[CLV] Sales Outline

8/20/2019 [CLV] Sales Outline

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ATENEO DE MANILA LAW SCHOOL

LAW ON SALES OUTLINE 1 DEAN CESAR L. V ILLANUEVAFirst Semester, SY 2012-2013 ATTY. ALEXANDER C. D Y

ATTY. RAY PAOLO J. SANTIAGO

I. THE NATURE OF SALE

A. DEFINITION (Art. 1458 )

Sale is a contract whereby one of the contracting parties [the seller] obligates himself to transferthe ownership

2 and to deliver the possession, of a determinate thing, and the other party [the buyer] to

pay therefor a price certain in money or its equivalent. xCruz v. Fernando, 477 SCRA 173 (2005).3

1. Elements of Sale

Elements of sale: (a) consent or meeting of the minds; (b) determinate subject matter; and (c)price certain in money or its equivalent. xNavarra v. Planters Dev. Bank , 527 SCRA 562 (2007).4

Sale being a consensual contract, its essential elements must be proven. xVillanueva v. CA,267 SCRA 89 (1997).

Absence of any essential elements negates a sale xDizon v. CA, 302 SCRA 288 (1999),5 evenwhen earnest money has been paid. xManila Metal Container Corp. v. PNB, 511 SCRA 444 (2006).

But once all elements are proven, a sale’s validity is not affected by a previously executedfictitious deed of sale. xPeñalosa v. Santos, 363 SCRA 545 (2001); and the burden is on the otherparty to prove otherwise. xHeirs of Ernesto Biona v. CA, 362 SCRA 29 (2001).

2. Stages of Contract of Sale

Policitacion covers the period from the time the prospective contracting parties indicate interestin the contract to the time the contract is perfected. Perfection takes place upon the concurrence ofthe essential elements, which are the meeting of the minds of the parties as to the object of thecontract and upon the price. Consummation begins when the parties perform their respectiveundertakings, culminating in the extinguishment thereof. xSan Miguel Properties Philippines, Inc. v.Huang, 336 SCRA 737 (2000).6

3. Sale Creates Real Obligations “To Give” (Art. 1165)

4. Essential Characteristics of Sale:

a. Nominate and Principal

A contract of sale is what the law defines it to be, taking into consideration its essentialelements, and not what the contracting parties call it. xSantos v. Court of Appeals, 337 SCRA 67(2000).7

b. Consensual (Art. 1475)

A contract of sale is not a real, but a consensual contract, and becomes valid and bindingupon the meeting of the minds of the parties as to the object and the price,8 consequently:

1The Outline presents the manner by which the LAW ON SALES will be taken-up in class. The x's and those footnoted in the Outlinerepresent cases or topics which need no extended discussions, either because the essence of the rulings are already summarizedin the Outline or they contain similar rulings or doctrines as other cases to be discussed. Unless otherwise indicated, thenumbered articles refer to articles of the Civil Code of the Philippines.

2Ownership is the independent and general power of a person over a thing for purposes recognized by law and within the limits establishedthereby. According to Art. 428 of the Civil Code, this means that: The owner has the right to enjoy and dispose of a thing, without otherlimitations than those established by law. x x x Aside from the jus utendi and the jus abutendi inherent in the right to enjoy the thing, the rightto dispose, or the jus disponendi , is the power of the owner to alienate, encumber , transform and even destroy the thing owned. Flancia v.Court of Appeals, 457 SCRA 224 (2005).

3 Alfredo v. Borras, 404 SCRA 145 (2003); Manila Metal Container Corp. v. PNB, 511 SCRA 444 (2006); Roberts v. Papio, 515 SCRA 346

(2007).4Jovan Land, Inc. v. CA, 268 SCRA 160 (1997); Quijada v. CA, 299 SCRA 695 (1998); Co v. CA, 312 SCRA 528 (1999); San Andres v.

Rodriguez , 332 SCRA 769 (2000); Roble v. Arbasa, 362 SCRA 69 (2001); Polytechnic University v. CA, 368 SCRA 691 (2001); Katipunan v.Katipunan, 375 SCRA 199 (2002); Londres v. CA, 394 SCRA 133 (2002); Manongsong v. Estimo, 404 SCRA 683 (2003); Jimenez, Jr. v.Jordana, 444 SCRA 250 (2004); San Lorenzo Dev. Corp. v. CA, 449 SCRA 99 (2005); Yason v. Arciaga, 449 SCRA 458 (2005); Roberts v.Papio, 515 SCRA 346 (2007); Navarra v. Planters Dev. Bank , 527 SCRA 562 (2007); Republic v. Florendo, 549 SCRA 527 (2008); GSIS v.Lopez , 592 SCRA 456 (2009); Baladad v. Rublico, 595 SCRA 125 (2009); Del Prado v. Caballero, 614 SCRA 102 (2010); Montecalvo v.


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• Upon its perfection, the parties may reciprocally demand performance. xHeirs of Venancio

Bejenting v. Bañez , 502 SCRA 531 (2006);9 subject only to the provisions of the law governing

the form of contracts. xCruz v. Fernando, 477 SCRA 173 (2005).

• It remains valid even if parties have not affixed their signatures to its written form, xGabelo v.CA, 316 SCRA 386 (1999), or the manner of payment is breached. xPilipinas Shell PetroleumCorp v. Gobonseng , 496 SCRA 305 (2006).

• In an Extrajudicial Settlement of Estate with Absolute Sale, it would be immaterial that the

buyer’s signature does not appear thereon since the contract of sale is consensual andperfected by mere consent. xBaladad v. Rublico, 595 SCRA 125 (2009).

• Failure of the subdivision developer to obtain a license to sell the subdivision lots does not

render the sales void on that ground alone especially that the parties have impliedly admittedthat there was already a meeting of the minds as to the subject of the sale and price of thecontract. Cantemprate v. CRS Realty Dev. Corp. 587 SCRA 492 (2009).

The binding effect of sale is based on the principle that the obligations arising therefrom havethe force of law between the parties. xVeterans Federation of the Philippines v. Court of Appeals,345 SCRA 348 (2000).

Perfection Distinguished from Demandability – Not all contracts of sale becomeautomatically and immediately effective. In sales with assumption of mortgage, there is a

condition precedent to the seller’s consent and without the approval of the mortgagee, the sale isnot perfected. xBiñan Steel Corp. v. Court of Appeals, 391 SCRA 90 (2002).

“No Contract Situation” versus “Void Contract” – Absence of consent (i.e., completemeeting of minds) negates the existence of a perfected sale. xFirme v. Bukal Enterprises andDev. Corp., 414 SCRA 190 (2003). The contract then is null and void ab initio, absolutely wantingin civil effects; hence, it does not create, modify, or extinguish the juridical relation to which itrefers. xCabotaje v. Pudunan, 436 SCRA 423 (2004).

When there is no meeting of the minds on price, the contract “is not perfected” and does notserve as a binding juridical relation between the parties. xManila Metal Container Corp. v. PNB,511 SCRA 444 (2006),

10 and should be more accurately denominated as inexistent, as it did not

pass the stage of generation to the point of perfection. xNHA v. Grace Baptist Church, 424 SCRA147 (2004).

c. Bilateral and Reciprocal (Arts. 1169 and 1191 )

A contract of sale gives rise to “reciprocal obligations”, which arise from the same cause witheach party being a debtor and creditor of the other, such that the obligation of one is dependentupon the obligation of the other; and they are to be performed simultaneously, so that theperformance of one is conditioned upon the simultaneous fulfillment of the other. Cortes v. Courtof Appeals, 494 SCRA 570 (2006).11

A perfected contract of sale carries the correlative duty of the seller to deliver the propertyand the obligation of the buyer to pay the agreed price. Congregation of the Religious of theVirgin Mary v. Orola, 553 SCRA 578 (2008).

The power to rescind is implied in reciprocal ones in case one of the obligors should notcomply with what is incumbent upon him, and without need of prior demand. Almocera v. Ong ,546 SCRA 164 (2008).12

d. Onerous (!Gaite v. Fonacier, 2 SCRA 830 [1961])

e. Commutative (BUT SEE : Arts. 1355 and 1470 )

In a contract of sale, there is no requirement that the price be equal to the exact value of thesubject matter of sale; all that is required is that the parties believed that they will receive goodvalue in exchange for what they will give. !Buenaventura v. CA, 416 SCRA 263 (2003) .

f. Sa le Is T itle and Not Mode

Sale is not a mode, but merely a title. A mode is the legal means by which dominion orownership is created, transferred or destroyed, but title is only the legal basis by which to affect

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

Court of Appeals, 394 SCRA 133 (2002); Alcantara-Daus v. de Leon, 404 SCRA 74 (2003); Buenaventura v. Court of Appeals, 416 SCRA


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of sale, that actually transfers ownership. xSan Lorenzo Dev. Corp. v. CA, 449 SCRA 99 (2005),13

citing VILLANUEVA, PHILIPPINE L AW ON S ALES, 1995 ed., at p. 5.

Seller’s ownership of the thing sold is not an element of perfection; what the law requires isthat seller has the right to transfer ownership at the time of delivery. xQuijada v. CA, 299 SCRA695 (1998).

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BUT S EE : xTitong v. CA, 287 SCRA 102 (1998), which defined a “sale” as “a contract transferring

dominion and other real rights in the thing sold.”

B. SALE D ISTINGUISHED FROM S IMILAR CONTRACTS

A contract is what the law defines it to be, taking into consideration its essential elements, and thetitle given to it by the parties is not as much significant as its substance.15 The transfer of ownership inexchange for a price paid or promised is the very essence of a contract of sale. xSantos v. Court of

Appeals, 337 SCRA 67 (2000).

In determining the real character of sale, courts look at the intent of the parties, their true aim andpurpose in entering into the contract, as well as “by their conduct, words, actions and deeds prior to,during and immediately after executing the agreement,” and not at the nomenclature used to describeit, xLao v. Court of Appeals, 275 SCRA 237 (1997).

1. Donation (Arts. 725 and 1471 )

Unlike a donation, sale is a disposition for valuable consideration with no diminution of the estatebut merely substitution of values, with the property sold replaced by the equivalent monetaryconsideration; unlike donation, a valid sale cannot have the legal effect of depriving the compulsoryheirs of their legitimes. xManongsong v. Estimo, 404 SCRA 683 (2003).

The rules on double sales under Art. 1544 find no relevance to contracts of donation. xHemedesv. Court of Appeals, 316 SCRA 347 (1999).

2. Barter (Arts. 146 8, 16 38 to 1641 )

3. Contract for Piece-of-Work (Arts. 146 7, 17 13 to 1715 )

Crux: “Ineluctably, whether the contract be one of sale or one for a piece of work, a transfer ofownership is involved and a party necessarily walks away with an object.” xCommissioner ofInternal Revenue v. CA, 271 SCRA 605 (1997), citing VILLANUEVA, L AW ON S ALES, pp. 7-9 (1995). Inboth, the provisions on warranty of title against hidden defects applies. xDiño v. CA, 359 SCRA 91(2001).

When a person stipulates for the future sale of articles which he is habitually making, and whichat the time are not made or finished, it is essentially a contract of sale and not a contract for laborxInchausti & Co. v. Cromwell , 20 Phil. 345 (1911); even when he executes production thereof onlyafter an order is placed by customers. !Celestino & Co. v. Collector , 99 Phil. 841 (1956) .

If the thing is specially done only upon the specific order of another, this is a contract for apiece of work; if the thing is manufactured or procured for the general market in the ordinary courseof business, it is a contract of sale. !Commissioner of Internal Revenue v. Engineering

Equipment & Supply Co., 64 SCRA 590 (1975) .

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To Tolentino, the distinction depends on the intention of parties: if parties intended that at some

future date an object has to be delivered, without considering the work or labor of the party boundto deliver, the contract is one of sale; but if one of the parties accepts the undertaking on the basisof some plan, taking into account the work he will employ personally or through another, thecontract is for a piece of work. xEngineering & Machinery Corp. v. CA, 252 SCRA 156 (1996).

4. Agency to Sell (Art. 1466)

Assumption by “agent” of the risk pertaining to the cost or price of the subject matter makes therelationship that of buyer-seller, for the agent does not assume risk with respect to the price or theproperty subject of the relationship. xKer & Co., Ltd. v. Lingad , 38 SCRA 524 (1971). Consequently:(a) the contractual relationship is not inherently revocable. !Quiroga v. Parsons, 38 Phil. 501(1918) ; or (b) the purported agent does not have to account for the profit margin earned fromacquiring the property for the purported principal. !Puyat v. Arco Amusement Co., 72 Phil. 402(1941) .

One factor that most clearly distinguishes agency from other legal concepts, including sale, iscontrol ; one person – the agent – agrees to act under the control or direction of another – the


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Commercial broker, commission merchant or indentor is a middleman acting in his own name,and acts as agent for both seller and buyer to effect a sale between them. Although he is neitherseller nor buyer to the contract effected he may voluntarily assume warranties of seller. xSchmidand Oberly, Inc. v. RJL Martinez , 166 SCRA 493 (1988).

5. Dacion En Pago (Arts. 1245 and 1934 )

Governed by the law on sales, dation in payment is a transaction that takes place when property

is alienated to the creditor in full satisfaction of a debt in money – it involves the delivery andtransmission of ownership of a thing as an accepted equivalent of the performance of the obligation.Yuson v. Vitan, 496 SCRA 540 (2007).

In its modern concept, what actually takes place in dacion en pago is an objective novation ofthe obligation where the thing offered as an accepted equivalent of the performance of an obligationis considered as the object of the contract of sale, while the debt is considered as the purchaseprice. xAquintey v. Tibong 511 SCRA 414 (2006).17

Elements of dation in payment: (a) performance of the prestation in lieu of payment (animosolvendi ) which may consist in the delivery of a corporeal thing or a real right or a credit against thethird person; (b) some difference between the prestation due and that which is given in substitution(aliud pro alio); and (c) agreement between the creditor and debtor that the obligation is immediatelyextinguished by reason of the performance of a presentation different from that due. !Lo v. KJS

Eco-Formwork System Phil., Inc., 413 SCRA 182 (2003) .18

There is no dation in payment where there is no transfer of ownership in the creditor’s favor, aswhen the possession of the thing is merely given to the creditor by way of security. Fort BonifacioDev. Corp. v. Yllas Lending Corp., 567 SCRA 454 (2008); as when the possession is only by way ofsecurity. xPNB v. Pineda, 197 SCRA 1 (1991).

For dacion to arise, there must be actual delivery of the property to the creditor by way ofextinguishment of the pre-existing debt. Philippine Lawin Bus Co. v. CA, 374 SCRA 332 (2002).

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BUT S EE O BITER : SSS v. Court of Appeals, 553 SCRA 677 (2008).

In a true dacion en pago, the assignment of the property extinguishes the monetary debt. Ong v.Roban Lending Corp., 557 SCRA 516 (2008).

A creditor, especially a bank, which enters into dacion en pago, should know and must accept

the legal consequence thereof, that the pre-existing obligation is totally extinguished. xEstanislao v.East West Banking Corp., 544 SCRA 369 (2008).

A property subject to a real estate mortgage, which has not been foreclosed, may validly be thesubject of dacion en pago, for a mortgage does not take away the property rights of the mortgagor;however, the creditor who becomes the buyer of the property is subject to the real estate mortgagelien. xTypingco v. Lim, 604 SCRA 396 (2009).

6. Lease (Arts. 1484 and 1485 )

When rentals in a “lease” are clearly meant to be installment payments to a sale contract,despite the nomenclature given by the parties, it is a sale by installments and governed by the RectoLaw. xFilinvest Credit Corp. v. CA, 178 SCRA 188 (1989).

II. PARTIES TO A CONTRACT OF SALES (Arts. 1489 -1492 )

1. General Rule: Every person having legal capacity to obligate himself, may validly enter into acontract of sale, whether as seller or as buyer. (Art. 1489)

2. Minors, Insane and Demented Persons, De af-Mutes (Arts. 1327 , 1397 and 1399)

A minor cannot be deemed to have given her consent to a contract of sale; consent is amongthe essential requisites of a contract, including one of sale, absent of which there can be no validcontract. [?] xLabagala v. Santiago, 371 SCRA 360 (2001).

a. Necessaries (Arts. 1489 and 290 )

b. x Emancipation (Arts. 399 and 1397 ; Inutile: Majority age now at 18 years, Arts. 234 and236, Family Code, amended by R.A. 6809).

c. Protection of the Senile and Elderly (Art. 24 ) and Illiterates (Art. 1332 )


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show that the terms thereof have been fully explained to the former; otherwise, sale is void. [?] xVda. De Ape v. Court of Appeals, 456 SCRA 193 (2005).

While a person is not incompetent to contract merely because of advanced years or by reasonof physical infirmities, when such age or infirmities have impaired the mental faculties so as toprevent the person from properly, intelligently or firmly protecting his property rights, then he isundeniably incapacitated, and the sale he entered into is void [?] . !Paragas v. Heirs ofDominador Balacano, 468 SCRA 717 (2005) .20

3. Sales By and Between Spouses:

a. Contracts with Third Pa rties (Arts. 73, 96 , and 124, Family Code)

Under Art. 124 of Family Code, sale by husband of a conjugal property without the wife’sconsent is void, not merely voidable, since the resulting contract lacks one of the essentialelements of full “consent”. xGuiang v. CA, 291 SCRA 372 (1998).21

A wife affixing her signature to a Deed of Sale as a witness is deemed to have given herconsent. xPelayo v. Perez , 459 SCRA 475 (2005).

As an exception, husband may dispose of conjugal property without wife’s consent if such saleis necessary to answer for conjugal liabilities mentioned in Articles 161 and 162. xAbalos v.Macatangay, Jr., 439 SCRA 64 (2004).

b. Between S pouses (Arts. 133 , 14 90, 1 492; Se c. 87, F amily Code)

Sales between spouses who are not governed by a complete separation of property regimeare void, not just voidable. xMedina v. Collector , 1 SCRA 302 (1960).

Sale by husband of conjugal land to his concubine is null and void for being contrary to moralsand public policy and “subversive of the stability of the family, a basic social institution which publicpolicy cherishes and protects.” !Calimlim-Canullas v. Fortun, 129 SCRA 675 (1984) .22

Since under Art. 1490, the spouses cannot validly sell property to one another, then policyconsideration and the dictates of morality require that the prohibition should apply also to common-law relationships. cf. Matabuena v. Cervantes, 38 SCRA 284 (1971).

Nevertheless, when property resold to a third-party buyer in good faith and for value,reconveyance is no longer available. xCruz v. CA, 281 SCRA 491 (1997).

The in pari delicto doctrine would apply to the spouses-parties under Art. 1490, since only theheirs and the creditors can question the sale’s nullity. xModina v. Court of Appeals, 317 SCRA 696(1999).

4. Others Re latively Disqualified (Arts. 14 91 and 1492 )

Contracts entered into in violation of Arts. 1490 and 1492 are not merely voidable, but are nulland void . !Rubias v. Batiller , 51 SCRA 120 (1973) .23

a. Guardians, Agents and Administrators

No more need to comply with xRodriquez v. Mactal , 60 Phil. 13 (1934) which required

showing that a third party bought as conduit/nominee of the buyer disqualified under Art. 1491;rather, the presumption now is that such disqualified party obtained the property in violation ofsaid article. !Philippine Trust Co. v. Roldan, 99 Phil. 392 (1956) .

Prohibition against agents does not apply if the principal consents to the sale of the propertyin the hands of the agent. xDistajo v. CA, 339 SCRA 52 (2000).

Hereditary rights are not included in the prohibition insofar as administrator or executor of theestate of the deceased. xNaval v. Enriquez , 3 Phil. 669 (1904).

b. Attorneys

Prohibition applies only while litigation is pending . xDirector of Lands v. Ababa, 88 SCRA 513(1979); even when the litigation is not adversarial in nature !Rubias v. Batiller , 51 SCRA 120(1973) ; or when it is a certiorari proceeding that may have no merit xValencia v. Cabanting , 196

SCRA 302 (1991).

Prohibition applies only to a sale to a lawyer of record , and does not cover assignment of theproperty given in judgment made by a client to an attorney, who has not taken part in the case.Municipal Council of Iloilo v. Evangelista, 55 Phil. 290 (1930);24 nor to a lawyer who acquiredproperty prior to the time he intervened as counsel in the suit involving such property. Del Rosario


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Prohibition does not apply: (a) to sale of a land acquired by a client to satisfy a judgment inhis favor, to his attorney as long as the property was not the subject of the litigation. x Daroy v.

Abecia, 298 SCRA 172 (1998); or (b) to a contingency fee arrangement which grants thelawyer of record proprietary rights to the property in litigation since the payment of said fee is notmade during the pendency of litigation but only after judgment has been rendered. !Fabillo v.IAC , 195 SCRA 28 (1991) .25

c. Judges A judge should restrain himself from participating in the sale of properties—it is incumbent

upon him to advise the parties to discontinue the transaction if it is contrary to law. Britanico v.Espinosa, 486 SCRA 523 (2006).

A judge who buys property in litigation before his court after the judgment becomes final doesnot violate Art. 1491, but he can be administratively disciplined for violation of the Code of JudicialEthics. xMacariola v. Asuncion, 114 SCRA 77 (1982).

Even when the main cause is a collection of a sum of money, the properties levied are stillsubject to the prohibition. xGan Tingco v. Pabinguit , 35 Phil. 81 (1916).

III. SUBJECT MATTER OF SALE (Arts. 1459 to 1465 ) “Transfer of title or an agreement to transfer it for a price paid or promised to be paid is the

essence of sale.” xCommissioner of Internal Revenue v. CA and Ateneo de Manila University , 271SCRA 605 (1997).

The Civil Code provisions defining sales is a “catch-all” provision which effectively brings within itgrasp a whole gamut of transfers whereby ownership of a thing is ceded for a consideration.!Polytechnic University v. CA, 368 SCRA 691 (2001) .

Where under an agreement, a party renounces and transfers whatever rights, interests, or claimsshe has over a parcel of land in favor of another party in consideration of the latter’s payment oftherein loan, the agreement is essentially a sale, and the rule on delivery effected through a publicinstrument apply. xCaoibes, Jr. v. Caoibes-Pantoja, 496 SCRA 273 (2006).

1. Must Be Existing, Future or Contingent (Arts. 1347 , 1348 , and 1462 )

a. Emptio Rei Speratae (Arts. 14 61 a nd 1347)

Pending crops which have potential existence may be valid object of sale. xSibal v. Valdez ,50 Phil. 512 (1927); and such transaction cannot be considered to effectively be sale of the landor any part thereof. xPichel v. Alonzo, 111 SCRA 341 (1981).

b. Emptio Spei (Art. 1461)

c. Subject to Resolutory Condition (Art. 1465 )

2. Must Be Licit (Arts. 1347 , 1459 and 1575)

Under Art. 1347, a sale involving future inheritance is void and cannot be the source of anyright nor create any obligation. xTañedo v. Court of Appeals, 252 SCRA 80 (1996).

Article 1347 does not cover waiver of hereditary rights which is not equivalent to sale, sincewaiver is a mode of extinction of ownership in favor of the other persons who are co-heirs. x Acapv. Court of Appeals, 251 SCRA 30 (1995).

A mortgagor is not prevented from selling the property, since it is merely encumbrance andeffect a loss of his principal attribute as owner to dispose of the property. Law even considersvoid a stipulation forbidding the owner from alienating mortgaged immovable. xPineda v. CA, 409SCRA 438 (2003).

3. Must Be Determinate or At Least “Determinable” (Art. 1460)

When the deed of sale describes a lot adjacent to the land seen, agreed upon and deliveredto the buyer, such land is the one upon which the minds have met, and not that erroneouslydescribed in the deed. ! Atilano v. Atilano, 28 SCRA 231 (1969) .

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a. Generic things may be object of sale (Arts. 12 46 and 1409[6])

Subject matter is determinable when by a formula or description agreed upon at perfection


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the exact area of the adjoining residential lot is subject to the result of a survey. x San Andresv. Rodriguez, 332 SCRA 769 (2000).

Determinable subject matter of sale are not subject to risk of loss until they are physicallysegregated or particularly designated. !Yu Tek & Co. v. Gonzales, 29 Phil. 384 (1915) .

b. Undivided Interest (Art. 1463) or Undivided Share in a Mass of Fungible Goods (Art. 1464) – May result it co-ownership.

4. Quantity of Subject Matter Not Essential for Perfection? (Art. 1349 )

Sale of grains is perfected even when the exact quantity or quality is not known, so long asthe source of the subject is certain. !NGA v. IAC , 171 SCRA 131 (1989) .

Where seller quoted to buyer the items offered for sale, by item number, part number,description and unit price, and the buyer had sent in reply a purchase order without indicating thequantity being order, there was already a perfected contract of sale, even when required letter ofcredit had not been opened by the buyer. !Johannes Schuback & Sons Phil. Trading Corp. v.CA, 227 SCRA 719 (1993) .

5. Seller’s Obligation to Transfer Title to Buyer (Art. 1459, 14 62, and 1505 )

a. Se ller's Ownership Need Not Exist at Perfection: Sale of copra for future delivery does not make seller liable for estafa for failing to deliver

because the contract is still valid and the obligation was civil and not criminal. xEsguerra v.People, 108 Phil. 1078 (1960).

A perfected contract of sale cannot be challenged on the ground of the seller’s non-ownership of the thing sold at the time of the perfection of the contract; it is at delivery that thelaw requires the seller to have the right to transfer ownership of the thing sold. x Alcantara-Daus v. de Leon, 404 SCRA 74 (2003).27

It is essential that seller is owner of the property he is selling. The principal obligation of aseller is “to transfer the ownership of” the property sold (Art. 1458). This law stems from theprinciple that nobody can dispose of that which does not belong to him. NEMO DAT QUODNON HABET . xNoel v. CA, 240 SCRA 78 (1995).

That the sellers are no longer owners of the goods at perfection does not appear to be oneof the void contracts enumerated in Art. 1409 of Civil Code, and under Art. 1402 the Civil Codeitself recognizes a sale where the goods are to be “acquired x x x by the seller after theperfection of the contract of sale” clearly implying that a sale is possible even if the seller wasnot the owner at the time of sale, provided he acquires title to the property later on;nevertheless such contract may be deemed to be inoperative and may thus fall, by analogy,under Art. 1409(5): “Those which contemplate an impossible service.” !Nool v. CA, 276SCRA 149 (1997) .

b. Subsequent Acquisition of Title by Non-Owner Seller (Art. 1434 ) – validates thesale and title passes to the seller by operation of law.

c. Acquisition by the Buyer May Even Depend on Contingency (Art. 1462 ).

X 6. Illegality of Subject Matter (Arts. 1409, 1458, 1461, 1462, and 1575 )

a. Special Laws: narcotics (R.A. 6425); wild bird or mammal (Act 2590, Sec. 7); rare wild plants(Act 3983); poisonous plants or fruits (R.A. 1288); dynamited fish (R.A 428); gunpowder andexplosives (Act 2255); firearms and ammunitions (P.D. 9); sale of realty by non-Christians(Sec. 145, Revised Adm. Code, R.A. 4252)

b. F ollowing Sales of Land Void:

• By Non-Christian if not approved by Provincial Governor per Sec. 145 of Revised Administrative Code.xTac-an v. CA, 129 SCRA 319 (1984).

• Friar land without consent of Secretary of Agriculture required under Act No. 1120. x Alonso v. CebuCountry Club, Inc., 375 SCRA 390 (2002); Liao v. CA, 323 SCRA 430 (2000).

• Made in violation of land reform laws declaring tenant-tillers as the full owners of the lands they tilled. xSiacor v. Gigantana, 380 SCRA 306 (2002).

• Reclaimed lands are of the public domain and cannot, without congressional fiat, be sold, public orprivate. Fisheries Dev. Authority v. Court of Appeals, 534 SCRA 490 (2007).


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IV. PRICE AND OTHER CONSIDERATION (Arts. 1469-1474)

“Price” signifies the sum stipulated as the equivalent of the thing sold and also every incidenttaken into consideration for the fixing of the price put to the debit of the buyer and agreed to by him.Inchausti & Co. v. Cromwell, 20 Phil. 345 (1911).

Seller cannot unilaterally increase the price previously agreed upon with the buyer, even whendue to increased construction costs. GSIS v. Court of Appeals, 228 SCRA 183 (1993).

Buyer who opted to purchase the land on installment basis with imposed interest, cannot laterunilaterally disavow the obligation created by the stipulation in the contract which sets the interest at24% per annum: “The rationale behind having to pay a higher sum on the installment is tocompensate the vendor for waiting a number of years before receiving the total amount due. Theamount of the stated contract price paid in full today is worth much more that a series of smallpayments totaling the same amount. x x x To assert that mere prompt payment of the monthlyinstallments should obviate imposition of the stipulated interest is to ignore an economic fact andnegate one of the most important principles on which commerce operates.” Bortikey v. AFP RSBS,477 SCRA 511 (2005).

1. Price Must Be Real (Art. 1471)

a. When Price “Simulated”(1) !Mapalo v. Mapalo, 17 SCRA 114 (1966), versus: When two aged ladies, not versed in

English, sign a Deed of Sale on representation by buyer that it was merely to evidence theirlending of money, the situation constitutes more than just fraud and vitiation of consent togive rise to a voidable contract, since there was in fact no intention to enter into a sale, therewas no consent at all, and more importantly, there was no consideration or price agreedupon, which makes the contract void ab initio. !Rongavilla v. Court of Appeals, 294SCRA 289 (1998) .

(2) !Mate v. CA, 290 SCRA 463 (1998), versus: When Deed of Sale was executed tofacilitate transfer of property to buyer to enable him to construct a commercial building and tosell the property to the children, such arrangement being merely a subterfuge on the part ofbuyer, the agreement cannot also be taken as a consideration and sale is void. !Yu BunGuan v. Ong , 367 SCRA 559 (2001) .

(3) Effects When Price Simulated – The principle of in pari delicto nonoritur action, whichdenies all recovery to the guilty parties inter se, where the price is simulated; the doctrineapplies only where the nullity arises from the illegality of the consideration or the purpose ofthe contract. xModina v. Court of Appeals, 317 SCRA 696 (1999).

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b. W hen Price is “Fa lse” (Arts. 13 53 a nd 1354)

When the parties intended to be bound but the deed did not reflect the actual price agreedupon, there is only a relative simulation of the contract which remains valid and enforceable, butsubject to reformation. xMacapgal v. Remorin, 458 SCRA 652 (2005).

When price indicated in deed of absolute sale is undervalued consideration pursuant tointention to avoid payment of higher capital gains taxes, the price stated is false, but the sale is

still valid and binding on the real terms. xHeirs of Spouses Balite v. Lim, 446 SCRA 54 (2004).

c. Non-Payment of Price

Sale being consensual, failure of buyer to pay the price does not make the contract void forlack of consideration or simulation, but results in buyer’s default, for which the seller mayexercise his legal remedies. xBalatbat v. CA, 261 SCRA 128 (1996).29

“In a contract of sale, the non-payment of the price is a resolutory condition whichextinguishes the transaction that, for a time, existed and discharges the obligations createdthereunder. [?] The remedy of an unpaid seller in a contract of sale is to seek either specificperformance or rescission.” xHeirs of Pedro Escanlar v. Court of Appeals, 281 SCRA 176(1997).30

Badge That Price Is Simulated, Not Just Unpaid: It is a badge of simulated price, whichrender the sale void, when the price, which appears thereon as paid, has in fact never been paidby the purchaser to the seller. xVda. de Catindig. v. Heirs of Catalina Roque, 74 SCRA 83(1976).31

2. Must Be in Money or Its Equivalent (Arts. 14 58 a nd 1468)


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Price must be “valuable consideration” as mandated by Civil Law, instead of “any price”mandated in common law. !Ong v. Ong , 139 SCRA 133 (1985); !Bagnas v. CA, 176SCRA 159 (1989) ; !Republic v. Phil. Resources Dev., 102 Phil. 960 (1958) .

Consideration for sale can take different forms, such as the prestation or promise of a thing orservice by another, thus:

• When deed provides that the consideration was the expected profits from the subdivision project.xTorres v. Court of Appeals, 320 SCRA 428 (1999).

• Cancellation of liabilities on the property in favor of the seller. xPolytechnic University v. Court of Appeals, 368 SCRA 691 (2001).

• Assumption of mortgage constituted on the property sold. xDoles v. Angeles, 492 SCRA 607

(2006).32

3. Must Be Certain or Ascertainable at Perfection (Art. 1469 )

a. How Price Determined to Be Ascertainable

(i) Se t by third person appointed at perfection (Art. 1469)

(ii) Set by the courts (Art. 1469 )

(iii) By reference to a definite day, particular exchange or market (Art. 1472 )

(iv) By reference to another thing certain, such as to invoices then in existence andclearly identified by the agreement xMcCullough v. Aenlle, 3 Phil. 285 (1904); or knownfactors or stipulated formula ( xMitsui v. Manila, 39 Phil. 624 (1919).

Price is ascertainable if the terms of the contract furnishes the courts a basis or measure fordetermining the amount agreed upon, without having to refer back to either or both parties.xVillanueva v. Court of Appeals, 267 SCRA 89 (1997).33

Where the sale involves an asset under a privatization scheme which attaches a peculiarmeaning or signification to the term “indicative price” as merely constituting a ball-park figure,then the price is not certain. xMoreno, Jr. v. Private Management Office, 507 SCRA 63 (2006).

Consideration is generally agreed upon as whole even if it consists of several parts, and evenif it is contained in one or more instruments; otherwise there would be no price certain, and the

contract of sale not perfected. x Arimas v. Arimas, 55 O.G. 8682.

b. Price Never Set By One or Both Parties (Arts. 1473, 1182), unless the price isseparately accepted by the other party .

c. E ffects of Un-Ascertainability: Sale is inefficacious.

BUT : If Buyer Appropriates the Object, He Must Pay Reasonable Price (Art.1474)

There can be no concept of “appropriation” when it comes to land? – Where achurch organization has been allowed possession and introduce improvements on the landas part of its application to purchase with the NHA, and thereafter it refused the formalresolution of the NHA Board setting the price and insisted on paying the lower price allegedlygiven by the NHA Field Office, there can be no binding contract of sale upon which an actionfor specific performance can prosper, not even on fixing the price equal to the fair marketvalue of the property. xNHA v. Grace Baptist Church, 424 SCRA 147 (2004).

4. Manner of Payment of Price ESSE NTIAL (Art. 117 9)

A definite agreement on the manner of payment of price is an essential element in the formationof a binding and enforceable contract sale; without it the sale is void and an action for specificperformance must fail. !Navarra v. Planters Dev. Bank , 527 SCRA 562 (2007) .34

When the manner of payment of the price is discussed after “acceptance,” then such“acceptance” did not produce a binding and enforceable contract of sale. xNavarro v. SugarProducer's Corp., 1 SCRA 1180 (1961).

Where there is no other basis for the payment of the subsequent amortizations in a Deed ofConditional Sale, the reasonable conclusion one can reach is that the subsequent payments shall bemade in the same amount as the first payment. [?] xDBP v. Court of Appeals, 344 SCRA 492(2000).

5. Inade uac of Price Does Not Affect Ordinar Sale Arts. 13 55 a nd 1470


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Mere inadequacy of the price does not affect the validity of the sale when both parties are in aposition to form an independent judgment concerning the transaction, unless fraud, mistake, or undueinfluence indicative of a defect in consent is present. The contract may be annulled for vitiatedconsent and not due to the inadequacy of price. xBautista v. Court of Appeals, 436 SCRA 141(2004).35

Absent any evidence of the fair market value of a land as of the time of its sale, it cannot beconcluded that the price at which it was sold was inadequate. x Acabal v. Acabal, 454 SCRA 897

(2005).36

a. Gross Inadequacy of Price May Avoid Judicial Sale:

( i) Only when it is shocking to the conscience of man. xPascua v. Simeon, 161 SCRA 1 (1988);and

(ii) There is showing that, in the event of a resale, a better price can be obtained. xCu Bie v. Courtof Appeals, 15 SCRA 307 (1965).37

UNLESS: There is right of redemption, in which case the proper remedy is to redeem . xDe Leonv. Salvador , 36 SCRA 567 (1970).

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BUT : By way of extraordinary circumstances perceived, when in a judicial sale the right ofredemption has been lost, where the inadequacy of the price is purely shocking to theconscience, such that the mind revolts at it and such that a reasonable man would neitherdirectly or indirectly be likely to consent to it, the same will be se aside. xCometa v. Courtof Appeals, 351 SCRA 294 (2001).

Gross inadequacy of price by itself will not result in a void contract. Gross inadequacy of pricedoes not even affect the validity of a contract of sale, unless it signifies a defect in the consent orthat the parties actually intended a donation or some other contract. Inadequacy of cause will notinvalidate a contract unless there has been fraud, mistake or undue influence. (at p. 649)Bacungan v. Court of Appeals, 574 SCRA 642 (2008).

There is “gross inadequacy in price” if a reasonable man will not agree to dispose of hisproperty. Dorado Vda. De Delfin v. Dellota, 542 SCRA 397 (2008).

When judicial sale is voided without fault of purchaser, the latter is entitled return of price with

simple interest, together with all sums paid out by him in improvements introduced on the property,taxes, and other expenses. xSeven Brothers Shipping Corp. v. Court of Appeals, 246 SCRA 33(1995).

b. Lesion of more than 1/4 of value of thing makes sale rescissible unless approvedby court (Art. 1386 )

c. Gross inadequacy of price may raise the presumption of equitable mortgage (Art.1602)

V. FORMATION OF CONTRACT OF SALE (Arts. 1475 -1488 )

A. P OLICITACION STAGE (Art. 14 79)

Policitation stage covers the doctrine of “freedom of contract” which signifies or implies the rightto choose with whom to contract. A property owner is free to offer his property for sale to anyinterested person, and is not duty bound to sell the same to the occupant thereof, absent any prioragreement vesting the occupants the right of first priority to buy. xGabelo v. Court of Appeals, 316SCRA 386 (1999).

A negotiation is formally initiated by an offer, which, however, must be certain. At any time priorto the perfection of the contract, either negotiating party may stop the negotiation. At this stage, theoffer may be withdrawn; the withdrawal is effective immediately after its manifestation. To convertthe offer into a contract, the acceptance must be absolute and must not qualify the terms of theoffer; it must be plain, unequivocal, unconditional and without variance of any sort from the

proposal. !Manila Metal Container Corp. v. PNB, 511 SCRA 444 (2006) .39

An unaccepted unilateral promise (offer to buy or to sell) prior to acceptance, does not give rise

to any obligation or right. xRaroque v. Marquez , 37 O.G. 1911.

Where the offer is given with a stated time for its acceptance, the offer is terminated at theex iration of that time. xVille as v. Court of A eals 499 SCRA 276 2006 .


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The Letter of Intent to Buy and Sell is just that—a manifestation of Sea Foods Corporation’s(SFC) intention to sell the property and United Muslim and Christian Urban Poor Association, Inc.(UMCUPAI) intention to acquire the same—which is neither a contract to sell nor a conditionalcontract of sale. !Muslim and Christian Urban Poor Association, Inc. v. BRYC-V DevelopmentCorp., 594 SCRA 724 (2009) .

1. OPTION CONTRACT

An option is a preparatory contract in which one party grants to the other, for a fixed period andunder specified conditions, the power to decide, whether or not to enter into a principal contract. Itbinds the party who has given the option, not to enter into the principal contract with any otherperson during the period designated, and, within that period, to enter into such contract with theone to whom the option was granted, if the latter should decide to use the option. It is a separateagreement distinct from the contract of sale which the parties may enter into upon theconsummation of the option. !Carceller v. Court of Appeals, 302 SCRA 718 (1999) .

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An option imposes no binding obligation on the person holding the option aside from theconsideration for the offer. Until accepted, it is not treated as a sale. !Tayag v. Lacson, 426SCRA 282 (2004).41

Tenants, not being the registered owners, cannot grant an option on the land, much less any“exclusive right” to buy the property under the Latin saying “nem dat quod non habet .” xTayag v.

Lacson, 426 SCRA 282 (2004).

a. Meaning of “Separate Consideration” (Arts. 1479 and 1324 )

A unilateral promise to sell, in order to be binding upon the promissor, must be for a pricecertain and supported by a consideration separate from such price. xSalame v. Court of

Appeals, 239 SCRA 356 (1995).42

The “separate consideration” in an option may be anything of value, unlike in sale where itmust be the price certain in money or its equivalent. !Villamor v. Court of Appeals, 202SCRA 607 (1991) ,43 such when the option is attached to a real estate mortgage xSoriano v.Bautista, 6 SCRA 946 (1962).

Although no consideration is expressly mentioned in an option contract, it is presumed that

it exists and may be proved, and once proven, the option is binding. xMontinola v. Cojuangco,78 Phil. 481 (1947).

b. No Separate Consideration: Void as Option, Valid as a Certain

Offer !Sanchez v. Rigos, 45 SCRA 368(1972) .44

BUT L ATELY : xYao Ka Sin Trading v. CA, 209 SCRA 763 (1991); xMontilla v. CA, 161 SCRA855 (1988); xNatino v. IAC, 197 SCRA 323 (1991); and xDiamante v. CA, 206SCRA 52 (1992).

c. There Must Be Acceptance of Option Offer. !Vazquez v. CA, 199 SCRA 102(1991) .

d. Proper Exercise of Option Contract . !Nietes v. CA, 46 SCRA 654 (1972) . An option attached to a lease when not exercised within the option period is extinguished

and cannot be deemed to have been included in the implied renewal ( tacita reconduccion) of thelease. xDizon v. CA, 302 SCRA 288 (1999).

Proper exercise of an option gives rise to the reciprocal obligations of sale xHeirs of LuisBacus v. Court of Appeals, 371 SCRA 295 (2001),

45 which must be enforced with ten (10) years

as provided under Art. 1144. xDizon v. Court of Appeals, 302 SCRA 288 (1999).

There must be “virtual” exercise of option with the option period. !Carceller v. Court of Appeals, 302 SCRA 718 (1999) .

2. R IGHT OF F IRST REFUSAL

A right of first refusal cannot be the subject of specific performance, but breach would allow arecovery of damages. xGuerrero v. Yñigo, 96 Phil. 37 (1954).

Rights of first refusal only constitute “innovative juridical relations”, but do not rise to the levelof contractual commitment since with the absence of agreement on price certain, they are not


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subject to contractual enforcement. ! Ang Yu Asuncion v. Court of Appeals, 238 SCRA 602(1994) .

Right of first refusal contained in a lease, when breached by promissor allows enforcement bythe promisee by way of rescission of the sale entered into with the third party, pursuant to Arts.1381(3) and 1385 of Civil Code. xGuzman, Bocaling & Co. v. Bonnevie, 206 SCRA 668 (1992);!Equatorial Realty Dev., Inc. v. Mayfair Theater, Inc., 264 SCRA 483 (1996) ;46 !ParanaqueKings Enterprises, Inc. v. CA, 268 SCRA 727, 741 (1997) .

In a right of first refusal, while the object might be made determinate, the exercise of the rightwould be dependent not only on the grantor’s eventual intention to enter into a binding juridicalrelation with another but also on terms, including the price, that are yet to be firmed up. . . the“offer” may be withdrawn anytime by communicating the withdrawal to the other party. !Vasquezv. Ayala Corp., 443 SCRA 231 (2004) .

A right of first refusal clause simply means that should the lessor decide to sell the leasedproperty during the term of the lease, such sale should first be offered to the lessee; and the seriesof negotiations that transpire between the lessor and the lessee on the basis of such preference isdeemed a compliance of such clause even when no final purchase agreement is perfected

between the parties. The lessor was then at liberty to offer the sale to a third party who paid ahigher price, and there is no violation of the right of the lessee. !Riviera Filipina, Inv. v. Court of

Appeals, 380 SCRA 245 (2002) .47

When a lease contract contains a right of first refusal, the lessor has the legal duty to thelessee not to sell the leased property to anyone at any price until after the lessor made an offer tosell the property to the lessee and the lessee has failed to accept it. Only after the lessee hasfailed to exercise his right of first priority could the lessor sell the property to other buyers under thesame terms and conditions offered to the lessee, or under terms and conditions more favorable tothe lessor. Polytechnic University of the Philippines v. Golden Horizon Realty Corp., 615 SCRA478 (2010).

A right of first refusal is a contractual grant, not of the sale of a property, but of the first priorityto buy the property in the event the owner sells the same. As distinguished from an option contract,in a right of first refusal, whole the object might be made determinate, the exercise of the right offirst refusal would be dependent not only on the owner’s eventual intention to enter into a binding

juridical relation with another but also on terms, including the price, that are yet to be firmed up.Polytechnic University of the Philippines v. Golden Horizon Realty Corp., 615 SCRA 478 (2010).

A right of first refusal in a lease in favor of the lessee cannot be availed of by the sublessee.xSadhwani v. Court of Appeals, 281 SCRA 75 (1997).

4. MUTUAL PROMISES TO BUY AND SELL (Art. 147 9): “T RUE C ONTRACT TO S ELL”

Mutual promises to buy and sell a certain thing for a certain price gives each of the contractingparties a right to demand from the other the fulfillment of the obligation. xBorromeo v. Franco, 5Phil. 49 (1905).

Even in this case the certainty of the price must also exist, otherwise, there is no valid andenforceable contract to sell. xTan Tiah v. Yu Jose, 67 Phil. 739 (1939).

An accepted bilateral promise to buy and sell is in a sense similar to, but not exactly the same,

as a perfected contract of sale because there is already a meeting of minds upon the thing whichis the object of the contract and upon the price. 48 But a contract of sale is consummated only upondelivery and payment, whereas in a bilateral promise to buy and sell gives the contracting partiesrights in personam, such that each has the right to demand from the other the fulfillment of theirrespective undertakings. !Macion v. Guiani, 225 SCRA 102 (1993) .49

The cause of action under a mutual promise to buy and sell is 10 years. x Villamor v. Court of Appeals, 202 SCRA 607 (1991).

B. PERFECTION STAGE (Arts. 1475, 1319, 1325 and 1326 )

Sale is perfected at the moment there is a meeting of minds upon the thing which is the object ofthe contract and upon the price. From that moment, the parties may reciprocally demandperformance subject to the law governing the form of contracts. xMarnelego v. Banco Filipino

Savings and Mortgage Bank , 480 SCRA 399 (2006).50

Mutual consent being a state of mind, its existence may only be inferred from the confluence oftwo acts of the parties: an offer certain as to the object of the contract and its consideration, and an


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acceptance of the offer which is absolute in that it refers to the exact object and considerationembodied in said offer. xVillanueva v. PNB, 510 SCRA 275 (2006).51

If a material element of a contemplated contract is left for future negotiations, the same is tooindefinite to be enforceable. For a contract to be enforceable, its terms must be certain and explicit,not vague or indefinite. xBoston Bank of the Phil. v. Manalo, 482 SCRA 108 (2006).

So long as there is any uncertainty or indefiniteness, or future negotiations or consideration yet

to be had between the parties, there is no contract at all. xMoreno, Jr. v. Private ManagementOffice, 507 SCRA 63 (2006).

The essence of consent is the conformity of the parties on the terms of the contract, that is, theacceptance by one of the offer made by the other. However, the acceptance must be absolute;otherwise, the same constitutes a counter-offer and has the effect of rejecting the offer. XYST Corp.v. DMC Urban Properties Dev., Inc., 594 SCRA 598 (2009).

1. Absolute Acceptance of a Certain Offer (Art. 1475 )

Under Article 1319, the acceptance of an offer must therefore be unqualified and absolute. Inother words, it must be identical in all respects with that of the offer so as to produce consent ormeeting of the minds. This was not the case herein considering that petitioner’s acceptance of theoffer was qualified, which amounts to a rejection of the original offer. Limketkai Sons Milling, Inc. v.

Court of Appeals, 255 SCRA 626 (1996). A qualified acceptance or one that involves a new proposal constitutes a counter-offer and a

rejection of the original offer. The acceptance must be identical in all respects with that of the offerso as to produce consent or meeting of minds. !Manila Metal Container Corp. v. PNB, 511SCRA 444 (2006).

52

Placing the word “Noted” and signing such note at the bottom of the written offer cannot beconsidered an acceptance that would give rise to a valid contract of sale. x DBP v. Ong , 460 SCRA170 (2005).

If sale subject to suspensive condition: No perfected sale of a lot where the award thereofwas expressly made subject to approval by the higher authorities and there eventually was noacceptance manifested by the supposed awardee. xPeople's Homesite & Housing Corp. v. CA,133 SCRA 777 (1984).

2. Whe n “De viation” Allowed:

It is true that an acceptance may contain a request for certain changes in the terms of theoffer and yet be a binding acceptance, so long as it is clear that the meaning of the acceptance ispositively and unequivocally to accept the offer, whether such request is granted or not, acontract is formed. The vendor’s change in a phrase of the offer to purchase, which change doesnot essentially change the terms of the offer, does not amount to a rejection of the offer and thetender or a counter-offer. !Villonco v. Bormaheco, 65 SCRA 352 (1975) .53

3. Sa le by Auction (Arts. 1476, 1403(2)(d), 1326)

The terms and conditions provided by the owner of property to be sold at auction are bindingupon all bidders, whether they knew of such conditions or not. xLeoquinco v. Postal Savings

Bank , 47 Phil. 772 (1925).

An auction sale is perfected by the fall of the hammer or in other customary manner and itdoes not matter that another was allowed to match the bid of the highest bidder. xProvince ofCebu v. Heirs of Rufina Morales, 546 SCRA 315 (2008).

4. Earnest Money (Art. 1482 )

Earnest money given by the buyer shall be considered as part of the price and as proof of theperfection of the contract. It constitutes an advance payment to be deducted from the total price.

xEscueta v. Lim, 512 SCRA 411 (2007).

Absent proof of the concurrence of all the essential elements of a contract of sale, the giving ofearnest money cannot establish the existence of a perfected contract of sale. !Manila MetalContainer Corp. v. PNB, 511 SCRA 444 (2006) .

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Article 1482 does not apply when earnest money given in a contract to sell xSerrano v.Caguiat , 517 SCRA 57 (2007), especially where by stipulation the buyer has the right to walk awayfrom the transaction, with no obligation to pay the balance, although he will forfeit the earnestmoney. xChua v. Court of Appeals, 401 SCRA 54 (2003).

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Whenever earnest money is given in a contract of sale, it shall be considered as part of theprice and as proof of the perfection of the contract. But when there is no contract of sale becausethe parties never went pass the negotiation stage, or more accurately, have not reached theperfection stage with the present of the three essential elements of the contract of sale, theconcept of earnest money is certainly inapplicable. The earnest money forms part of theconsideration only if the sale is consummated upon full payment of the purchase price. Hence,there must first be a perfected contract of sale before we can speak of earnest money. xGSIS v.

Lopez , 592 SCRA 456 (2009).

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When there is no provision for forfeiture of earnest money in the event the sale fails to

materialize, then with the rescission it becomes incumbent upon seller to return the earnest moneyas legal consequence of mutual restitution. xGoldenrod, Inc. v. Court of Appeals, 299 SCRA 141(1998).

5. Difference Between Earnest Money and Option Money. !Oesmer v. Paraiso Dev.Corp., 514 SCRA 228 (2007) .

6. Sale Deeme d Perfected Where Offer Was Made . (Art. 1319)

C. FORMAL REQUIREMENTS OF SALES (Arts. 1357, 1358, 1406 and 1483 )

1. Form Not Important for Validity of Sale

Sale of land under private instrument is valid. Gallar v. Husain, 20 SCRA 186 (1967).57

Articles 1357 and 1358, in relation to Art. 1403(2), require that the sale of real property mustbe in writing for it to be enforceable, it need not be notarized for there is nothing in those provisionswhich require that it must be executed in a public document to be valid. x Martinez v. CA, 358SCRA 38 (2001);58 but both its due execution and its authenticity must be proven, pursuant toSec. 20, Rule 132 of the Rules of Court. xTigno v. Aquino, 444 SCRA 61 (2003).

Although the conveyance of land is not made in a public document, it does not affect thevalidity of such conveyance. Article 1358 of the Civil Code does not require the accomplishment ofthe acts or contracts in a public instrument in order to validate the act or contract but only to insureits efficacy. The Estate of Pedro C. Gonzales v. Their Hiers of Marcos Perez , 605 SCRA 47(2009).

a. Other Rulings on Deeds of Sale:

! Seller may agree to a deed of absolute sale before full payment of the purchase price. xPan PacificIndustrial Sales Co., Inc. v. CA, 482 SCRA 164 (2006).

! Assuming that the buyers failed to pay the full price stated in the Deed of Sale, such partial failurewould not render the sale void. Bravo-Guerrero v. Bravo, 465 SCRA 244 (2005).

! That marital consent was executed prior to the Deed of Absolute Sale does not indicate that it is aphoney. Pan Pacific Industrial Sales Co., Inc. v. CA, 482 SCRA 164 (2006).

! A Deed of Sale when acknowledged before a notary public, enjoys the presumption of regularity anddue execution. To overthrow that presumption, sufficient, clear and convincing evidence is required,otherwise the document should be upheld. xBravo-Guerrero v. Bravo, 465 SCRA 244 (2005).

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! Notarization of Deeds of Sale by one who was not a notary public does not affect the validity thereof;said documents were merely converted into private documents. xR.F. Navarro & Co. Inc. v. Vailoces, 361 SCRA 139 (2001).

! Notarization of a deed of sale does not guarantee its validity nor is it conclusive of the true agreementof the parties thereto, because it is not the function of the notary public to validate an instrument thatwas never intended by the parties to have any binding legal effect. xSalonga v. Concepcion, 470SCRA 291 (2005).

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! Buyer’s immediate taking of possession of subject property corroborates the truthfulness andauthenticity of the deed of sale. x Alcos v. IAC, 162 SCRA 823 (1988). Conversely, the seller’s

continued possession of the property makes dubious the contract of sale between them. xSantos v.Santos, 366 SCRA 395 (2001).

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! Any substantial difference between the terms of the Contract to Sell and the concomitant Deed of Absolute Sale (such as difference in subject matter, and difference in price and/or the terms thereof),

does not make the transaction between the seller and the buyer void, for it is truism that the executionof the Deed of Absolute Sale effectively rendered the previous Contract to Sell ineffective andcancelled [through the process of novation]. xLumbres v. Talbrad, Jr., 516 SCRA 575 (2007).


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b. Value of Business Forms to Prove Sale

Business forms, e.g., order slip, delivery charge invoice and the like, which are issued bythe seller in the ordinary course of the business are not always fully accomplished to containall the necessary information describing in detail the whole business transaction—more oftenthan not they are accomplished perfunctorily without proper regard to any legal repercussionfor such neglect such that despite their being often incomplete, said business forms arecommonly recognized in ordinary commercial transactions as valid between the parties and at

the very least they serve as an acknowledgment that a business transaction has in facttranspired. xDonato C. Cruz Trading Corp. v. CA , 347 SCRA 13 (2000).

These documents are not mere scraps of paper bereft of probative value but vital piecesof evidence of commercial transactions. They are written memorials of the details of theconsummation of contracts. xLagon v. Hooven Comalco Industries, Inc., 349 SCRA 363(2001).

2. WHEN FORM IMPORTANT IN SALE

a. To Bind Third Parties

Article 1358 which requires the embodiment of certain contracts in a public instrument isonly for convenience, and registration of the instrument only adversely affects third parties.

Formal requirements are, therefore, for the benefit of third parties; and non-compliancetherewith does not adversely affect the validity of the contract nor the contractual rights andobligations of the parties thereunder. !Fule v. CA, 286 SCRA 698 (1998) ;62 !Dalion v. CA,182 SCRA 872 (1990) .63

Article 1358 of the Civil Code which requires the embodiment of certain contracts in a publicinstrument, in only for convenience; and registration of the instrument only adversely affectsthird parties, and non-compliance therewith does not adversely affect the validity of the contractor the contractual rights and obligations of the parties thereunder. xEstreller v. Ysmael , 581SCRA 247 (2009).

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While sale of land appearing in a private deed is binding between the parties, it cannot beconsidered binding on third persons, if it is not embodied in a public instrument and recorded inthe Registry of Deeds. !Secuya v. Vda. De Selma, 326 SCRA 244 (2000) .65

b. For Enforceability Between the Parties: STATUTE OF FRAUDS (Arts. 1403 and 1405)

The term “Statute of Frauds” is descriptive of the statutes which require certain classes ofcontracts, such as agreements for the sale of real property, to be in writing, the purpose being toprevent fraud and perjury in the enforcement of obligations depending for their evidence on theunassisted memory of witnesses by requiring certain enumerated contracts and transactions tobe evidenced by a writing signed by the party to be charged. Shoemaker v. La Tondeña, 68 Phil.24 (1939).

Presupposes Valid Contract of Sale – “The application of the Statute of Fraudspresupposes the existence of a perfected contract.” When the records show that there was noperfected contract of sale, there is no basis for the application of the Statute of Frauds. xFirmev. Bukal Enterprises and Dev. Corp., 414 SCRA 190 (2003).66

(1) Coverage:

(i) Sale of Real Property – A sale of realty cannot be proven by means of witnesses, but mustnecessarily be evidenced by a written instrument, duly subscribed by the party charged, or bysecondary evidence of the contents of such document. No other evidence can be received exceptthe documentary evidence referred to. xGorospe v. Ilayat, 29 Phil. 21 (1914).

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(ii) Agency to Sell or to Buy – As contrasted from sale, an agency to sell does not belong to any ofthe three categories of contracts covered by Arts. 1357 and 1358 and not one enumerated under

the Statutes of Frauds in Art. 1403. xLim v. Court of Appeals, 254 SCRA 170 (1996).68

(iii) Rights of First Refusal – A “right of first refusal” is not covered by the statute of frauds.Furthermore, Art. 1403(2)(e) of Civil Code presupposes the existence of a perfected, albeitunwritten, contract of sale; a right of first refusal, such as the one involved in the instant case, is

not by any means a perfected contract of sale of real property. xRosencor Dev. Corp. v. Inquing ,354 SCRA 119 (2001).

(iv) Equitable Mortgage – Statute does not stand in the way of treating an absolute deed as amortgage, when such was the parties’ intention, although the agreement for redemption or

defeasance is proved by parol evidence. xCuyugan v. Santos, 34 Phil. 100 (1916).69


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(v) Right to Repurchase – The deed of sale and the verbal agreement allowing the right ofrepurchase should be considered as an integral whole; the deed of sale is itself the note ormemorandum evidencing the contract. xMactan Cebu International Airport Authority v. Court of

Appeals, 263 SCRA 736 (1996).

(2) Memorandum (!Yuviengco v. Dacuycuy , 104 SCRA 668 [1981];

Under Article 1403, an exception to the unenforceability of contracts pursuant to theStatute of Frauds is the existence of a written note or memorandum evidencing the contract.

The memorandum may be found in several writings, not necessarily in one document. Thememorandum or memoranda is/are written evidence that such a contract was entered into.The existence of a written contract of the sale is not necessary so long as the agreement tosell real property is evidenced by a written note or memorandum, embodying the essentialsof the contract and signed by the party charged or his agent. !Limketkai Sons Milling, Inc.v. CA, 250 SCRA 523 (1995) .

BUT : The memoranda must be signed by the party sought to be charged, and mustclearly provide a deed of sale categorically conveying the subject property. !Limketkai SonsMilling, Inc. v. CA, 255 SCRA 6 (1996) ; 261 SCRA 464 (1996).

For the memorandum to take the sale out of the coverage of the Statute of Frauds, itmust contain “all the essential terms of the contract” of sale. xTorcuator v. Bernabe, 459SCRA 439 (2005),70 even when scattered into various correspondences which can bebrought together xCity of Cebu v. Heirs of Candido Rubi, 306 SCRA 408 (1999).71

EXCEPTION: Electronic Documents under the E-COMMERCE ACT (R.A. 8792)

(3) Partial Execution (Art. 1405 ) !Ortega v. Leonardo, 103 Phil. 870 (1958); !Claudel v. Court of Appeals, 199 SCRA 113 (1991) .

Delivery of the deed to buyer’s agent, with no intention to part with the title until thepurchase price is paid, does not take the case out of the Statute of Frauds. xBaretto v.Manila Railroad Co., 46 Phil. 964 (1924).

The Statute of Frauds does not apply to contracts either partially or totally performed. Inaddition, a contract that violates the Statute of Frauds is ratified by the acceptance of benefitsunder the contract, such as the acceptance of the purchase price and using the proceeds to

pay outstanding loans. ! Alfredo v. Borras, 404 SCRA 145 (2003) .72

(4) Waiver – (Art. 1405) Cross-examination on the contract is deemed a waiver of the defenseof the Statute. xAbrenica v. Gonda, 34 Phil. 739 (1916); Talosig v. Vda. De Nieba, 43 SCRA472 (1972).73

When the purported buyer’s exhibits failed to establish the perfection of the contract ofsale, oral testimony cannot take their place without violating the parol evidence rule. It wastherefore irregular for the trial court to have admitted in evidence testimony to prove theexistence of a contract of sale of a real property between the parties, despite the persistentobjection made by the purported seller’s counsel as early as the first scheduled hearing,even when cross-examination was made on the basis of the witnesses’ affidavit-formtestimony. !Limketkai Sons Milling, Inc. v. CA, 255 SCRA 6 (1996) ; 261 SCRA 464

(1996) .

(5) Rulings on Receipts and Other Documentary Evidence of Sale

Since a contract of sale is perfected by mere consent, then when the dealer of motorvehicles accepts a deposit of P50,0000 and pulls out a unit from the assembler for thatpurpose, it was in breach of contract when it sold the car subsequently to another buyer.

xXentrex Automotive, Inc. v. Court of Appeals, 291 SCRA 66 (1998).

A sales invoice is a commercial document-commercial documents or papers are thoseused by merchants or businessmen to promote or facilitate trade or credit transactions—they are not mere scraps of paper bereft of probative value, but vital pieces of evidence ofcommercial transactions, written memorials of the details of the consummation of contracts.Seaiol Petroleum Corp. v. Autocorp Group, 569 SCRA 387 (2008).

Sales invoices are not evidence of payment of the price, but evidence of the receipt ofthe goods; since the best evidence to prove payment is the official receipt. El Oro EngraversCorp. v. Court of Appeals, 546 SCRA 42 (2008).

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In itself, the absence of receipts, or any proof of consideration, would not be conclusiveof the inexistence of a sale since consideration is always presumed. xTigno v. Aquino, 444SCRA 61 (2003).

Receipts proves payment which takes the sale out of the Statute of Frauds. !ToyotaShaw, Inc. v. Court of Appeals, 244 SCRA 320 (1995) .

c. F or Validity: Sale of Realty Through Agent, Authority Must Be in Writing (Art. 1874)

When sale of a piece of land or any interest therein is through an agent, the authority of thelatter shall be in writing; otherwise, the sale shall be void ,75 even when:

• Agent is the son of the owner. xDelos Reyes v. CA, 313 SCRA 632 (1999)

• There is partial payment of the price received by the supposed agent. x Dizon v. CA, 396 SCRA 154

(2003).76

• In the case of a corporate owner of realty. xCity-Lite Realty Corp. v. CA, 325 SCRA 385 (2000).77

When Contract to Sell was signed by the co-owners themselves as witnesses, the writtenauthority for their agent mandated under Article 1874 of the Civil Code is no longer required.

xOesmer v. Paraiso Dev. Corp., 514 SCRA 228, 237 (2007).

c. Sale of Large Ca ttle (Art. 15851; Sec. 529, Revised Adm. Code )

X D. S IMULATED SALES

Characteristic of simulation is that the apparent contract is not really desired or intended toproduce legal effect or in any way alter the parties’ juridical situation, or that the parties have nointention to be bound by the contract. The requisites are: (a) an outward declaration of will differentfrom the will of the parties; (b) false appearance must have been intended by mutual agreement; and(c) purpose is to deceive third persons. xManila Banking Corp. v. Silverio, 466 SCRA 438 (2005).78

1. Badges and Non-badges of Simulation:

• Non-payment of the stipulated consideration, absence of any attempt by the buyers to assert their alleged

rights over the subject property. xVillaflor v. CA, 280 SCRA 297 (1997).79

• Failure of alleged buyers to collect rentals from alleged seller. xSantiago v. CA, 278 SCRA 98 (1997); but

not when there appears a legitimate lessor-lessee relationship between the vendee and the vendor.xUnion Bank v. Ong , 491 SCRA 581 (2006).

• Although the agreement did not provide for the absolute transfer ownership of the land to buyer, that did

not amount to simulation, since delivery of certificate of ownership and execution of deed of absolute salewere expressly stipulated as suspensive conditions, which gave rise to the corresponding obligation onpart of buyer to pay the last installments. xVillaflor v. CA, 280 SCRA 297 (1997).

• When signature on a deed of sale is a forgery. Fidel v. Court of Appeals, 559 SCRA 186 (2008).80

But

bare assertions that the signature appearing on the Deeds of Sale is not that of her husband is notenough to allege simulation, since forgery is not presumed; it must be proven by clear, positive andconvincing evidence. xR.F. Navarro & Co. v. Vailoces, 361 SCRA 139 (2001).

• Simulation of contract and gross inadequacy of price are distinct legal concepts, with different effects –

the concept of a simulated sale is incompatible with inadequacy of price. When the parties to an allegedcontract do not really intend to be bound by it, the contract is simulated and void. Gross inadequacy ofprice by itself will not result in a void contract, and it does not even affect the validity of a contract of sale,unless it signifies a defect in the consent or that the parties actually intended a donation or some othercontract. xBravo-Guerrero v. Bravo, 465 SCRA 244 (2005).

2. When Motive Nullifies the Sale

In sale, consideration is, as a rule, different from the motive of parties, and when the primarymotive is illegal, such as when the sale was executed over a land to illegally frustrate a person'sright to inheritance and to avoid payment of estate tax, the sale is void because illegal motivepredetermined purpose of the contract. xOlegario v. CA, 238 SCRA 96 (1994).81

Where the parties to a contract of sale agreed to a consideration, but the amount reflected inthe final Deed of Sale was lower, their motivation being to pay lower taxes on the transaction, the

contract of sale remains valid and enforceable upon the terms of the real consideration. Althoughillegal, the motives neither determine nor take the place of the consideration. xHeirs of SpousesBalite v. Lim, 446 SCRA 54 (2004).


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An action or defense for the declaration of the inexistence of a contract is imprescriptible. Onthe other hand, an action to rescind is founded upon and presupposes the existence of acontract. A contract which is null and void is no contract at all and hence could not be the subjectof rescission. xCampos v. Pastrana, 608 SCRA 55 (2009).

3. Reme dies Allowed When Sa le Simulated

When a contract of sale is void, the right to set up its nullity or non-existence is available to third

persons whose interests are directly affected thereby. Likewise, the remedy of accion pauliana isavailable when the subject matter is a conveyance, otherwise valid, undertaken in fraud ofcreditors. xManila Banking Corp. v. Silverio, 466 SCRA 438 (2005).

The rescissory action to set aside contracts in fraud of creditors is accion pauliana, essentiallya subsidiary remedy accorded under Article 1383 which the party suffering damage can avail ofonly when he has no other legal means to obtain reparation for the same. In such action, it must beshown that both contracting parties have acted maliciously so as to prejudice the creditors whowere prevented from collecting their claims. Rescission if generally unavailing should a thirdperson, acting in good faith, is in lawful possession of the property since he is protect by lawagainst a suit for rescission by the registration of the transfer to him in the registry. xUnion Bank v.Ong , 491 SCRA 581 (2006).

4. E ffect When Sa le De clared Void:• The action for the declaration of the contract’s nullity is imprescriptible—an action for reconveyance of

property on a void contract of sale does not prescribe. Fil-Estate Golf and Dev., Inc. v. Navarro, 526SCRA 51 (2007).

• Possessor is entitled to keep the fruits during the period for which the buyer held the property in good

faith. xDBP v. CA, 316 SCRA 650 (1999).

• Then restoration of what has been given is in order, since the relationship between parties in any contracteven if subsequently voided must always be characterized and punctuated by good faith and fair dealing.xDe los Reyes v. CA, 313 SCRA 632 (1999); xHeirs of Ignacia Aguilar-Reyes v. Mijares, 410 SCRA 97(2003).

Alien who purchases land in the name of his Filipina lover, has no standing to seek legalremedies to either recover the property or the purchase price paid, since the transaction is void ab

initio for being in violation of the constitutional prohibition. xFrenzel v. Catito, 406 SCRA 55 (2003).

VI. CONSUMMATION (Arts. 1493 -1506 ) AND PERFORMANCE OF CONTRACT OF SALE (Arts. 1536-1544, 1582-1590)

A. OBLIGATIONS OF SELLER

1. Preserve Subject Matter (Art. 1163 )

2. Deliver with Fruits and Accessories (Arts. 1164, 1166, 1495, 1537 )

3. DELIVER THE SUBJECT MATTER (Art. 1477 )

a. Legal Premises for Doctrines on Tradition

When the sale is void or fictitious, no valid title over the subject matter can be conveyedto the buyer even with delivery. Nemo potest nisi quod de jure potest – No man can doanything except what he can do lawfully . xTraders Royal Bank v. CA, 269 SCRA 15 (1997).

When seller had no ownership over the subject matter at the time of delivery, no valid titlecan pass in favor of the buyer. Nemo dat quod non habet – No man can give that which hedoes not have. xTsai v. CA, 366 SCRA 324 (2001).

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A forged deed of sale is null and void and conveys no title. It is a well-settled principlethat no one can give what one does not have, nemo dat quod non habet. One can sell onlywhat one owns or is authorized to sell, and the buyer can acquire no more right than what theseller can transfer legally. xRufloe v. Burgos, 577 SCRA 264, 272-273 (2009).

Article 1459 of the Civil Code on contracts of sale “specifically requires that the vendormust have ownership of the property at the time it is delivered.” xHeirs of Arturo Reyes v.Socco-Beltran, 572 SCRA 211, 220-221 (2008).


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One can sell only what one owns or is authorized to sell, and the buyer can acquire nomore than what the seller can transfer legally. Daclag v. Macahilig , 560 SCRA 137 (2008).

A tax declaration, by itself, is not considered conclusive evidence of ownership – it ismerely an indicium of a claim of ownership. Daclag v. Macahilig , 560 SCRA 137 (2008).

Nevertheless when at the time of delivery there is no proof that the seller had ownership andas in fact the tax declaration to the subject property was in the name of another person, thenthere was no transfer of ownership by delivery. xHeirs of Severina San Miguel v. Court of

Appeals, 364 SCRA 523 (2001).

b. General Doctrines on Tradition, Whether Actual or Constructive:

It may be stipulated that ownership in the thing shall not pass to buyer until he has fullypaid price (Art. 1478).

In the absence of such stipulation to the contrary, tradition produces its natural effects inlaw, most important of which being conveyance of ownership, without prejudice to right of theseller to claim payment of the price. xFroilan v. Pan Oriental Shipping Co., 12 SCRA 276(1964).83

Delivery contemplates “the absolute giving up of the control and custody of the property onthe part of the vendor, and the assumption of the same by the vendee. Non nudis pactis sed

traditione dominia rerum transferantur . And there is said to be delivery if and when the thingsold “is placed in the control and possession of the vendee.” Equatorial Realty Dev. Inc. v.Mayfair Theater, Inc., 370 SCRA 56 (2001).

“Delivery” as used in the Law on Sales refers to the concurrent transfer of two things: (1)possession and (2) ownership. If the vendee is placed in actual possesion of the property, butby agreement of the parties ownership of the same is retained by the vendor until the vendeehas fully paid the price, the mere transfer of the possesion of the property subject of the sale isnot the “delivery” contemplated in the Law on Sales or as used in Article 1543 of the CivilCode. Cebu Winland Dev. Corp. v. Ong Siao Hua, 588 SCRA 120 (2009).

Since delivery of subject matter of sale is an obligation on the part of the seller, theacceptance thereof by the buyer is not a condition for the completeness of delivery. xLaFuerza v. CA, 23 SCRA 1217 (1968).

In the absence of an express stipulation to the contrary, payment of purchase price of thegoods is not a condition precedent to the transfer of title to the buyer, but title passes by thedelivery of the goods. xPhil. Suburban Dev. Corp. v. Auditor General , 63 SCRA 397 (1975).

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Failure of the buyer to make good the price does not, in law, cause the ownership to revestto the seller unless the bilateral contract of sale is first rescinded or resolved pursuant to Art.1191. xBalatbat v. CA, 261 SCRA 128 (1996).

A contract to sell, or a condition contract of sale where the suspensive condition has nothappened, even when found in a public document, cannot be treated as constitutingconstructive delivery, especially when from the face of the instrument it is shown that the seller“was not yet the owner of the property and was only expecting to inherit it.” xHeirs of ArturoReyes v. Socco-Beltran, 572 SCRA 211, 221 (2008).

c. Physical Delivery (Art. 1497 )

It is not necessary that seller himself delivers title to the buyer because the thing sold isunderstood as delivered when it is placed in control and possession of buyer. Thus, whensellers themselves introduced the tenant to the buyer as the new owners of the land, and fromthat time on the buyer acted as landlord thereof, there was delivery that transferred title to thebuyer. xAlfredo v. Borras, 404 SCRA 145 (2003).

d. Constructive Delivery: EXECUTION OF A PUBLIC INSTRUMENT (Art. 1498 )

Where deed of sale or any agreement analogous to a deed of sale, is made through apublic instrument, its execution is equivalent to the delivery of the property. Caoibes, Jr. v.Caoibes-Pantoja, 496 SCRA 273 (2006).85

Under Art. 1498, the mere execution of the deed of conveyance in a public instrument isequivalent to the delivery of the property, and that prior physical delivery or possession is notlegally required, since ownership and possession are two entirely different legal concepts.Notwithstanding the presence of illegal occupants on the subject property, transfer ofownership by symbolic delivery under Art. 1498 can still be effected through the execution ofthe deed of conveyance. xSabio v. International Corporate Bank, 364 SCRA 385 (2001).


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public instrument to effect tradition, the purchaser must be placed in control of the thing sold. Aperson who does not have actual possession of the thing sold cannot transfer constructivepossession by the execution and delivery of a public instrument. Asset Privatization Trust v.T.J. Enterprises, 587 SCRA 481 (2009).

There is nothing in Article 1498 that provides that execution of a deed of sale is aconclusive presumption of delivery of possession; presumptive delivery can be negated by thefailure of the vendee to take actual possession of the land or the continued enjoyment of

possession by the vendor. !Santos v. Santos, 366 SCRA 395 (2001) .86

The presumptive delivery by the execution of a public instrument can be negated by thefailure of the vendee to take actual possession of the land sold. Cebu Winland Dev. Corp. v.Ong Siao Hua, 588 SCRA 120 (2009).

(i) As to Movables (Arts. 1498-1499, 1513-1514 ; !Dy, Jr. v. CA, 198 SCRA 826 )

Where it is stipulated that deliveries must be made to the buyer or his duly authorizedrepresentative named in the contracts, the seller is under obligation to deliver in accordancewith such instructions.. xLagon v. Hooven Comalco Industries, Inc., 349 SCRA 363 (2001).

Execution by supposed buyers of a chattel mortgage over subject vehicle in favor of thefinancing company does not mean that ownership had been transferred to them, for delivery

must be on the part of the seller. xUnion Motor Corp. v. CA, 361 SCRA 506 (2001).Neither issuance of an invoice, which is not a document of title xP.T. Cerna Corp. v. CA,

221 SCRA 19 (1993),87

nor of the registration certificate of vehicle xUnion Motor Corp. v. CA,361 SCRA 506 (2001),88 would constitute constructive delivery.

(ii) As to Immovables (Art. 1498)

Issuance of an acknowledgment receipt of partial payment, when it is not a publicinstrument does not convey title. xSan Lorenzo Dev. Corp. v. Court of Appeals, 449 SCRA 99(2005).

In case of immovables, when sale is made through a public instrument, the executionthereof shall be equivalent to the delivery of the thing which is the object of the contract, if fromthe deed the contrary does not appear or cannot clearly be inferred. xMunicipality of Victorias

v. CA, 149 SCRA 31 (1987);89

and that prior physical delivery or possession is not legallyrequired since execution of the deed is deemed equivalent to delivery. xManuel R. DulayEnterprises, Inc. v. Court of Appeals, 225 SCRA 678 (1993), Provided That:

(a) The thing sold is subject to the control of the seller ! Addison v. Felix , 38 Phil. 404(1918) ; and

(b) Such control should remain within a reasonable period after the execution of theinstrument !Danguilan v. IAC , 168 SCRA 22 (1988); !Pasagui v. Villablanca,68 SCRA 18 (1975) .

EXCEPT: When buyer assumes the risks of ownership and possession. !Power Commercialand Industrial Corp. v. CA, 274 SCRA 597 (1997) .

Execution of Deed of Conditional Sale with provision that final deed of sale to be

executed upon full payment does not transfer ownership of the subject matter. xFortuneTobacco Corp. v. NLRC , 200 SCRA 766 (1991).

(1) Registration of Title Is Separate Mode from Execution of Public Instrument – Therecording of the sale with the proper Registry of Deeds and the transfer of the certificateof title in the name of the buyer are necessary only to bind third parties to the transfer ofownership. As between the seller and the buyer, the transfer of ownership takes effectupon the execution of a public instrument conveying the real estate. !Chua v. Court of

Appeals, 401 SCRA 54 (2003) .

BUT S EE : Under Art. 1495, seller is obliged to transfer title over the property and deliverthe same to the vendee. !Vive Eagle Land, Inc. v. Court of Appeals, 444SCRA 445 (2004) .

(2) Customary Steps in Selling Immovables – “Customarily, in the absence of a contraryagreement, the submission by an individual seller to the buyer of the following paperswould complete a sale of real estate: (1) owner’s duplicate copy of the Torrens title; (2)signed deed of absolute sale; (3) tax declaration; and (4) latest realty tax receipt. Theybuyer can retain the amount for the capital gains tax and pay it upon authority of the


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The execution of the notarized deed of sale and the delivery of the owner’s duplicatecopy of the original certificate of title to the buyer is tantamount to constructive delivery ofthe object of the sale. Kings Properties Corp. v. Galido, 606 SCRA 137 (2009).

(iii) As to Incorporea l Property (Arts. 14 98 and 1501 ).

In the sale of shares of stock, physical delivery of a stock certificate is one of theessential requisites for the transfer of ownership of the stocks purchased. Filinvest’s failure to

delivery the stock certificates representing the shares of stock purchased by TEMI andGarcia amounted to a substantial breach of their contract which gave rise to a right to rescindthe sale. Raquel-Santos v. Court of Appeals, 592 SCRA 169 (2009).

e. Constitutum Possessorium (Art. 1500) – A provision

[CLV] Sales Outline

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