY:

Contracts purporting to be leases of personal property with option to buy, when the lessor has deprived the lessee

of the possession or enjoyment of the thing. (Art. 1485)

RECTO LAW: contd

When purported Lessor takes possession of subject movable, it is treated legally as a foreclosure and the barring effects applicable to foreclosure remedy, not rescission, are given application.

Vda. de Jose v. Barrueco, 67 Phil. 191 (1939)

Filinvest Credit Corp. v. CA, 178 SCRA 188 (1989)

U.S. Commercial v. Halili, 93 Phil. 271 (1953)

H.E. Heacock v. Bantal Manufacturing, 66 Phil. 245 (1938)

Manila Gas Corp. v. Calupita, 66 Phil. 747 (19 38)

Vda. de Jose v. Barrueco, 67 Phil. 191 (1939)

61

3. MACEDA LAW: SALES OF RESIDENTIAL REALTY ON INSTALLMENTS (R.A. 6552)

(a) Role of Maceda Law Lagandaon v. CA, 290 SCRA 463 (1998)

BUT SEE: Peoples Indl and Comm. Corp. v. CA, 281 SCRA 206 (1997)

(b) Transactions Covered

The formal requirements of rescission

under the Maceda Law apply even to contracts

entered into prior to its effectivity.

Siska Dev. Corp. v. Office of the President, 231 SCRA 674 (1994)

62

The Maceda Law makes no distinctions between option and sale which under P.D. 957 also includes an exchange or attempt to sell, an option of sale or purchase, a solicitation of a sale or an offer to sell directly.

Realty Exchange Venture Corp. v. Sendino, 233 SCRA 665 (1994)

MACEDA LAW contd

63

Curiously: No application to Contract to Sell because said law presupposes the existence of a valid and effective contract to sell a condominium.

Mortel v. KASSCO, Inc., 348 SCRA 391, 398 (2000)

MACEDA LAW contd

Pursuant to Art. 1253 of Civil Code, in a contract

involving installments with interest chargeable against the

remaining balance of the obligation, it is the duty of the

creditor-seller to inform the debtor-buyer of the interest that

falls due and that is applying the installment payments to

cover said interest. Otherwise, the creditor cannot apply the

payments to the interest and then hold the debtor in default for

non-payment of installments on the principal.

Rapanut v. CA, 246 SCRA 323 (1995)

(c) How Cancellation of Contract Can Be Effected:

Active Realty & Dev. Corp. v. Daroya, 382 SCRA 152 (2002)

64

MACEDA LAW contd

(a) To sell/assign his rights to another person

(b) To reinstate contract by updating account during grace period, before actual

cancellation of contract

(c) To pay in advance installments or in full unpaid balance of Price any time without

interest and have same annotated in title

Any stipulation in any contract entered

into contrary to the provisions of the Law,

shall be null and void. (Art. 7)

65

OTHER RIGHTS GRANTED TO BUYER

4. OTHER REMEDIES ON SALE OF REAL ESTATE

(a) ANTICIPATORY BREACH (ART. 1591)

(b) RESCISSION ON SALE ON NON-

RESIDENTIAL REALTY ON

INSTALLMENTS (Arts. 1191 and 1592)

(c) SEC. 23 AND 24, PRES. DECREE 957

66

CONTRACTS TO SELL Versus

CONDITIONAL CONTRACTS OF SALE

Art. 1458 Defines a Sale to covered both Absolute and Conditional

Both Contracts are usually bound by same condition: Full payment of the Price

Both Contracts are consensual, onerous, commutative, and cover bilateral

obligations

67

K TO SELL VS. K OF SALE contd

Power to Rescind is inherently Judicial

Non-fulfillment of Condition ipso jure destroys contract

Substantial Breach Relevant to Contract of Sale, Irrelevant to Contracts to Sell

Rescission requires a positive act

68


1. In Contract to Sell Ownership if Reserved by Seller, while in a Contract to Sell ownership

transfers to Buyer upon delivery.

Ergo: K to Sell must have express

reservation of ownership

To execute a formal Deed of Sale

Only receipt of payment evidences sale

Seller retained original titles

69


2. Rescission of Contract to Sell is a matter of right upon non-happening of the

condition

Ergo: K to Sell must have express

right to rescind the contract

upon default of the Buyer

A written notice of cancellation must be served upon Buyer even when Contract to Sell

UP v. Delos Angeles, 35 SCRA 103 (1970)

70

CONDITIONS versus WARRANTIES

Power Commercial and Industrial Corp. v. CA 274 SCRA 597 (1997)

(a) Condition goes into root of existence of obligation,

whereas warranty goes into performance of such

obligation, and in fact may constitute an obligation

itself;

(b) Condition must be expressly stipulated by parties,

while warranty may form part of the obligation or

contract by provision of law, without previous

agreement; and

(c) Condition may attach itself either to the Obligations

of Seller, while warranty, express or implied, relates

to the Subject Matter itself or to the obligations of

Seller as to Subject Matter of the sale.

71

CONDITIONS AND WARRANTIES contd

In a Sale with Assumption of Mortgage, the assumption of mortgage is a condition to the sellers consent

so that without approval by the mortgagee, no sale is

perfected. In such case, the seller remains the owner and

mortgagor of the property and retains the right to redeem the

foreclosed property.

Ramos v. CA, 279 SCRA 118 (1997)

Failure to comply with condition imposed upon perfection

of the contract results in failure of a contract, while the

failure to comply with a condition imposed on the

performance of an obligation only gives the other party the

option either to refuse to proceed with sale or waive the

condition.

Laforteza v. Machuca, 333 SCRA 643 (2000)

72

A. EXPRESS WARRANTIES (Art. 1546)

The law allows considerable latitude to sellers

statements, or dealers talk; and experience teaches

that it is exceedingly risky to accept it at its face value.

Ramos v. CA, 279 SCRA 118 (1997)


(a) Must be an affirmation of fact or any promise by the

seller relating to Subject Matter of the sale;

(b) The natural tendency of such affirmation or promise

is to induce Buyer to purchase the thing; and

(c) Buyer purchases the thing relying on such

affirmation or promise thereon.

73

B. IMPLIED WARRANTIES (Art. 1547)

1. SELLER HAS RIGHT TO SELL

2. WARRANTY AGAINST EVICTION

Seller must be summoned in the suit for eviction at

the instance of the buyer (Art. 1558), and be made a co-

defendant (Art. 1559); or made a third-party defendant.

Escaler v. CA, 138 SCRA 1 (1985)

Canizares Tiana v. Torrejos, 21 Phil. 127 (1911)

J.M. Tuazon v. CA, 94 SCRA 413 (1979)


74

3. WARRANTY AGAINST NON-APPARENT

SERVITUDES


4. WARRANTY AGAINST HIDDEN DEFECTS

The stipulation in a contract of lease with option to purchase (which it treated as a sale of movable on installments) that the buyer-lessee "absolutely releases the lessor from any liability whatsoever as to any and all matters in relation to warranty in accordance with the provisions hereinafter stipulated," was held as an express waiver of warranty against hidden defect.

Filinvest Credit Corp. v. CA, 178 SCRA 188 (1989)

75

A hidden defect is one which is unknown or could not have been known to the buyer. Under the law, the requisites

to recover on account of hidden defects are as follows:


a. Defect must be hidden;

b. Must exist at the time the sale was made;

c. Must ordinarily have been excluded from the contract;

d. Defect, must be important (render the thing unfit or considerably decreases fitness);

e. Action must be instituted within statute of limitations.

Investments & Dev., Inc. v. CA, 162 SCRA 636 [1988] 76

Nutrimix Feeds Corp. v. CA

441 SCRA 357 (2004)

The remedy against violation of warranty against hidden

defects is either to withdraw from the contract (accion

redhibitoria) or to demand a proportionate reduction of the

price (accion quanti minoris), with damages in either case.


6. IMPLIED WARRANTIES IN THE SALE OF GOODS

a. Warranty as to Fitness or Quality

b. Sale of Goods by Sample

7. ADDITIONAL WARRANTIES FOR CONSUMER PRODUCTS (Arts. 68, Consumer Act of the Philippines, R.A. 7394).

5. REDHIBITORY DEFECTS OF ANIMALS

a. Sale of a Team

b. Animals Sold at Fairs or Public Auction

c. Sale of Animals with Contagious Diseases

d. Sale of Unfit Animals

77


C. EFFECTS OF WARRANTIES

D. EFFECTS OF WAIVERS

G. BUYER'S OPTIONS IN CASE OF BREACH OF WARRANTY

78

EXTINGUISHMENT OF SALE

SALE EXTINGUISHED BY SAME MODES APPLICABLE TO ALL CONTRACTS

Arts. 1231, 1600

REDEMPTION IS A MODE OF EXTINGUISHMENT UNIQUE TO SALES:

CONVENTIONAL REDEMPTION: SALE WITH RIGHT TO REPURCHASE

LEGAL REDEMPTION

79

NATURE OF RIGHT TO REPURCHASE:

CONVENTIONAL REDEMPTION (SALE WITH A RIGHT TO REPURCHASE)

Reserved by Seller at the point of Perfection.

Art. 1601

Villarica v. CA, 26 SCRA 189 (1968)

Even though found in a separate instrument

Torres v. CA, 216 SCRA 287 (1992)

Claravall v. CA, 190 SCRA 439 (1990)

80

Its Validity is Tied to the Validity of the Contract of Sale to which appended.

Nool v. Court of Appeals, 276 SCRA 149 (1997)

When Sale Covered by Deed, Right a retro may be proved by parol evidence.

Mactan Cebu Intl Airport Authority v. Court of Appeals,

263 SCRA 736 (1996)

CONVENTIONAL REDEMPTION contd

81

RIGHT A RETRO versus OPTION CONTRACT

(A) RIGHT TO REDEEM NOT A SEPARATE

CONTRACT, BUT MERELY PART OF A MAIN

CONTRACT OF SALE, AND IN FACT CANNOT

EXIST UNLESS RESERVED AT THE TIME OF

THE PERFECTION OF THE MAIN CONTRACT

OF SALE

(AA) AN OPTION TO PURCHASE IS

GENERALLY A PRINCIPAL CONTRACT AND

MAY BE CREATED INDEPENDENT OF

ANOTHER CONTRACT

(A) Not separate contract, but must be part of main

Contract of Sale

(A) Generally principal contract,

but may be appended in

another contract valid

(B) Right to Redeem does

not need separate

consideration

(B) Option requires consider-ation separate and distinct of the

Price in order to be valid

(C) Period of Option may be

beyond 10 years

(C) Maximum Period for exercise of Right of

redemption cannot

exceed 10 years

(D) Option may be exercised by mere notice to Offeror

(D) Right of repurchase requires in addition the tender of the

amount mandated, including

consignation when tender

not possible 82

SALIENT MATTERS ON

RIGHT OF REDEMPTION

(a) PERIOD OF REDEMPTION:

When no Period agreed upon: 4 years

When Period agreed upon: cannot exceed 10 years

When Period of Non-Redemption Stipulated

Anchuel v. IAC, 147 SCRA 434 (1987)

Tayao v. Dulay, 13 SCRA 758 (1965)

83

SALIENT MATTERS ON RIGHT OF

REDEMPTION contd

Pendency of Action Tolls Redemption

Period

Ong Chua v. Carr, 53 Phil. 975 (1929)

Non-Payment of Price Does Not Affect

Running of Redemption Period Catangcatang v. Legayada, 84 SCRA 51 (1978)

84

SALIENT MATTERS contd

Only tender of payment is sufficient. Legaspi v. CA, 142 SCRA 82 (1986)

Consignation is not required after tender is

refused.

Mariano v. CA, 222 SCRA 736 (1993)

But when tender not possible, consignation

should be made.

Catangcatang v. Legayada, 84 SCRA 51 (1978)

(b) HOW REDEMPTION EFFECTED:

85

Simply by Filing Judicial Action

Lee Chuy Realty Corp. v. CA, 250 SCRA 596 (1995)

Seller returning to Buyer:

Price of the sale

Expenses of contract, and any other

legitimate payments made by reason of the

sale

Necessary and useful expenses made on

the thing sold

ART. 1616


86


When Redemption Not Made, Buyer a retro

automatically acquires full ownership.

Oviedo v. Garcia, 40 SCRA 17 (1971)

HOWEVER: In real property, consolidation shall not be recorded in the Registry of

Property without a judicial order, after

the seller has been duly heard.

Article 1607

87

If Seller proves the transaction a sale a retro, he

is given a period of 30 days from finality of

judgment to repurchase.

Solid Homes v. CA, 275 SCRA 267 (1997).

EQUITABLE MORTGAGE

DEFINITION AND ELEMENTS

(a) The contract entered into is

denominated as a Sale (absolute or a

retro); and

(b) Real intention was to secure an

existing debt by way mortgage

Molina v. CA, 398 SCRA 97 (2003)

88

RATIONALE OF EQUITABLE MORTGAGE PRINCIPLE

EQUITABLE MORTGAGE contd

Prevent circumvention of law on usury and

rule against pactum commissorium, i.e. against

a creditor appropriating the mortgage property.

To end unjust or oppressive transactions or

violations in connection with a sale or property.

Spouses Misea v. Rongavilla, 303 SCRA 749 (1999).

Matanguihan v. CA, 275 SCRA 380 (1997)

Lao v. CA, 275 SCRA 237 (1997)

89

90

RULINGS ON EQUITABLE MORTGAGE

Badges of Equitable Mortgage in Art. 1602

Apply both to sale a retro and to a contract

purporting to be an absolute sale.

Tuazon v. CA, 341 SCRA 707 (2000)

Zamora v.CA, 260 SCRA 10 (1996)

Parol evidence is competent and admissible

in support of allegation of equitable mortgage

arrangement.

Mariano v. CA, 220 SCRA 716 (1993)

Pactum Commissorium principle does not

apply:

91

(a) When security for a debt is also money in form of time deposit

Consing v. CA, 177 SCRA 14 (1989)

(b) To an agreement between Lender and Borrower

which provides that in the event Borrower fails to

comply with the new terms of payment, the agreement

shall automatically operate to be an instrument of

dacion en pago without need of executing any

document to such an effect.

Solid Homes, Inc. v. CA, 275 SCRA 267 (1997)

RULINGS ON EM contd

CONTRA: P/N stipulation that upon makers failure to pay interests, ownership of property

would automatically be transferred to

Payee and the covering deed of sale

would be registered, is in substance a

pactum commissorium in violation of Art.

2088.

A. Francisco Realty v. CA, 298 SCRA 349 (1998)

A pactum commisorium sale is void, registration and obtaining of new title by apparent buyer would also be void.

A. Francisco Realty v. CA, 298 SCRA 349 (1998)

92

REMEDIES UNDER EQUITABLE MORTGAGE

SITUATIONS

Apparent seller can seek reformation of

instrument (Art. 1605).

An action for consolidation of ownership (in

case presented as sale a retro) would be void, and

proper remedy of mortgagee-buyer is to file

appropriate foreclosure of the mortgage in

equity.

Briones-Vasquez vs. CA, 450 SCRA 644 (2005).

93

Additional 30-day Period of Redemption is

allowed under Art. 1606, in event courts should

find the sale was not equitable mortgage,

provided:

(a) Honest belief that it was equitable mortgage supported by convincing evidence, such as badges under Art. 1602,

or consignation during trial of the amount of the alleged

loan

Abilla v. Gobonseng, 374 SCRA 51 (2002)

Vda. de Macoy v. CA, 206 SCRA 244 (1992)

94

REMEDIES IN EM contd

LEGAL REDEMPTION

DEFINITION AND RATIONALE:

Privilege created by law for reasons of

public policy.

For benefit and convenience of the

redemptioner, to afford him a way out of what

might be a disagreeable or inconvenient

association into which he has been thrust.

Intended to minimize co-ownership.

Fernandez v. Tarun, 391 SCRA 653 (2002)

Basa v. Aguilar, 117 SCRA 128 (1982)

95

Written notice must cover perfected sale Art. 1623

Spouses Doromal v. CA, 66 SCRA 575 (1975)

Notice must be given by seller; and that notice given

by buyer or even by the Register of Deeds are not

sufficient. Francisco v. Boiser, 332 SCRA 305 (2000)

Butte v. Manuel Uy and Sons, Inc., 4 SCRA 526 (1962)

Salatandol v. Retes, 162 SCRA 568 (1988)

LEGAL REDEMPTION contd

PERIOD OF LEGAL REDEMPTION BEGINS:

30 DAYS FROM WRITTEN NOTICE

96

Seller furnishing of the copies of deeds of sale to

co-owner would be sufficient. Distrito v. CA, 197 SCRA 606 (1991)

Conejero v. CA, 16 SCRA 775 (1966)

Badillo v. Ferrer, 152 SCRA 407 (1987)

Notice to minors may validly be served upon

parents even when not judicially appointed since

beneficial to the children.

Badillo v. Ferrer, 152 SCRA 407 (1987).


97

Deemed complied when co-owners signed

Deed of Extrajudicial Partition embodying

disposition of part of the property owned in

common.


Filing of ejectment suit or collection of rentals

against a co-owner dispenses with need for

written notice.

Alonzo v. IAC, 150 SCRA 259 (1987)


98

INSTANCES OF LEGAL REDEMPTION

(a) Among Co-heirs (Art. 1088)

A co-heir cannot exercise the right of redemption alone.

De Guzman v. CA, 148 SCRA 75 (1987)

No legal redemption for sale of the property of the

estate. Plan v. IAC, 135 SCRA 270 (1985)

Written notice to other co-owners deemed inutile by

fact that ebuyers took possession of property in full view

of other co-owners. Pilapil v. CA, 250 SCRA 560 (1995)

Notice given by city treasurer will not suffice. Verdad v. CA, 256 SCRA 593 (1996)

99

(b) Among Co-owners (Art. 1620)

INSTANCES OF LEGAL REDEMPTION contd

Right of legal redemption arises only when shares of other owners are sold to a third person, and not to another co-owner


Registration of the sale does not estop a co-owner Cabrera v. Villanueva, 160 SCRA 627 (1988)

Notice required to be given to co-owners must be

in writing; and redemption by co-owner redounds to

the benefit of all other co-owners. Mariano v. CA, 222 SCRA 736 (1993)

100


No written notice required to co-owner who acted as active intermediary in the consummation of the sale.

Distrito v. CA, 197 SCRA 606 (1991)

Redemption by co-owner, even when he uses

his own fund, inures to the benefit of all the

other co-owners.

Annie Tan v. CA, 172 SCRA 660 (1989)

101


Redemption covers only resale and does not

cover exchanges or barter of properties

De Santos v. City of Manila, 45 SCRA 409 (1972)

Requisite of speculation dropped.

Legaspi v. CA, 69 SCRA 360 (1976)

Does not apply if one adjacent lot is not also

rural land

Primary Structures Corp. v. Valencia, 409 SCRA 371 (2003)

(c) Among Adjoining Owners (Art. 1621-1622)

102


(d) Sale of Credit in Litigation (Art. 1634) - 30 days

(e) Redemption of Homesteads (Sec. 119, C.A. 141)

The right to repurchase is granted by law

and need not be provided for in the deed of sale.

Berin v. CA, 194 SCRA 508 (1991).

103

Under the free patent or homestead provisions of the Public Land Act a period of five (5) years from the date of conveyance is provided, the five-year period to be reckoned from the date of the sale and not from the date of registration in the office of the Register of Deeds.

Lee Chuy Realty Corp. v. CA, 250 SCRA 596 (1995)

For purposes of reckoning the 5-year period to

exercise right of repurchase, the date of conveyance is

construed to refer to date of execution of the deed

transferring the ownership of the land to the buyer.

Mata v. CA, 318 SCRA 416 (1999).


104


(f) Redemption in Tax Sales (Sec. 215, NIRC of 1997)

(g) Redemption by judgment debtor (Sec. 27, Rule 39, Rules of Civil Procedure)

Period of redemption shall be at any time within one (1) year from the date of registration of the certificate of sale, so that the period is now to be understood as composed of 365 days, unlike the 360 days under the old provisions of the Rules of Court which referred to 12-month redemption period.

Ysmael v. CA, 318 SCRA 215 (1999)

105

(h) Redemption in Extrajudicial Foreclosure

A stipulation to render the right to redeem

defeasible by an option to buy on the part of the

creditor

Soriano v. Bautista, 6 SCRA 946 (1962)

One (1) year from registration in the Registry of Deeds on Mortgage (Sec. 6, Act 3135).

(i) Redemption in judicial foreclosure of mortgage

(Sec. 47, General Banking Law of 2000, R.A. 8791).


106

No right to redeem from a judicial foreclosure sale, except those granted by banks or banking institutions

GSIS v. CFI, 175 SCRA 19 (1989).


The one-year redemption period in case of foreclosure of real estate mortgage is not interrupted by filing of action assailing validity of mortgage, so that at the expiration thereof, mortgagee who acquires property at the foreclosure sale can proceed to have title consolidated in his name and a writ of possession issued in his favor.

Union Bank of the Philippines v. CA, 359 SCRA 480 (2001)

Vaca v. CA, 234 SCRA 146 (1994)

107


(j) Redemption in Foreclosure by Rural Banks

Land mortgaged to rural bank under R.A. 720,

may be redeemed within two (2) years from date of

foreclosure or from registration of sheriff's certificate

of sale. If mortgagor fails to exercise such right, heirs

may still repurchase within 5 years from expiration of

2-year redemption period pursuant to Sec. 119 of

Public Land Act (C.A. 141).

Rural Bank of Davao City v. CA, 217 SCRA 554 (1993)

Heirs of Felicidad Canque v. CA, 275 SCRA 741 (1997)

108


(k) Legal Right to Redeem under Agrarian

Reform Code

Sec. 12 of R.A. 3844, grants agricultural lessee

right to redeem within 180 days from notice in

writing and at a reasonable price and

consideration

Quio v. CA, 291 SCRA 249 (1998)

Redemption right of tenant does not begin to

run without written notice Springsun Management Systems Corp. v. Camerino,

449 SCRA 65 (2005)

109

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