Art 1525-1544

Sales (Art. 1525-1544, Recto Law, Maceda Law) by Ricky Cabatu

RECTO LAW: SALES OF MOVABLES BY INSTALLMENT

Art. 1484. In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise any of the following remedies:

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

Requisites before Art. 1484 May Be Applied1. There must be a contract2. The contract must be one of sale (absolute sale, not a pacto de retro

transaction, where redemption id effected in instalment3. What is sold is personal property (sale of real property in installments

is governed by Maceda Law)4. The sale must be on the installment plan (an installment- is any part

or portion of the buying price, including the down payment) Take Note: If the sale is for cash or on straight terms (here after

an initial payment, the balance is paid in its totality at the time specified, say, two months or three months later--- this is also considered a cash sale so Art. 1484 does not apply)

Rationale for the Recto Lawo Prevent abuses in the foreclosure of chattel mortgages, such as when

mortgagee-creditors foreclosed mortgaged property, bought them at a low price (on purpose,) then prosecuted the mortgagor-debtors to recover the deficiencies

Alternative Remedieso Remedies are not cumulative, they are alternative. If one is exercised,

the others cannot be made use of. Hence, the election of one is a waiver of the right to resort to the others.

o But for this doctrine to apply, the remedy must already have been fully exercised. If after retaking possession of the chattel, the seller desists from foreclosure, he can still avail of himself of another remedy.

1 There must be fact of foreclosure and actual sale of the mortgaged chattel in order to bar the recovery by the vendor of the balance (of the purchaser’s outstanding obligation not satisfied by the sale).

Examples:(1) Tom bought a particular automobile on the installment plan. Tom defaulted in the payment of one of the installments. Has the seller, Jerry, the right to exact fulfilment of the obligation to pay?

Ans: Yes. Remedy 1 does not require default in two or more installments, unlike remedies Nos. 2 and 3. How much can be successfully demanded? Generally, only the installments defaulted can be recovered, unless there is an acceleration clause or if the debtor loses the benefits of the terms. Should there be no DEFICIENCY in the amount collected at the levy on execution, said deficiency can still be collected. Here, there is no foreclosure of any chattel mortgage. (2) Harry bought a particular automobile but defaulted in the payment of two installments. May the seller ask for the cancellation (resolution) of the sale?

Ans: Yes, because two installments are already in default. (3) Ricky bought a car on the installment plan, and as security, executed a chattel mortgage on it. Ricky failed to pay two installments. The seller foreclosed the mortgage, but the sum he obtained was less than what B still owed him. It had been previously agreed in the deed of sale that Ricky would be liable for any deficiency in this matter. May the seller still sue for the deficiency?

Ans: No, for the law says that after foreclosure, the seller-mortgagee shall have no further action against the purchaser to recover any unpaid balance of the price. The contrary stipulation in their contract is VOID.

*FORECLOSURE here means foreclosure by the usual methods including the sale of the goods at a public auction.

Resort to Rescission After Choosing Specific PerformanceGeneral Rule: When the seller has chosen specific performance, he can no longer seek for rescission or foreclosure of the chattel mortgage constituted on the thing sold

Exception: Even if the seller had chosen specific performance, if the same has become impossible, the seller may still choose rescission (Art. 1191)

Cancellation Requires Mutual Restitution (Remedy No. 2)o When Rescission is Deemed Chosen---when the seller has clearly

indicated- to end the contract such as when---

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1. He sends a notice of rescission2. He takes possession of the subject matter of the sale; or3. He files an action for rescission

o Forfeiture of installment or rentalsGeneral Rule: Rescission creates the obligation to return the things which were the object of the contract, together with the fruits, and the price with interests. It can be carried out only when he who demands rescission can return whatever he may be obliged to restore (Art. 1385)

Exception: A stipulation that the installments or rents paid shall not be returned to the vendee or lessee shall be valid insofar as the same may not be unconscionable under the circumstances (Art. 1486)

Examples:(1) When the seller of a car on installment asks for cancellation of the sale, the car must be returned to him, and he in turn must give back all installments he has received, including the down payment.(2) Suppose the car has so deteriorated, i.e. been so cannibalized that the value at which it may be resold is much less than the balance of the purchase price (e.g. while the unpaid balance may still be 20K, the value of the returned car, in view of its sorry state, may be only 80k), may seller still recover the difference?

Ans: Yes. After all, the rule against the recovery of the deficiency comes into play only if the remedy of foreclosure is used. In addition, under 1191, in case of resolution, the aggrieved party may resort to either “SPECIAL PERFORMANCE PLUS DAMAGES”, or “RESCISSION PLUS DAMAGES”. Instances When Art. 1484 Cannot Be Applied

o To real estate mortgage since real mortgage may only be foreclosed in conformity with special provisions. Moreover, while in Art. 1484 the creditor is given the option to seize the object of transaction, this is not so in the case of a real estate mortgage.

o To sale of personal property in straight terms (one in which the balance, after the payment of initial sum should be paid in its totality at the time specified) since the mortgagee-seller will still be entitled to recover the unpaid balance.

o To actions for replevin The Recto Law also covers leases with the option to purchase.

Foreclosure of the Chattel Mortgage on the thing sold if vendee shall have failed two or more installment (Remedy No. 3)

o In this case, there shall be no deficiency judgmento When deemed chosen: at the time of actual sale of the subject

property at public auction pursuant to the foreclosure proceedings commenced.

o Prior to foreclosure and actual sale at public auction: the seller has every right to receive payments on the unpaid balance of the price from the buyer.

o Aside from the barring of the deficiency, other securities given for payment of price are also barred from being recovered: The vendor cannot proceed from any third party who may have guaranteed the vendee’s performance of his obligation, for if the guarantor should be compelled to pay the balance, the guarantor will be entitled to recover what he has paid from the debtor-vendee, so that ultimately, it will be the vendee who will be made to bear the payment of the balance of the price. Moreover, other claims are also barred from being recovered such as the interest on the principal, attorney’s fees, expenses for collection and the costs.

Perverse Buyer- Mortgager: If the buyer refuses to surrender the items to the seller, he becomes a perverse buyer-mortgagor. When that happens, the seller can recover expenses and attorney's fees.

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

(1454-A-a) Reason for Rule on Leases of Personal Property with Option to Buy

O This may really be considered a sale of personal property in installments. The purpose of Art. 1485 is to prevent an indirect violation of Art. 1484.

Meaning of the Clause “when the lessor has deprived the lessee of the possession or enjoyment of the thing”O This means that for failure to pay, the “lessor” is apparently exercising

the right of an unpaid seller, and has taken possession of the property. This is so even if the property had been given up in obedience to the lessor’s extrajudicial demand, such surrender not really being voluntary.

When “Lease “ Construed as “Sale”O Even if the word “lease” is employed, when a sale on installment is

evidently intended, it must be construed as a sale.

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

O As a general rule, it is required that a case of rescission or cancellation of the sale requires mutual restitution, that is, all partial payments of price or “rents” must be returned.

O HOWEVER, BY WAY OF EXCEPTION, IT IS VALID TO STIPULATE THAT THERE SHOULD BE NO RETURNING OF THE PRICE THAT HAS BEEN PARTIALLY PAID OR OF THE RENTS GIVEN, PROVIDED THE STIPULATION IS NOT UNCONSCIONABLE.

Example:Tom bought a car from Jerry on installment. It was agreed that installments already paid should not be returned even if the sale be cancelled. This is a valid stipulation unless unconscionable. If there is no stipulation, the installments should be returned minus reasonable rent.

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Sale of real property in installment (Maceda Law)

REPUBLIC ACT No. 6552

AN ACT TO PROVIDE PROTECTION TO BUYERS OF REAL ESTATE ON INSTALLMENT PAYMENTS. (Rep. Act No. 6552)

Section 1. This Act shall be known as the "Realty Installment Buyer Act."

Section 2. It is hereby declared a public policy to protect buyers of real estate on installment payments against onerous and oppressive conditions.

Section 3. In all transactions or contracts involving the sale or financing of real estate on installment payments, including residential condominium apartments but excluding industrial lots, commercial buildings and sales to tenants under Republic Act Numbered Thirty-eight hundred forty-four, as amended by Republic Act Numbered Sixty-three hundred eighty-nine, where the buyer has paid at least two years of installments, the buyer is entitled to the following rights in case he defaults in the payment of succeeding installments:

(a) To pay, without additional interest, the unpaid installments due within the

total grace period earned by him which is hereby fixed at the rate of one month grace period for every one year of installment payments made: Provided, That this right shall be exercised by the buyer only once in every five years of the life of the contract and its extensions, if any.

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

Down payments, deposits or options on the contract shall be included in the computation of the total number of installment payments made.lawphi1™

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

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

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

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

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

Section 8. If any provision of this Act is held invalid or unconstitutional, no other provision shall be affected thereby.

Section 9. This Act shall take effect upon its approval.

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Approved: August 26, 1972.

MACEDA LAW governs the sale or financing of real estate on installment payment

SECTION 3 is comprehensive enough to include both contracts of sale and contracts to sell, provided that the terms of the payment of the price require at least two installments.

PURPOSE OF MACEDA LAW: It is an expression of public policy to protect buyers of real estate on installments against onerous and oppressive conditions.

DOES NOT APPLY TO: O Sale covering industrial lotsO Sale covering commercial buildings (and commercial lots by

implication)O Sales to tenants under agrarian reform lawsO Sales of lands payable in straight terms

REQUISITES O Transactions or contracts involving the sale or financing of real estate

on installment payments, including residential condominium apartments; and

O Buyer defaults in payment of succeeding installments While under Sec. 3, down payment is included in computing the

total number of installment payment made, the proper divisor is the monthly installment on the down payment.

Maceda Law cannot be availed of by the DEVELOPER: Maceda law has no application t protect the developer or one who succeeds the developer.

Rights of the Buyer

O IF BUYER HAS PAID AT LEAST 2 YEARS OF INSTALLMENTS

1. The buyer must pay, without additional interest, the unpaid installments due within the total grace period earned by him which

is hereby fixed at the rate of one month grace period for every one year of installment payments made: Provided, That this right shall be exercised by the buyer only once in every five years of the life of the contract and its extensions, if any

2. Actual cancellation can only take place after 30 days from receipt by the buyer of the notice of cancellation or demand for rescission by a notarial act and upon full payment of the cash surrender value to the buyer

The seller shall refund to the buyer the cash surrender value of the payments on the property equivalent to 50% of the total payments made after 5 years of installments. There shall be an additional 5% every year but not to exceed 90% of the total payments made.

3. The buyer shall have the right to sell his rights or assign the same to another person or to reinstate the contract by updating the account during the grace period and before actual cancellation of the contract.

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

O IF BUYER HAS PAID AT LESS THAN TWO YEARS OF

INSTALLMENTS

1. The seller shall give the buyer a grace period of not less than sixty days from the date the installment became due. If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel the contract after 30 days from receipt by the buyer of the notice of cancellation or the demand for rescission by a notarial act.

2. Actual cancellation can only take place after 30 days from receipt by the buyer of the notice of cancellation or demand for rescission

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by a notarial act and upon full payment of the cash surrender value to the buyer

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

Down payments, deposits or options on the contract shall be included in the computation of the total number of installment payments made.

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SPECIAL REMEDIES OF UNPAID SELLER

Defintion of unpaid seller

Art. 1525. The seller of goods is deemed to be an unpaid seller within the meaning of this Title:(1) When the whole of the price has not been paid or tendered;(2) When a bill of exchange or other negotiable instrument has been received as conditional payment, and the condition on which it was received has been broken by reason of the dishonor of the instrument, the insolvency of the buyer, or otherwise.

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

o If only part of the price has been paid or tendered the seller is still an unpaid seller. Notice that the law uses “the whole of the price”

o Mere delivery of a NI does not extinguish the obligation of the buyer to pay because it may be dishonoured (Art. 1249 par. 2). Therefore, the seller is still an unpaid seller, if say, a dishonor indeed is made.

RIGHTS OF UNPAID SELLER 2

2 Must be observed in the following order

Art. 15263. Subject to the provisions of this Title, notwithstanding that the ownership in the goods may have passed to the buyer, the unpaid seller of goods, as such, has:(1) A lien on the goods or right to retain them for the price while he is in possession of them;(2) In case of the insolvency of the buyer, a right of stopping the goods in transitu after he has parted with the possession of them;(3) A right of resale as limited by this Title;(4) A right to rescind the sale as likewise limited by this Title.Where the ownership in the goods has not passed to the buyer, the unpaid seller has, in addition to his other remedies a right of withholding delivery similar to and coextensive with his rights of lien and stoppage in transitu where the ownership has passed to the buyer. (n) POSSESSORY LIEN (in the nature of a pledge)4

o Possessory lien is lost after the seller loses possession but his lien (no longer possessory) as an unpaid seller remains; hence, he is still a preferred creditor with respect to the price of the specific goods sold. His preference can only be defeated by the government’s claim to the specific tax on the goods themselves (Art. 2247 & 2241 par.3)

o Although the seller’s possessory lien is in the nature of a legal pledge and although the rule in legal pledges is that in case of a public auction of the thing pledged, there can be no recovery of the deficiency, notwithstanding a contrary stipulation (Art. 2115 & 2121), still under Art. 1533, should he properly makes a resale of the property, he may still recover from the buyer damages for any loss occasioned by the breach of contract of sale”

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

3 Art. 1526 does not refer to the right of the seller to ask for the purchase price, such right being granted under other articles.

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o This article refers to the cases when the unpaid seller has a possessory lien

Example: Jerome sold RB a specific car. No term of credit was given. Jerome can possess a possessory lien until he is paid.Q: Jerome sold RB a specific diamond ring to be paid in 6 months later. By mutual agreement, RB is made already the owner, but Jerome will act as the depositary of the ring in the meantime. If the term expires and RB has not yet paid, may Jerome still continue possessing the ring even if he is no longer the owner?

A: Yes, for he has NOT been paid. His no longer being the owner is not important, for the law says:” The seller may exercise his right of lien notwithstanding that he is in possession of the goods as agent or bailee for the buyer “(Art. 1627, last par)5

Art. 1535. Subject to the provisions of this Title, the unpaid seller's right of lien or stoppage in transitu is not affected by any sale, or other disposition of the goods which the buyer may have made, unless the seller has assented thereto.

o When Negotiable Document of Title Has Been IssuedArt. 1535. Subject to the provisions of this Title, the unpaid seller's right of lien or stoppage in transitu is not affected by any sale, or other disposition of the goods which the buyer may have made, unless the seller has assented thereto.

If, however, a negotiable document of title has been issued for goods, no seller's lien or right of stoppage in transitu shall defeat the right of any purchaser for value in good faith to whom such document has been negotiated, whether such negotiation be prior or subsequent to the notification to the carrier, or other bailee who issued such document, of the seller's claim to a lien or right of stoppage in transitu. (n)

o Effect if Buyer Has Already Sold the Goods Generally, the unpaid seller’s right to LIEN or STOPPAGE IN

TRANSITU remains even if the buyer has sold or otherwise disposed of the goods

5 This possessory lien, however remains only as long as the property is still in the vendor.

Exceptions1. When the seller has given his consent thereto2. When the purchaser or the buyer is a purchaser for value in

good faith of a negotiable document of title.o When Part Delivery Effected

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

Possessory Lien After Partial Delivery1. This refers to a possessory lien even after a partial delivery.2. The lien however may be waived expressly or impliedly.3. The partial delivery may have been made under such

circumstances as to show an intent to waive:o The lieno Or right of retention

o Instances When Possessory Lien is LostArt. 1529. The unpaid seller of goods loses his lien thereon:(1) When he delivers the goods to a carrier or other bailee for the purpose of transmission to the buyer without reserving the ownership in the goods or the right to the possession thereof;(2) When the buyer or his agent lawfully obtains possession of the goods;(3) By waiver thereof.

The unpaid seller of goods, having a lien thereon, does not lose his lien by reason only that he has obtained judgment or decree for the price of the goods. (n)

This refers to the instances when the “lien is lost” The lien lost is only the possessory lien and not the vendor’s lien

on the price. The unpaid seller losses his possessory lien, when he parts with

physical possession of the goods, as when he delivers the goods to the carrier. In that case, he still has the remedy of stoppage in transitu, but only if the buyer has in the meantime become insolvent.

Q: Mon delivered the goods to the carrier for transmission to the buyer. She, however, reserved his right to the ownership in the goods. Does she lose her possessory lien?

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A: No, in view of the reservation.6

Q: An unpaid seller still in possession of the goods sold brought an action to get the purchase price. Does he lose his lien?

A: No, for the bringing of the action is not one of the ways of losing the necessary lien. As a matter of fact, even if he had already obtained a money judgment in his favor, the possessory lien still remains with him.Q: An unpaid seller, who possessed the goods thru a warehouseman, delivered to the buyer a negotiable warehouse receipt. Does the unpaid seller still have a possessory lien?

A: No more, for the negotiable warehouse receipt automatically transferred both title and right of possession to the goods in the buyer (see Art. 1629 par 2 which states in part: “when the buyer or his agent lawfully obtains possession of the goods”)Q: An unpaid seller actually delivered the goods to the buyer. The buyer however decided to cancel the sale, so he returned the goods to the seller. Is the possessory lien relieved?

A: Yes, because the unpaid seller is once more in possession of the goods.

RIGHT OF STOPPAGE IN TRANSITU (available if seller has parted with the possession)

Art. 1530. Subject to the provisions of this Title, when the buyer of goods is or becomes insolvent7, the unpaid seller who has parted with the possession of the goods has the right of stopping them in transitu, that is to say, he may resume possession of the goods at any time while they are in transit, and he will then become entitled to the same rights in regard to the goods as he would have had if he had never parted with the possession. (n)

o This refers to the right of stoppage in transit, available to the unpaid seller---

6 The same answer should be given if the seller has reserved “the right to the possession of the goods” even after he had delivered the same to the carrier (Art, 1529 par. 1)

7 The words “is or” have been inserted to make it clear that the seller’s right exists even though the buyer was already insolvent at the time of sale.

If he has parted with the possession of the goods AND if the buyer is or becomes insolvent

o Meaning of Insolvency in the Article The insolvency referred to need not be judicially declared. It is

enough that the obligation exceeds a man’s assets.o Who May Exercise the Right of Stoppage in Transitu

Any person who as between himself and a purchaser, may be regarded as an unpaid vendor.

o When Negotiable Document of Title Issued (see discussion on 1535)

o When Buyer is Deemed Insolvent – a buyer is deemed insolvent who either has ceased to pay his debts in the ordinary course of business or cannot pay his debts as they become due, whether insolvency proceedings have been commenced or not.

o When Goods are Deemed “In Transit” and “No Longer in Transit”Art. 1531. Goods are in transit within the meaning of the preceding article:(1) From the time when they are delivered to a carrier by land, water, or air, or other bailee for the purpose of transmission to the buyer, until the buyer, or his agent in that behalf, takes delivery of them from such carrier or other bailee;(2) If the goods are rejected by the buyer, and the carrier or other bailee continues in possession of them, even if the seller has refused to receive them back.

Goods are no longer in transit within the meaning of the preceding article:(1) If the buyer, or his agent in that behalf, obtains delivery of the goods before their arrival at the appointed destination;(2) If, after the arrival of the goods at the appointed destination, the carrier or other bailee acknowledges to the buyer or his agent that he holds the goods on his behalf and continues in possession of them as bailee for the buyer or his agent; and it is immaterial that further destination for the goods may have been indicated by the buyer;(3) If the carrier or other bailee wrongfully refuses to deliver the goods to the buyer or his agent in that behalf.

If the goods are delivered to a ship, freight train, truck, or airplane chartered by the buyer, it is a question depending on the circumstances of the particular case, whether they are in the possession of the carrier as such or as agent of the buyer.

When Goods are in Transit or Not

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1. This article refers to instances when the goods are still considered “in transit” and when “no longer in transit”

2. The right to get back the goods exists only when the goods are still in transit

3. Taking of the property in transit by an unauthorized agent of the buyer does not extinguish the right of stoppage in transitu.

Effect of Refusal to Receive1. If upon arrival the buyer “unjustifiably refuses to receive the

goods, the good are still in transitu and therefore, the seller may still exercise the right of stoppage”

o When Part Delivery Already MadeArt. 1535 (last par). If part delivery of the goods has been made to the buyer, or his agent in that behalf, the remainder of the goods may be stopped in transitu, unless such part delivery has been under such circumstances as to show an agreement with the buyer to give up possession of the whole of the goods. (n)

o How Right is ExercisedArt. 1532. The unpaid seller may exercise his right of stoppage in transitu either by obtaining actual possession of the goods or by giving notice of his claim to the carrier or other bailee in whose possession the goods are. Such notice may be given either to the person in actual possession of the goods or to his principal. In the latter case the notice, to be effectual, must be given at such time and under such circumstances that the principal, by the exercise of reasonable diligence, may prevent a delivery to the buyer.

When notice of stoppage in transitu is given by the seller to the carrier, or other bailee in possession of the goods, he must redeliver the goods to, or according to the directions of, the seller. The expenses of such delivery must be borne by the seller. If, however, a negotiable document of title representing the goods has been issued by the carrier or other bailee, he shall not obliged to deliver or justified in delivering the goods to the seller unless such document is first surrendered for cancellation. (n)

How the Right if Stoppage in Transitu May be Exercised8

1. Obtaining actual possession2. Giving notice of claim

To Whom Notice is Given1. To the person in actual possession of the goods2. Or to his principal

8 There must be intent to repossess the goods.

Effects of the Exercise of the Right1. After the exercise of the right of stoppage in transitu, the

consequential effects are:o The goods are no longer in transito The contract of carriage ends; instead, the carrier now

becomes a mere bailee and will be liable as sucho The carrier should not deliver anymore to the buyer or the

latter’s agent; otherwise, he will clearly be liable for damages

o The carrier must redeliver to, or according to the direction of, the seller.

o When Goods Covered by Negotiable Document of Title (see Art. 1532 last par)

SPECIAL RIGHT OF RESALE9

Art. 1533. Where the goods are of perishable nature, or where the seller expressly reserves the right of resale in case the buyer should make default, or where the buyer has been in default in the payment of the price for an unreasonable time, an unpaid seller having a right of lien or having stopped the goods in transitu may resell the goods. He shall not thereafter be liable to the original buyer upon the contract of sale or for any profit made by such resale, but may recover from the buyer damages for any loss occasioned by the breach of the contract of sale.

Where a resale is made, as authorized in this article, the buyer acquires a good title as against the original buyer.

It is not essential to the validity of resale that notice of an intention to resell the goods be given by the seller to the original buyer. But where the right to resell is not based on the perishable nature of the goods or upon an express provision of the contract of sale, the giving or failure to give such notice shall be relevant in any issue involving the question whether the buyer had been in default for an unreasonable time before the resale was made.

It is not essential to the validity of a resale that notice of the time and

9 Special because the rights of resale and to rescind the sale are accorded only to the UNPAID SELLER (different from rescission of reciprocal contracts under Art. 1191)

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place of such resale should be given by the seller to the original buyer.

The seller is bound to exercise reasonable care and judgment in making a resale, and subject to this requirement may make a resale either by public or private sale. He cannot, however, directly or indirectly buy the goods. (n)

o Right of Resale Exists When (there are/is) Perishable goods Express stipulation Unreasonable default

o Right, Not Duty, to Resell This article confers on the seller the right to resell (to enforce his

lien after title has passed) but does not impose upon him the duty to resell.10

o Meaning of Perishable Goods are perishable of they are of a nature that they deteriorate

rapidly.o Deficiency or Excess in the Price

Note that the deficiency in the price may be obtained as damages. This happens when the resale price is lower than the original selling price. Indeed, the resale is similar to a foreclosure of a lien held to secure the payment of the purchase price. On the other hand, any excess in the price goes to the seller.

o Effects of Having Exercised Right of Resale (see Art. 1533 par. 1)o Transfer of Ownership

Where a resale is made, as authorized in this article, the buyer acquires a good title as against the original buyer –special feature of the right of the unpaid seller to resell: not only is he able to destroy or obliterate the ownership over the goods in the original buyer, he is also able to transfer ownership to the subsequent buyer, even if at the time of tradition, he no longer had ownership over the goods. Ordinarily, the destruction or taking away of ownership in one person and placing it in another person in such manner can only be done through court action. But in the case of an unpaid seller, he can effect these, even without judicial action.

o Notice to Defaulting Buyer (see Art. 1533 par. 3)o Standard of Care and Disqualification in Resale (see Art. 1533,

last par)

10 Art. 1533 DOES NOT APPLY where title to goods has not passed.

SPECIAL RIGHT TO RESCIND THE SALE

Art. 1534. An unpaid seller having the right of lien or having stopped the goods in transitu, may rescind the transfer of title and resume the ownership in the goods, where he expressly reserved the right to do so in case the buyer should make default, or where the buyer has been in default in the payment of the price for an unreasonable time. The seller shall not thereafter be liable to the buyer upon the contract of sale, but may recover from the buyer damages for any loss occasioned by the breach of the contract.

The transfer of title shall not be held to have been rescinded by an unpaid seller until he has manifested by notice to the buyer or by some other overt act an intention to rescind. It is not necessary that such overt act should be communicated to the buyer, but the giving or failure to give notice to the buyer of the intention to rescind shall be relevant in any issue involving the question whether the buyer had been in default for an unreasonable time before the right of rescission was asserted. (n)

o Right to Rescind the Transfer of Title This article refers to the right to rescind the transfer of title and to

resume the ownership in the goods This applies in case there has been

express stipulation or reservation by the seller in case of default by the buyer;

unreasonable default by the buyer in the payment for an unreasonable time

Note that damages may be recovered for the breach of contract as effect

Q: What should be done in order to rescind the transfer of title?

A: There must be notice to the buyer or there must be an overt act showing an intention to rescind.

o Effect of Replevin Suit When the seller brings a replevin suit (recovery of personal

property), there is an implied rescission of the sale of the goods sought to be recovered. If ownership is claimed over the property, and it is subsequently offered to a third person, these facts can be presented to indicate an intention to rescind.

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Art. 1536. The vendor is not bound to deliver the thing sold in case the vendee should lose the right to make use of the terms as provided in Article 1198. (1467a)

o When Seller is not Bound to Deliver Because Buyer Has Lost the Benefit of the Term Art. 1198. The debtor shall lose every right to make use of the

period When after the obligation has been contracted, he becomes

insolvent, unless he gives a guaranty or security for the debt; When he does not furnish to the creditor the guaranties or

securities which he has promised; When by his own acts he has impaired said guaranties or

securities after their establishment, and when through a fortuitous event they disappear, unless he immediately gives new ones equally satisfactory;

When the debtor violates any undertaking, in consideration of which the creditor agreed to the period;

When the debtor attempts to abscond.In these cases enumerated, the vendor is not bound o deliver.

Q: Mel purchased good from Joey. Mel promised to give certain securities, as a result of which, Mel was given one year within which to pay. Mel failed to give the securities. Can Joey be compelled to deliver?

A: No, of course, if Joey so desires he may voluntarily deliver.

Art. 1537. The vendor is bound to deliver the thing sold and its accessions and accessories in the condition in which they were upon the perfection of the contract.

All the fruits shall pertain to the vendee from the day on which the contract was perfected. (1468a)

o Accessions and accessories Example of Accession: Fruits Example of Accessories: In the sale of a car, the jack is

considered an accessory.o Duty to Preserve

This article implicitly reiterates the duty of the seller to PRESERVE. Naturally, a fortuitous event excuses the seller. But since a fortuitous event is never presumed, the loss of the

property because of such event is naturally to be proved by the seller.

Right to the Fruitso Although under the 2nd paragraph fruits shall pertain to the buyer from

the date of perfection, it is evident that a contrary stipulation may be agreed upon, or a later date may be set, The term fruits here includes natural, industrial or civil fruits.

Art. 1538. In case of loss, deterioration or improvement of the thing before its delivery, the rules in Article 1189 shall be observed, the vendor being considered the debtor. (n) Effect of Loss, Deterioration or Improvement Before Delivery

o This article reiterates the rule that from time of perfection delivery, risk is borne by the buyer.

Article 1189o When the conditions have been imposed with the intention of

suspending the efficacy of an obligation to give, the following rules shall be observed in case of the improvement, loss or deterioration of the thing during the pendency of the condition:1. If the thing is lost without the fault of the debtor, the obligation

shall be extinguished;2. If the thing is lost through the fault of the debtor, he shall be

obliged to pay damages; it is understood that the thing is lost when it perishes, or goes out of commerce, or disappears in such a way that its existence is unknown or it cannot be recovered;

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

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

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

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

Art. 1539. The obligation to deliver the thing sold includes that of placing in the control of the vendee all that is mentioned in the contract, in conformity with the following rules:

If the sale of real estate should be made with a statement of its area, at the rate of a certain price for a unit of measure or number, the vendor shall be obliged to deliver to the vendee, if the latter should demand it,

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all that may have been stated in the contract; but, should this be not possible, the vendee may choose between a proportional reduction of the price and the rescission of the contract, provided that, in the latter case, the lack in the area be not less than one-tenth of that stated.

The same shall be done, even when the area is the same, if any part of the immovable is not of the quality specified in the contract.

The rescission, in this case, shall only take place at the will of the vendee, when the inferior value of the thing sold exceeds one-tenth of the price agreed upon.

Nevertheless, if the vendee would not have bought the immovable had he known of its smaller area of inferior quality, he may rescind the sale. (1469a) Sale of Real Estate By Unit

o This refers to the sale of real estate by the unit. Examples:(1) If Laurel buys from hardy a piece of land supposed to contain 1,000 sq. m. at the rate of 10K per sq. m., but the land has only 800 sq. m., the additional 200 must be given to Laurel should Laurel demand them. If this cannot be done, Laurel may pay only 8 million (for the 800 sq. m.) or rescind the contract.(2) Q: If in the above example, there are only 950 sq. m., can Laurel ask for rescission?

A: As a rule no, because the lack is only 50 sq. m. The lack must be at least 1/10 of the area stated. However, if Laurel would have not bought the land had he known of its smaller area, he may rescind the sale.11

Unit Price Contracto If a contract is a unit price contract (as distinguished from a lump sum

contract) payment will be made only on the basis of contractual items actually performed, in accordance with the given plans and specifications.

o In such a unit price contract, the amount agreed upon is generally merely an estimate and may be reduced or increased depending

11 The 1/10 part referred to in the article applies to 1/10 of the area stated in the contract, not to 1/10 of the true actual area. This is evident because of the wording of the law--- area “stated”.

upon the quantities performed multiplied by the unit prices previously agreed upon. For a unit price formula to be applied, there must be a stipulation to such effect. Incidentally, a contractor may not be awarded a compensation for his services, arising from the price adjustment due to inflation.

Art. 1540. If, in the case of the preceding article, there is a greater area or number in the immovable than that stated in the contract, the vendee may accept the area included in the contract and reject the rest. If he accepts the whole area, he must pay for the same at the contract rate. (1470a) Rule when Actually Area or Number is Greater

Q: Tom buys from Jerry a piece of land supposed to contain 1,000 sq. m. at the rate of 10K a sq. m. But the land really contains 1, 500 sq. m. What can Tom do?

A: Tom may accept 1,000 sq. m. and reject the extra 500, in which case he will pay only 10 million. However, Tom is also allowed to accept all of the 1,500 sq. m. but he must pay 15 million. Tom is in no case allowed to rescind the contract, for such remedy is not allowed him under the article.

Art. 1541. The provisions of the two preceding articles shall apply to judicial sales. (n)

Art. 1542. In the sale of real estate, made for a lump sum and not at the rate of a certain sum for a unit of measure or number, there shall be no increase or decrease of the price, although there be a greater or less area or number than that stated in the contract.

The same rule shall be applied when two or more immovables as sold for a single price; but if, besides mentioning the boundaries, which is indispensable in every conveyance of real estate, its area or number should be designated in the contract, the vendor shall be bound to deliver all that is included within said boundaries, even when it exceeds the area or number specified in the contract; and, should he not be able to do so, he shall suffer a reduction in the price, in proportion to what is lacking in the area or number, unless the contract is rescinded because the vendee does not accede to the failure to deliver what has been stipulated. (1471) Sale for a Lump Sum ( A Cuerpo Cierto)

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o Here the sale is made for a lump sum (a cuerpo cierto or por precio alzado) not at the rate per unit.

(1) Q: Harry buys a piece of land from Ron at the lump sum of 10 million. In the contract, the area is stated to be 1,000 sq. m. The boundaries are of course mentioned in the contract. Now then it was discovered that the land within the boundaries really contains 1, 500 sq. m. Is Ron bound to deliver the extra 500 sq. m.?

A: Yes. Furthermore, the price should not be increased. This is so because Ron should deliver all of which are included in the boundaries. If Ron does not deliver the remaining 600, Harry has a right---

1. Either to rescind the contract for the seller’s failure to deliver what has been stipulated or

2. To pay a reduced proportional price, namely 2/3 of the original price. This is so because Harry gets only 2/3 of the land included within the boundaries (1,000 sq. m. out of 1,500 sq. m.)

(2) Q: Lady Gaga buys a piece of land a cuerpo cierto (for a lump sum). The contract states a certain number of square meters but the land included in the boundaries happen to be LESS.

1. Is Lady Gaga entitled to Rescind? No.2. Is Lady Gaga entitled to pay a reduced price? No.

The Civil Code presumes that the purchaser had in mind a determinate piece of land and that he ascertained its area and quality before the contract was perfected. If he did not so, or if having done so, he made no objection and consented to the transaction, he can blame no one but himself.

Delivery of All the Land Included in the Boundarieso What is important is the delivery of all the land included in the

boundaries If this is done, there is compliance with the contract and the

greater or lesser area is immaterial. So apply par. 1 of Art. 1542. If this is not done, there is really no faithful compliance with the

contract and so par. 2 of Art. 1542 should be applied. Effect of Gross Mistake

o Regarding par. 1 of Art. 1542, although ordinarily there can be no rescission or reduction or increase whether the area be greater or lesser, still there are instances in which equitable relief may be granted to the purchaser as where the deficiency is very great for under such circumstances, GROSS MISTAKE may be inferred.

Effect if Buyer Took the Risk as to QuantityGarcia vs Velasco

The SC was satisfied that although the shortage amount to particularly ¼ of the total area, the purchaser clearly intended to take risk of quantity, and that the area has been mention in the contract merely for purpose of description. From the circumstances that the defendant, before her purchase of the fishpond, had been in possession and control thereof for two years as a lessee, she can rightly be presumed to have acquired a good estimate of its value and area, and her subsequent purchase thereof must have been premised on the knowledge of such value and area. Accordingly, she cannot now be heard to claim an equitable re-auction in the purchase price on the pre-text that the property is much less that she thought it was.

Meaning of “More or Less”o The phrase “more or less” or others of like import added to a

statement of the quantity, can only be considered as covering inconsiderable or small differences one way or the other. The use of such phrases in designating the quantity covers only a reasonable excess or deficiency.

Art. 1543. The actions arising from Articles 1539 and 1542 shall prescribe in six months, counted from the day of delivery. (1472a)

___________________________________________________DOUBLE SALE

Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property.

Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith. (1473)

Requisites for Double Sale (VOSC)1. Two or more transactions must constitute valid sales;

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In order to constitute double sale, both sales must be valid. Double sales rules are applications to consummation issues; hence, when the underlying contract of sale is void, consummation, particularly tradition, cannot produce its legal consequences.

2. They must pertain exactly to the same object or subject matter3. They must be bought from the same or immediate seller; and4. Two or more buyers who are at odds over the rightful ownership of

the subject matter must represent conflicting interests

Rules of Preference in Case of Double SaleIn all these rules, there must be GF; otherwise, the order of preference does not apply.

A purchaser in GF is one who buys the property of another without notice that some other person has a right to, or interest in such property, and pays a full and fair price for the same, at the time of such purchase, or before he has notice of the claim or interest of some other person in the property.

A person for example who buys a land which he knows has already been promised to another is a purchase in GF.

GF, however, is presumed. In order that a purchaser of land with a Torrens Title may be considered purchaser in GF, it is enough that he examines the latest certificate of title which, in this case, is that issued in the name of the immediate transferor.

The purchaser is not bound by the original certificate of title but only by the certificate of title of the person from whom he has purchased the property.

However, where 2 certificates of title are issued to different persons covering the same land in whole or in part, the earlier in date must prevail as between original parties, and in case of successive registrations, where more than one certificate is issued over the land, the person holding under the prior certificate is entitled to the land as against the person who relies on the 2nd certificate.

The purchaser from the owner of the later certificate and his successors should resort to his vendor for redress rather than molest the holder of the first certificate and his successors, who should be permitted to rest secure

in their title.

o Personal Property –possessor in GFo Real Property

Registrant in GFRegistration here requires actual recording: hence, if the property was never really registered as when the registrar forgot to do so although he has been handed the document, there is no registration.

The rule as to registration covers all kinds of immovables, including land, and makes no distinction as to whether the immovable is registered under the Land Registration Law (with therefore a Torrens Title) or not so registered.

But insofar as said registered lands are concerned, Art. 1544 is in perfect accord with the Land Registration Act, Sec. 50 of which provides that no deed, mortgage, lease or other voluntary instrument except a will, purporting to convey or to affect registered land shall take effect as conveyance or bind the land until the registration of such deed or instrument.

Thus as to lands, covered by a Torrens Certificate of Title , a deed of sale is considered registered from the moment it is entered or recorded in the entry or day book of the Register of Deeds.

If the land is registered under the Land Registration Act (and has therefore a Torrens Title), and it is sold but the subsequent sale is registered not under the Land Registration Act but under Act 3344, as amended, such sale is not considered REGISTERED, as the term is used under Art. 1544. ‘

A mere preventive precautionary notice (anotacion preventiva) is not equivalent to registration, unless within 30 days thereafter there is made an actual recording. Such a preventive notice is good only against subsequent (not prior) transferees, and even here for only 30 days. The registration of a forged deed of sale cannot of course grant the preference adverted to in this Article inasmuch as among other things, there was no GOOD FAITH.

Possessor in GF Possession here is either ACTUAL or CONSTRUCTIVE

since the law makes no distinction. Person with the oldest title in GF

Title in this article means title because of the sale, and not any other title or mode of acquiring property. Hence, as between a buyer-possessor whose possession has ripened to

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ownership because of prescription, and a registrant in GF, the possessor-owner is naturally preferred.

Example of Rules as To Real Property

Q: Val sold land to Ver. Subsequently, Val sold the same land to Chris who in good faith registered it in his name. Who should be considered the owner?

A: Chris in view of the registration in GF.

Q: Val sold land to Ver who then went to the Registry of Property. Ver gave the deed of sale for registration, was given a receipt therefore, but unfortunately, the Registrar for one reason or another was not able to actually record the deed. Subsequently, Val sold the same land to Mary, a purchaser in GF. Mary had the land registered in her name. Who is now the owner?

A: Mary, in view of the registration in GF. The sale in favor of Ver was NEVER ACTUALLY REGISTERED. The SC held that where a piece of real property is first sold to a person who only secures a receipt for the document evidencing the sale form the office of the register of deeds, and where the piece of property is later sold to another person who records his documents in the Registry of Deeds as provided by law, and secures a Torrens Title the property belongs to the latter (Po Sun Tan vs Price)

Q: Val sold a parcel of land with a Torrens Title to Ian on Jan. 5. A week later, Val sold the same land to Darlene. Neither sale was registered. As soon as Ian learned of the sale in favor of Darlene, Ian registered an adverse claim stating that he was making the claim because the second sale was in fraud of his rights as first buyer. Later, Darlene registered the deed of sale that had been made in her favor. Who is now the owner--- Ian or Darlene?

A: Darlene is clearly the owner, although she was the second buyer. This is so, not because of the registration of the sale itself but because of the AUTOMATIC registration in her favor caused by Ian’s knowledge of the first sale (actual knowledge being equivalent to registration). The purpose of registration is to notify. This notification was done because of Ian’s knowledge. It is wrong to assert that Ian was only trying tom protect his right for there was no more right to be

protected. Ian should have registered the sale BEFORE knowledge came to him. It is now too late. It is clear from this that with respect to the principle “actual knowledge is equivalent to registration of the sale about which knowledge has been obtained”--- the knowledge may be that of either the FIRST or the SECOND buyer.

Q: Mama orally appointed Papa as his agent to sell a parcel of land. On Sept. 30, 2004, Papa sold the land to Baby who forthwith took possession thereof. It turned out, however, that on Sept. 25, 204, Mama without informing Papa, had already sold the same land to Kuya who up to now has not yet taken possession thereof. Neither Baby nor Kuya has registered his purchase. Whose contract should prevail?

A: The contract of Mama with Kuya will prevail, for he has title while Baby has no title. It is true that Baby first took possession, but it should be noted that the sale to Baby was null and void, inasmuch as Papa’s authority tom sell the land was not in writing as stated in Art. 1874.

Applicability and Non-applicability of Art. 1544Applicability Non-applicability

a) To double donationb)To sales made by a

principal and his agent of the same property

a) If the deed first registered is found to be a FORGERY

b) To a subsequent judicial attachments or executions which should not prevail over prior unregistered sales where possession has already been conveyed by the execution of a public instrument

c) Nor to instances where the double sale was not made by the same person or his authorized agent

d) Nor to one where one sale was an absolute one but the other was a pacto de retro transaction where the period to redeem has not yet expired

e) Nor to one where one of the sales was one subject to a suspensive condition which condition was not

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complied with f) To a property first donated, then

sold (CA case)g) The land is not registered under

the Torrens systemh) The first sale occurs when land is

not yet registered and the second sale is done when the land is already registered—the principle of prior tempore, potior jure (he who is first in time is preferred in right) should apply

Reason for the Rule on Preferenceo Art. 1544 is an exception to the general rule (which is no one can

sell what he does not own). It is an exception by reason of public convenience; in another sense, it really reiterates the general rule in that insofar as innocent third persons are concerned, the registered owner (in case of real property) is still the owner, with power of disposition.

Concepts under Double Saleo Lis Pendens- A buyer cannot be considered an IPFV when he

ignored the notice of lis pendens on the title when he bought the lot.o First buyer is always in GF: knowledge gained by the first buyer of

the second sale cannot defeat the first buyer’s rights except only as provided by the Civil Code and that is where the second buyer first registers in GF the second sale ahead of the first.

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Art 1525-1544

Documents

Transcript of Art 1525-1544