Sales - Espejo - 4th Yr

Updated Sales Review Notes from the lectures of Atty. Espejo (2014)

CONCEPT OF SALE

Article 1458, Civil Code

By the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefore a price certain in money or its equivalent.

A contract of sale may be absolute or conditional.

Article 1458 does not only define what a contract of sale is but also lists down the obligation of the parties.

It is also further classified as either absolute or conditional

Characteristics of a contract of sale

1. Nominate and Principal

Nominate:

A contract of sale is what the law defines it to be, taking into consideration its essential elements, and not what the contracting parties call it. Santos v. CA, 337 SCRA 67 (2000).

It is also governed by specific provisions of the law.

Principal:

It can stand on its own and does not depend upon another contract for its own validity and existence as distinguished by a preparatory and accessory contract.

2. Consensual

Article 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price.

From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts. (1450a)

It is perfected by mere consent. Its perfection is not subordinated by some other condition like the execution of deeds, forms and solemnities.

Perfection Distinguished from Demandability – Not all contracts of sale become automatically 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 is not perfected. Biñan Steel Corp. v. CA, 391 SCRA 90 (2002).

When there is no meeting of the minds on price, the contract “is not perfected” and does not serve as a binding juridical relation between the parties. Manila Metal Container Corp. v. PNB, 511 SCRA 444 (2006), and should be more accurately denominated as inexistent, as it did not pass the stage of generation to the point of perfection. NHA v. Grace Baptist Church, 424 SCRA 147 (2004).

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

Article 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation.

However, the demand by the creditor shall not be necessary in order that delay may exist:

(1) When the obligation or the law expressly so declare; or

(2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or

(3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.

In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins. (1100a)

Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law. (1124)

Reciprocal:

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

Bilateral:

A perfected contract of sale is bilateral because it carries the correlative duty of the seller to deliver the property and the obligation of the buyer to pay the agreed price.

Prepared By: ONG ABRANTES, KIANGAdditional Notes from Atty Sarona’s Sales Review Notes 2009& Law on Sales by Villanueva


Congregation of the Religious of the Virgin Mary v. Orola, 553 SCRA 578 (2008).

Synallagmatic contract – meaning bilateral contract

d. Onerous and Commutative

Onerous:

It has a consideration of something valuable

Commutative:

A thing of value is exchanged for equal value as opposed to an aleatory contract like insurance because the premium that you pay is not equivalent to the cash expectation that you will receive.

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

4. Sale Is Title and Not Mode

Sale is not a mode, but merely a title. A mode is the legal means by which dominion or ownership 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 sale does is to create the obligation to transfer ownership. It is tradition or delivery, as a consequence of sale, that actually transfers ownership. San Lorenzo Dev. Corp. v. CA, 449 SCRA 99 (2005)

Seller’s ownership of the thing sold is not an element of perfection; what the law requires is that seller has the right to transfer ownership at the time of delivery. Quijada v. CA, 299 SCRA 695 (1998).

Consequences of the characterization

As reciprocal:

In the case of Macasaet vs Art Transport Corp.(2007), the Supreme Court said that being a consensual contract, a sale is perfected at the moment there is a meeting of the minds. From that moment thereon, each party has the right to demand subject to the provision governing the form of sale. Xxxx Failure to comply by a party entitled another to rescind as the power to rescind is implied in reciprocal obligations.

Remember also that in reciprocal obligation, neither party incurs in delay unless the other is ready to comply with what is incumbent upon him.

Take note that the power to rescind is only given to the INJURED party

As Onerous:

Article 1350. In onerous contracts the cause is understood to be, for each contracting party, the prestation or promise of a thing or service by the other; in remuneratory ones, the service or benefit which is remunerated; and in contracts of pure beneficence, the mere liberality of the benefactor. (1274)

Article 1378. When it is absolutely impossible to settle doubts by the rules established in the preceding articles, and the doubts refer to incidental circumstances of a gratuitous contract, the least transmission of rights and interests shall prevail. If the contract is onerous, the doubt shall be settled in favor of the greatest reciprocity of interests.

If the doubts are cast upon the principal object of the contract in such a way that it cannot be known what may have been the intention or will of the parties, the contract shall be null and void. (1289)

Article 1378 – “greatest reciprocity of interest” (GRI)

Example:

For consideration given, there is doubt if it is a sale or lease. So we resolve it in favor of the GRI which means that if the consideration is more or less equivalent to the subject matter of the contract, you resolve it in favor of the greatest reciprocity of interest. That would be sale rather than lease.

As Commutative

Equivalent values are given as compared to an aleatory contract (lottery ticket). In aleatory contract, there is a perceived inequality of the values exchanged. (perceived lang daw kay in reality you only pay for the “chance” of winning not the amount to be won)

How do you determine whether or not the contract is aleatory or commutative?

It is subjective.

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

As Title not a Mode

Non nudis pactis, sed traditionis dominia rerum transferantur

(“It is delivery as a consequence of certain contracts that transfers ownership not the contract itself”)

Take note thatin Article 712, mode is classified into two classes.

Article 712. Ownership is acquired by occupation and by intellectual creation.

Ownership and other real rights over property are acquired and transmitted by law, by donation, by testate and intestate succession, and in consequence of certain contracts, by tradition.

They may also be acquired by means of prescription. (609a)



ELEMENTS OF A CONTRACT

Article 1318

Article 1318. There is no contract unless the following requisites concur:

(1) Consent of the contracting parties;

(2) Object certain which is the subject matter of the contract;

(3) Cause of the obligation which is established. (1261)

Essential Elements consent or meeting of the minds; determinate subject matter; and price certain in money or its equivalent

What is the effect if one is missing?

Article 1409 – it is void or inexistent from the very beginning.

Article 1409. The following contracts are inexistent and void from the beginning:

(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy;

(2) Those which are absolutely simulated or fictitious;

(3) Those whose cause or object did not exist at the time of the transaction;

(4) Those whose object is outside the commerce of men;

(5) Those which contemplate an impossible service;

(6) Those where the intention of the parties relative to the principal object of the contract cannot be ascertained;

(7) Those expressly prohibited or declared void by law.

These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived.

BUT Villanueva proposes a different classification where one element is missing.

According to him, it is not a void contract but a NO CONTRACT SITUATION

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

When there is no meeting of the minds on price, the contract “is not perfected” and does not serve as a binding juridical relation between the parties. Manila Metal Container Corp. v. PNB, 511 SCRA 444 (2006), and should be more accurately denominated as inexistent, as it did not pass the stage of generation to the point of perfection. NHA v. Grace Baptist Church, 424 SCRA 147 (2004).

SIR: YOU HAVE TO MASTER DISTINCTIONS

SALE DISTINGUISHED FROM SIMILAR CONTRACTS

WHY DISTINGUISH?

3 REASONS

1. A contract is what the law defines it to be, taking into consideration its essential elements, and the title given to it by the parties is not as much significant as its substance. Santos v. CA, 337 SCRA 67 (2000).

2. A contract which is called otherwise by the parties is susceptible of the remedy of reformation.

3. It can be called void ab initio when you enter into something what you feel is a binding contract but the law tells you that it is not. This contract cannot be ratified.

Sale v. Barter Barter – contract where majority of the

consideration is in the form of another thing and a minor part of the consideration is in money

Article 1468. If the consideration of the contract consists partly in money, and partly in another thing, the transaction shall be characterized by the manifest intention of the parties. If such intention does not clearly appear, it shall be considered a barter if the value of the thing given as a part of the consideration exceeds the amount of the money or its equivalent; otherwise, it is a sale. (1446a)

Article 1638. By the contract of barter or exchange one of the parties binds himself to give one thing in consideration of the other's promise to give another thing. (1538a)

Article 1639. If one of the contracting parties, having received the thing promised him in barter, should prove that it did not belong to the person who gave it, he cannot be compelled to deliver that which he offered in exchange, but he shall be entitled to damages. (1539a)

Article 1640. One who loses by eviction the thing received in barter may recover that which he gave in exchange with a right to damages, or he may only demand an indemnity for damages. However, he can only make use of the right to recover the thing which he has delivered while the same remains in the possession of the other party, and without prejudice to the rights acquired in good faith in the meantime by a third person. (1540a)

Article 1641. As to all matters not specifically provided for in this Title, barter shall be governed by the provisions of the preceding Title relating to sales. (1541a)

If amount of money > thing = Intention first, if cannot be determined, it is sale.

If amount of money = thing = Intention first, if cannot be determined, it is sale.

Note: it is only if there is a doubt as to the intention that you will apply the rules

Sale Barter



money for a thing a thing for a thingStatute of frauds apply Statute of Frauds does not

applythere is right of retention no right of retention

Sale v. Donation Donation – an act of liberality which is

gratuitous in character Main consideration: love and affection

A donation is a transfer of ownership of one’s property wherein the main consideration is not money. It is an act of liberality of the donor.

Main consideration of a contract of sale: purchase price

Sale DonationConsensual Formal or solemnBilateral Purely unilateralOnerous GratuitousTitle An Act, a contract and

Mode of acquisition

Sale v. Contract for a Piece of Work

Contract for a piece of work – contractor binds himself to execute a piece of work for the employer, in consideration of a certain price or compensation.

test: thing is specially manufactured for the customer and upon his special order (Dino v. CA, June 20, 2001)

Sale – if the article is manufactured or procured for the general market in the ordinary course of business, WHETHER THE SAME IS ON HAND AT THE TIME OR NOT

◦ Test: thing is manufactured in the ordinary course of business (1467)

This means that the “thing is specially manufactured for you”.

Quantity will not determine if it is a piece of work.

If anyone can buy it, it is a contract of sale. If it is exclusive, it is a contract for a piece of work. If it is displayed thereafter, it is a sale.

ARTICLE 1467. A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business manufactures or procures for the general market, whether the same is on hand at the time or not, is a contract of sale, but if the goods are to be manufactured specially for the customer and upon his special order, and not for the general market, it s a contract for a piece of work. (n)

Example: A cake which has a face of you on it – contract for a piece of work

Crux: “Ineluctably, whether the contract be one of sale or one for a piece of work, a transfer of ownership is involved and a party necessarily walks away with an object.” Commissioner of Internal Revenue v. CA, 271 SCRA 605 (1997)

Facts:

ADMU Institute of Philippine Culture is engaged in social science studies of Philippine society and culture. Occasionally, it accepts sponsorships for its research activities from international organizations, private foundations and government agencies.

On July 1983, CIR sent a demand letter assessing the sum of P174,043.97 for alleged deficiency contractor’s tax. Accdg to CIR, ADMU falls under the purview of independent contractor pursuant to Sec 205 of Tax Code and is also subject to 3% contractor’s tax under Sec 205 of the same code. (Independent Contractor means any person whose activity consists essentially of the sale of all kinds of services for a fee regardless of whether or not the performance of the service calls for the exercise or use of the physical or mental faculties of such contractors or their employees.)

Issue:

WON ADMU is an independent contractor hence liable for tax? NO.

WON the acceptance of research projects by the IPC of ADMU a contract of sale or a contract for a piece of work? NEITHER.

Held:

1)Hence, to impose the three percent contractor’s tax on Ateneo’s Institute of Philippine Culture, it should be sufficiently proven that the private respondent is indeed selling its services for a fee in pursuit of an independent business.

2)Records do not show that Ateneo’s IPC in fact contracted to sell its research services for a fee. In the first place, the petitioner has presented no evidence to prove its bare contention that, indeed, contracts for sale of services were ever entered into by the private respondent. Funds received by the Ateneo de Manila University are technically not a fee. They may however fall as gifts or donations which are tax-exempt. Another fact that supports this contention is that for about 30 years, IPC had continuously operated at a loss, which means that sponsored funds are less than actual expenses for its research projects.

In fact, private respondent is mandated by law to undertake research activities to maintain its university status. In fact, the research activities being carried out by the IPC is focused not on business or profit but on social sciences studies of Philippine society and culture. Since it can only finance a limited number of IPC’s research projects, private respondent occasionally accepts sponsorship for unfunded IPC research projects from international organizations, private foundations and governmental agencies. However, such sponsorships are subject to private respondent’s terms and conditions, among which are, that the research is confined to topics consistent with the private respondent’s academic agenda; that no proprietary or commercial purpose research is done; and that private respondent retains not only the absolute right to publish but also the ownership of the results of the research conducted by the IPC.



SALE vs. CONTRACT FOR PIECE OF WORK

By the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefore a price certain in money or its equivalent. By its very nature, a contract of sale requires a transfer of ownership. In the case of a contract for a piece of work, the contractor binds himself to execute a piece of work for the employer, in consideration of a certain price or compensation. If the contractor agrees to produce the work from materials furnished by him, he shall deliver the thing produced to the employer and transfer dominion over the thing. Whether the contract be one of sale or one for a piece of work, a transfer of ownership is involved and a party necessarily walks away with an object. In this case, there was no sale either of objects or services because there was no transfer of ownership over the research data obtained or the results of research projects undertaken by the Institute of Philippine Culture.

When a person stipulates for the future sale of articles which he is habitually making, and which at the time are not made or finished, it is essentially a contract of sale and not a contract for labor Inchausti & Co. v. Cromwell, 20 Phil. 345 (1911); even when he executes production thereof only after 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 a piece of work; if the thing is manufactured or procured for the general market in the ordinary course of business, it is a contract of sale. Commissioner of Internal Revenue v. Engineering Equipment & Supply Co., 64 SCRA 590 (1975).

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 bound to deliver, the contract is one of sale; but if one of the parties accepts the undertaking on the basis of some plan, taking into account the work he will employ personally or through another, the contract is for a piece of work. Engineering & Machinery Corp. v. CA, 252 SCRA 156 (1996).

NOTE: NO specific performance in contract for piece of work if what you want to compel is the execution of the thing because of involuntary servitude

REMEDIES

Article 1715. The contract shall execute the work in such a manner that it has the qualities agreed upon and has no defects which destroy or lessen its value or fitness for its ordinary or stipulated use. Should the work be not of such quality, the employer may require that the contractor remove the defect or execute another work. If the contract fails or refuses to comply with this obligation, the

employer may have the defect removed or another work executed, at the contractor's cost. (n)

Sale v. Dacion en Pago

Dacion En Pago / Dation in payment – property is alienated to the creditor in satisfaction

of a debt in money.

This contract is governed by the law on sales (1245)

Sale Dacion en pagoContract Mode to Extinguish the

contractCreates an obligation Obligation previously

contracted is extinguished

ARTICLE 1245. Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall be governed by the law on sales. (n)

This is different from pactum commissorium, wherein there is automatic appropriation. You should be able to distinguish dacion en pago from pactum commissorium.

SSS v. AG&P, April 30, 2008 Dacion en pago is the delivery and transmission of

ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of the obligation.

Special mode of payment where the debtor offers another thing to the creditor who accepts it as equivalent of payment of an outstanding debt.

Partakes in one sense of the nature of sale, that is the creditor is really buying the thing or property of the debtor, payment for which is to be charged against the debtor’s debt.

The essential elements of a contract of sale, namely, consent, object certain, and cause or consideration must be present.

In its modern concept, what actually takes place in dacion en pago is an objective novation of the obligation where the thing offered as an accepted equivalent of the performance of an obligation is considered as the object of the contract of sale, while the debt is considered as the purchase price. In any case, common consent is an essential prerequisite, be it sale or novation, to have the effect of totally extinguishing the debt or obligation.

Rules on sale will apply.

SSS vs. AGP (April 30, 2008)

FACTS: Plaintiff informed the SSS in writing of its premiums and loan amortization delinquencies. AG&P chose to settle its obligation with the SSS through dacion en pago. AG&P was, thereafter, directed by the defendant to submit certain documents, such as Transfer Certificate of Title, Tax Declaration covering the subject lot, and the proposed subdivision plan, which requirements AG&P immediately complied. SSS approved AG&P’s proposal to settle its and SEMIRARA’s



delinquencies through dacion en pago. A Deed of Assignment has to be executed between the plaintiffs and the defendant. Because of SSS failure to come up with the required Deed of Assignment to effect said transfer, AG&P prepared the draft and submitted it to the Office of the Vice-President. Unfortunately, the defendant failed to take any action on said Deed of Assignment causing AG&P to re-submit it to the same office.

More than a year after the approval of AG&P’s proposal, defendant sent the revised copy of the Deed of Assignment to AG&P. However, the amount of the plaintiffs’ obligation appearing in the approved Deed of Assignment has ballooned allegedly because of the additional interests and penalty charges assessed on plaintiffs’ outstanding obligation from April 2001, the date of approval of the proposal, up to January 2003.

AG&P demanded for the waiver and deletion of the additional interests on the ground that delay in the approval of the deed and the subsequent delay in conveyance of the property in defendant’s name was solely attributable to the defendant. Defendant, however, refused to accept the payment through dacion en pago, unless plaintiffs also pay the additional interests and penalties being charged.

SSS moved for the dismissal of the complaint for lack of jurisdiction and non-exhaustion of administrative remedies.

ISSUE: Which body has jurisdiction to entertain a controversy arising from the non-implementation of a dacion en pago agreed upon by the parties as a means of settlement of private respondents’ liabilities.

HELD: The action then is one for specific performance which case law holds is an action incapable of pecuniary estimation falling under the jurisdiction of the Regional Trial Court, and does not fall within the jurisdiction of the Social Security Commission.

Dacion en pago is the delivery and transmission of ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of the obligation. It is a special mode of payment where the debtor offers another thing to the creditor who accepts it as equivalent of payment of an outstanding debt. The undertaking really partakes in one sense of the nature of sale, that is the creditor is really buying the thing or property of the debtor, payment for which is to be charged against the debtor’s debt. As such, the essential elements of a contract of sale, namely, consent, object certain, and cause or consideration must be present. In its modern concept, what actually takes place in dacion en pago is an objective novation of the obligation where the thing offered as an accepted equivalent of the performance of an obligation is considered as the object of the contract of sale, while the debt is considered as the purchase price. In any case, common consent is an essential prerequisite, be it sale or novation, to have the effect of totally extinguishing the debt or obligation.

The controversy, instead, lies in the non-implementation of the approved and agreed dacion en pago on the part of the SSS. As such, respondents filed a suit to obtain its enforcement which is, doubtless, a suit for specific performance and one incapable of pecuniary estimation beyond the competence of the Commission.

(Jazzie Sarona )

Sale v. LeaseLease- use of thing for a price and return of the

same after the period. If use of thing without the price, it is commodatum.

RENT TO OWN - When the lease gives the lessee the option to buy for a small consideration at the end of the term, after crediting to the price all the so-called rents, such contract may be regarded a contract of sale on installments. Articles 1484 and 1485 will apply (Filinvest v. CA, 178 SCRA 188)

FILINVEST CREDIT vs. CA 178 SCRA 188

FACTS: Private respondents spouses Jose and Iluminada are engaged in the sale of gravel and acquired the services of Gemini Motor Sale to look for a rock crusher. Private respondents applied for financial assitance from Filinvest Credit with the conditions that the machinery be purchased in the name of Filinvest and that it be leased for 2 years with option to purchase upon the termination of the lease period to private respondent. Filinvest foreclosed the mortgaged property executed by private respondent. Private respondent filed a complaint for the rescission of the contract of lease.

HELD: Contracts in the form of lease, either with an option for the buyer to purchase for a small consideration at the end of the term provided all installments are paid or with stipulation that if the rent throughout the term is paid, title shall vest in the lessee, are loans in name only. Contracts of this nature are actually contracts of sale. The intent of the parties to the subject contract is for the so-called rentals to be the installment payments. Upon completion of payment, the machinery would become the property of the private respondent.

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

(1) Exact fulfilment of the obligation, should the vendee fail to pay;

(2) Cancel the sale, should the vendee’s failure to pay cover two or more instalments;

(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 instalments. 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)



ARTICLE 1485. The preceding article shall be applied to contract 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.

1484 and 1485 1484 – relief available to an unpaid installment

seller 1485- 1484 is applicable if there is lease of

personal property and lessor deprives the lessee of possession or enjoyment of the SM

ELEMENTS OF A CONTRACT OF SALE

Essential Elements consent or meeting of the minds; determinate subject matter; and price certain in money or its equivalent

1st element: CONSENT

• Basic premise: Only capacitated parties can give their consent to buy or sell

• Art. 1489 : any person who is authorized in the Civil Code to obligate himself

ARTICLE 1489. All persons who are authorized in the Code to obligate themselves, may enter into a contract of sale, saving the modifications contained in the following articles.

Where necessaries are sold and delivered to a minor or other person without capacity to act, he must pay a reasonable price therefore. Necessaries are those referred to in Article 290. (1457 a)

Incapacitated Parties

Absolute incapacity = incapacitated to bind themselves under all circumstances as a general rule.

Relative incapacity = incapacitated to bind themselves with reference to persons, circumstances and properties.

GENERAL RULE: Contracts entered into by minors, insane and demented persons, deaf mutes who cannot read and write are VOIDABLE (1327)

The voidable contract cannot be avoided by capacitated party (1397)

ABSOLUTELY INCAPACITATED

ARTICLE 1327. The following cannot give consent to a contract: (1) Unemancipated minors; (2) Insane or demented persons, and deaf-mutes who do not know how to write. (1263a)

ARTICLE 1397. The action for the annulment of contracts may be instituted by all who are thereby obliged principally or subsidiarily. However, persons who are capable cannot allege the incapacity of those with whom they contracted; nor can those who exerted intimidation, violence, or undue influence, or employed fraud, or caused mistake base their action upon these flaws of the contract. (1302a)

If buang ka, you can enter into a contract kapag lucid interval.

If entered into under hypnotic spell or state of drunkenness, voidable

Period to institute annulment

Article 1391. The action for annulment shall be brought within four years.

This period shall begin:

In cases of intimidation, violence or undue influence, from the time the defect of the consent ceases.

In case of mistake or fraud, from the time of the discovery of the same.

And when the action refers to contracts entered into by minors or other incapacitated persons, from the time the guardianship ceases. (1301a)

Notes AS TO MINORS

In the case of ___ vs Bildo? December 1917, SC did not allow the minor to allege his incapacity. This is a contract entered into by minors when they pretended that they are of age.

EXCEPTION: If contracts of these incapacitated persons are for NECESSARIES or those things which are indispensable for his support, they must pay a reasonable price therefor (1489)

What are necessaries?

(Art 290 of the FC cf. 194 of family code)

Art. 194. Support compromises everything indispensable for sustenance, dwelling, clothing, medical attendance, education and transportation, in keeping with the financial capacity of the family.

The education of the person entitled to be supported referred to in the preceding paragraph shall include his schooling or training for some profession, trade or vocation, even beyond the age of majority. Transportation shall include expenses in going to and from school, or to and from place of work. (290a)

2 requisites for sale of necessaries to minor to be valid and not merely voidable

1. Perfection of the sale

2. Delivery of the necessaries



SPECIAL DISQUALIFICATION

Special disqualifications to persons under civil interdiction.

PERSONS RELATIVELY INCAPACITATED

SPOUSES AS PARTIES

Contracts with Third Parties

(Arts. 73, 96, and 124, Family Code)

Art. 73. Either spouse may exercise any legitimate profession, occupation, business or activity without the consent of the other. The latter may object only on valid, serious, and moral grounds.

In case of disagreement, the court shall decide whether or not:

(1) The objection is proper, and

(2) Benefit has occurred to the family prior to the objection or thereafter. If the benefit accrued prior to the objection, the resulting obligation shall be enforced against the separate property of the spouse who has not obtained consent.

The foregoing provisions shall not prejudice the rights of creditors who acted in good faith. (117a)

Art. 96. The administration and enjoyment of the community property shall belong to both spouses jointly. In case of disagreement, the husband's decision shall prevail, subject to recourse to the court by the wife for proper remedy, which must be availed of within five years from the date of the contract implementing such decision.

In the event that one spouse is incapacitated or otherwise unable to participate in the administration of the common properties, the other spouse may assume sole powers of administration. These powers do not include disposition or encumbrance without authority of the court or the written consent of the other spouse. In the absence of such authority or consent, the disposition or encumbrance shall be void. However, the transaction shall be construed as a continuing offer on the part of the consenting spouse and the third person, and may be perfected as a binding contract upon the acceptance by the other spouse or authorization by the court before the offer is withdrawn by either or both offerors. (206a)

Art. 124. The administration and enjoyment of the conjugal partnership shall belong to both spouses jointly. In case of disagreement, the husband's decision shall prevail, subject to recourse to the court by the wife for proper remedy, which must be availed of within five years from the date of the contract implementing such decision.

In the event that one spouse is incapacitated or otherwise unable to participate in the administration of the conjugal properties, the other spouse may assume sole powers of administration. These powers do not include disposition or encumbrance without authority of the court or the written consent of the other spouse. In the absence of such authority or consent, the

disposition or encumbrance shall be void. However, the transaction shall be construed as a continuing offer on the part of the consenting spouse and the third person, and may be perfected as a binding contract upon the acceptance by the other spouse or authorization by the court before the offer is withdrawn by either or both offerors. (165a)

As a General rule, spouses can enter into contract as to third persons because of Art. 73 of the Family Code.

Ainza vs Padua

(SC applied Civil Code here not the family Code since the sale was made in 1987)

The legal ground which deserves attention is the legal effect of a sale of lands belonging to the conjugal partnership made by the wife without the consent of the husband.

The sale made by Gimena is certainly a defective contract but of what category? The answer: it is a voidable contract.

According to Art. 1390 of the Civil Code, among the voidable contracts are "[T]hose where one of the parties is incapable of giving consent to the contract." (Par. 1.) In the instant case Gimena had no capacity to give consent to the contract of sale. The capacity to give consent belonged not even to the husband alone but to both spouses.

The view that the contract made by Gimena is a voidable contract is supported by the legal provision that contracts entered by the husband without the consent of the wife when such consent is required, are annullable at her instance during the marriage and within ten years from the transaction questioned. (Art. 173, Civil Code).

Gimena’s contract is not rescissible for in such a contract all the essential elements are untainted but Gimena’s consent was tainted. Neither can the contract be classified as unenforceable because it does not fit any of those described in Art. 1403 of the Civil Code. And finally, the contract cannot be void or inexistent because it is not one of those mentioned in Art. 1409 of the Civil Code. By process of elimination, it must perforce be a voidable contract.

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

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

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



Between Spouses (Arts. 133, 1490, 1492; Sec. 87, Family Code)

Article 133. Every donation between the spouses during the marriage shall be void. This prohibition does not apply when the donation takes effect after the death of the donor.

Neither does this prohibition apply to moderate gifts which the spouses may give each other on the occasion of any family rejoicing. (1334a)

Article 1490. The husband and the wife cannot sell property to each other, except:

(1) When a separation of property was agreed upon in the marriage settlements; or

(2) When there has been a judicial separation of property under article 191. (1458a)

Article 1492. The prohibitions in the two preceding articles are applicable to sales in legal redemption, compromises and renunciations. (n)

Art. 87. Every donation or grant of gratuitous advantage, direct or indirect, between the spouses during the marriage shall be void, except moderate gifts which the spouses may give each other on the occasion of any family rejoicing. The prohibition shall also apply to persons living together as husband and wife without a valid marriage. (133a)

Reason: Spouses are one in law. He cannot give or sell something to himself.

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

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

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

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

Sale between spouses

General rule: NO (Article 1490), UNLESS

when a separation of property was agreed upon in the marriage settlements; OR

when there has been a judicial separation of property under Article 191 (when spouse is sentenced to a penalty which carries with it civil interdiction or has been declared absent or in case of legal separation)

If the spouses are separated only in fact, apply the general rule that they cannot sell property to each other.

Q: If they are not legally separated, can they still sell to each other?

A: Yes, if they go for a voluntary separation of property.

WHO CAN QUESTION THE SALE?

- The in pari delicto doctrine would not apply to the spouses-parties under Art. 1490, since only the heirs and the creditors can question the sale’s nullity. Modina v. CA, 317 SCRA 696 (1999).

o The spouses cannot question only the heirs and creditors

- However in Medina vs Collector (old case), BIR or gov’t can assail the sale because they are parties to taxable transactions and needless to say, can question the validity of the transactions.

So, the heirs, creditors or the government

STATUS of the contract here is NULL AND VOID

Sale against public policy Persons who cannot acquire by purchase, even

at a public or judicial auction the following property: (Article 1491)

guardians, property of his ward

Araneta vs Perez

SC said donation is valid because the prohibition is only in simple donation.

The new Civil Code, in prohibiting a trustee from donating properties entrusted to him does so for the protection of the trust beneficiaries and evidently contemplates gifts of pure beneficence, that is, those which are supported by no other cause than the liberality of the donor. But when the donation, as in the present instance, is clearly in their interest, to say it cannot be done would be contrary to the spirit and intent of the law.

agents, property whose administration or sale has been entrusted to him, unless principal consents

executors, property of state under administration

No more need to comply with Rodriquez 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 of said article. Philippine Trust Co. v. Roldan, 99 Phil. 392 (1956).

public officers & employees, property of the state or subdivision or GOCC entrusted to them includes JUDGES and GOV’T EXPERTS



Maharlika vs Tagle July 9, 1986

In so providing, the Code tends to prevent fraud, or more precisely, tends not to give occasion for fraud, which is what can and must be done (Francisco, Sales, p. 111). We, therefore, reject the contention of respondents that the fact that Edilberto Tagle was, at the time of the public bidding, a GSIS official, will not alter or change the outcome of the case.

A Division Chief of the GSIS is not an ordinary employee without influence or authority. The mere fact that he exercises ample authority with respect to a particular activity, i.e., retirement, shows that his influence cannot be lightly regarded.

The point is that he is a public officer and his wife acts for and in his name in any transaction with the GSIS. If he is allowed to participate in the public bidding of properties foreclosed or confiscated by the GSIS, there will always be the suspicion among other bidders and the general public that the insider official had access to information and connections with his fellow GSIS officials as to allow him to eventually acquire the property. It is precisely the need to forestall such suspicions and to restore confidence in the public service that the Civil Code now declares such transactions to be void from the beginning and not merely voidable (Rubias vs. Batiller, 51 SCRA 120). The reasons are grounded on public order and public policy. We do not comment on the motives of the private respondents or the officers supervising the bidding when they entered into the contract of sale. Suffice it to say that it fags under the prohibited transactions under Article 1491 of the Civil Code and, therefore, void under Article 1409.

justices, judges, prosecuting attorneys, clerks of inferior and superior courts, other officers and employees connected with the administration of justice, property and rights in litigation / levied within their jurisdiction. Shall apply to lawyers who are members to the firm involved.

Summary:

If pending, the contract is void.If final na, the contract is valid.

Properties sold to lawyer pending appeal, void.Properties sold to counsel pending certiorari procedures, void.

Lawyer acquired as payment in another case, valid because not the same case.

Lawyer acquired long before he intervened in the case, valid.Properties before the court action, valid.Purchase after finality, valid.Property to serve as payment in the form of contingent fee, valid, because this takes effect after favourable judgment.

Fornilda vs RTC

Foreclosure was made after termination of the case but the mortgage was during the pendency of the case, still VOID

Nonetheless, considering that the mortgage contract, entered into in contravention of Article 1491 of the Civil Code, supra, is expressly prohibited by law, the same must be held inexistent and void ab initio (Director of Lands vs. Abagat, 53 Phil. 147).

Art. 1409. The following contracts are inexistent and void from the beginning:

(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy;

xxx xxx xxx

(7) Those expressly prohibited or declared void by law. These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived. (Civil Code)

Being a void contract, the action or defense for the declaration of its inesistence is imprescriptible (Article 1410, Civil Code). The defect of a void or inexistence contract is permanent. Mere lapse of time cannot give it efficacy. Neither can the right to set up the defense of illegality be waived (Article 1409, Civil Code).

STATUS: contracts violative of Art. 1490 & 1491 are null and void (Medina v. Collector, 1 SCRA 302)

ARTICLE 1491. The following persons cannot acquire by purchase, even at a public or judicial auction, either in person or through the mediation of another:

(1) The guardian, the property of the person or persons who may be under his guardianship;

(2) Agents, the property whose administration or sale may have been entrusted to them, unless the consent of the principal has been given;

(3) Executors and administrators, the property of the estate under administration;

(4) Public officers and employees, the property of the State or of any subdivision thereof, or of any government-owned or controlled corporation, or institution, the administration of which has been intrusted to them; this provision shall apply to judges and government experts who, in any manner

whatsoever, take part in the sale;

(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other officers and employees connected with the administration of justice, the property and rights in litigation or levied upon an execution before the court within

whose jurisdiction or territory they exercise their respective functions; this prohibition includes the act of acquiring by assignment and shall apply to lawyers, with respect to the property and rights which may be the object of any litigation in which they may take part by virtue of their profession.

(6) Any others specially disqualified by law. (1459a)

Take note: “unless with consent” only applies to agent and principal; others are considered null and void

SURPRISE QUIZ

2013 Bar exam question

Rica petitioned for the annulment of her ten-year old marriage to Richard. Richard hired Atty. Cruz to represent him in the proceedings. In payment for Atty.



Cruz's acceptance and legal fees, Richard conveyed to Atty. Cruz a parcel of land in Taguig that he recently purchased with his lotto winnings. The transfer documents were duly signed and Atty. Cruz immediately took possession by fencing off the property's entire perimeter.

Desperately needing money to pay for his mounting legal fees and his other needs and despite the transfer to Atty. Cruz, Richard offered the same parcel of land for sale to the spouses Garcia. After inspection of the land, the spouses considered it a good investment and purchased it from Richard. Immediately after the sale, the spouses Garcia commenced the construction of a three-story building over the land, but they were prevented from doing this by Atty. Cruz who claimed he has a better right in light of the prior conveyance in his favor.

Is Atty. Cruz's claim correct? (8%)

Answer: xxxxx

2nd ELEMENT: SUBJECT MATTER

MUST BE: existing, or it may be future or even contingent

(Art. 1462); licit (Art. 1459); and determinate or at least determinable (Art.

1460).

ARTICLE 1462. The goods which form the subject of a contract of sale may be either existing goods, owned or possessed by the seller, or goods to be manufactured, raised, or acquired by the seller after the perfection of the contract of sale, in this Title called "future goods."

There may be a contract of sale of goods, whose acquisition by the seller depends upon a contingency which may or may not happen. (n)

ARTICLE 1459. The thing must be licit and the vendor must have a right to transfer the ownership thereof at the time it is delivered. (n)

ARTICLE 1460. A thing is determinate when it is particularly designated or physical segregated from all other of the same class. The requisite that a thing be determinate is satisfied if at the time the contract is entered into, the thing is capable of being made determinate without the necessity of a new or further agreement between the parties. (n)

EXISTING Subject Matter must be existing, future thing or

based on a contingency FUTURE: Do not view as to physical

existence or non-existence BUT check if Science and technology

will allow said SM to come into existence

things subject to a resolutory condition may be a valid SM

e.g. property in a reserva troncal, SM under legal redemption

Emptio Rei Speratae v. Emptio Spei Emptio Rei – subject has potential existence

and the uncertainty lies in the quantity or quality of the thing. If the thing comes into existence, there is a VALID contract

Emptio Spei- subject matter is a vain hope or expectancy and the uncertainty lies in the existence of the thing. The contract is VOID

Example:

I promise to sell to you the fruits of my coconut trees. If he has no coconut trees, then it is a vain hope.

Hope as a subject matter is valid for as long as it will exist.Future things are valid. Why? because ownership of the subject matter is required only at the time of delivery.

A expects or hopes to acquire a house in January 2007, can he sell the same? Yes subject to the suspensive condition that he will acquire said house.

Article 1461. Things having a potential existence may be the object of the contract of sale.

The efficacy of the sale of a mere hope or expectancy is deemed subject to the condition that the thing will come into existence.

The sale of a vain hope or expectancy is void. (n)

Article 1465. Things subject to a resolutory condition may be the object of the contract of sale. (n)

DETERMINATE

SM must be determinate OR at least determinable (Art. 1460)

determinate – particularly designated or physically segregated from all others of the same class

DETERMINABLE – capable of being made determinate without the necessity of a new or further agreement between the parties

DETERMINATE: generic objects,

undivided interested of a sole owner (1463), undivided share of a specific mass (1464)

ARTICLE 1463. The sole owner of a thing may sell an undivided interest therein. (n)

ARTICLE 1464. In the case of fungible goods, there may be a sale of an undivided share of a specific mass, though the seller purports to sell and the buyer to buy a definite number, weight or measure of the goods in the mass, and though the number, weight or measure of the goods in the mass is undetermined. By such a sale the buyer becomes owner in common of such a share of the mass as the number, weight or measure bought bears to the number, weight or measure of the mass. If the mass contains less than the number, weight or measure bought, the buyer becomes the owner of the whole mass and the seller is bound to make good the deficiency from goods of the same kind and quality, unless a contrary intent appears. (n)



Determinable Atilano v. Atilano – wrong designation of a lot

does not vitiate the sale since the parties before entering into the contract saw the actual setting and metes and bounds of the subject matter

ATILANO vs. ATILANO (May 21, 1969)

FACTS: In 1916, Eulogio Atilano I acquired, by purchase from one Gerardo Villanueva, lot No. 535 of the then municipality of Zamboanga cadastre. In 1920 he had the land subdivided into five parts. Eulogio Atilano I, for the sum of P150.00, executed a deed of sale covering lot No. 535-E in favor of his brother Eulogio Atilano II, who thereupon obtained transfer certificate of title No. 3129 in his name. Three other portions were likewise sold to other persons, the original owner, Eulogio Atilano I, retaining for himself only the remaining portion of the land. Upon his death the title to this lot passed to Ladislao Atilano.

On December 6, 1952, Eulogio Atilano II having become a widower upon the death of his wife Luisa Bautista, he and his children obtained transfer certificate of title No. 4889 over lot No. 535-E in their names as co-owners. They had the land resurveyed so that it could properly be subdivided; and it was then discovered that the land they were actually occupying on the strength of the deed of sale executed in 1920 was lot No. 535-A and not lot 535-E, as referred to in the deed, while the land which remained in the possession of the vendor, Eulogio Atilano I, and which passed to his successor, defendant Ladislao Atilano, was lot No. 535-E and not lot No. 535-A.

The heirs of Eulogio Atilano II , filed the present action in the Court of First Instance of Zamboanga, alleging, inter alia, that they had offered to surrender to the defendants the possession of lot No. 535-A and demanded in return the possession of lot No. 535-E, but that the defendants had refused to accept the exchange.

The trial court rendered judgment for the plaintiffs on the sole ground that since the property was registered under the Land Registration Act the defendants could not acquire it through prescription.

ISSUE: Whether or not the heirs of Atilano II are entitled to Lot No 535-E, the bigger lot.

RULING: The logic and common sense of the situation lean heavily in favor of the defendants' contention. When one sells or buys real property — a piece of land, for example — one sells or buys the property as he sees it, in its actual setting and by its physical metes and bounds, and not by the mere lot number assigned to it in the certificate of title. In the particular case before us, the portion correctly referred to as lot No. 535-A was already in the possession of the vendee, Eulogio Atilano II, who had constructed his residence therein, even before the sale in his favor even before

the subdivision of the entire lot No. 535 at the instance of its owner, Eulogio Atillano I. In like manner the latter had his house on the portion correctly identified, after the subdivision, as lot No. 535-E, even adding to the area thereof by purchasing a portion of an adjoining property belonging to a different owner. The two brothers continued in possession of the respective portions the rest of their lives, obviously ignorant of the initial mistake in the designation of the lot subject of the 1920 until 1959, when the mistake was discovered for the first time.

The mistake did not vitiate the consent of the parties, or affect the validity and binding effect of the contract between them. The new Civil Code provides a remedy for such a situation by means of reformation of the instrument. This remedy is available when, there having been a meeting of the funds of the parties to a contract, their true intention is not expressed in the instrument purporting to embody the agreement by reason of mistake, fraud, inequitable conduct on accident. In this case, the deed of sale executed in 1920 need no longer reformed. The parties have retained possession of their respective properties conformably to the real intention of the parties to that sale, and all they should do is to execute mutual deeds of conveyance. (Jazzie Sarona )

Naranja vs CA

To be valid, a contract of sale need not contain a technical description of the subject property. Contracts of sale of real property have no prescribed form for their validity; they follow the general rule on contracts that they may be entered into in whatever form, provided all the essential requisites for their validity are present.22 The requisites of a valid contract of sale under Article 1458 of the Civil Code are: (1) consent or meeting of the minds; (2) determinate subject matter; and (3) price certain in money or its equivalent.

The failure of the parties to specify with absolute clarity the object of a contract by including its technical description is of no moment. What is important is that there is, in fact, an object that is determinate or at least determinable, as subject of the contract of sale. The form of a deed of sale provided in Section 127 of Act No. 496 is only a suggested form. It is not a mandatory form that must be strictly followed by the parties to a contract.

In the instant case, the deed of sale clearly identifies the subject properties by indicating their respective lot numbers, lot areas, and the certificate of title covering them. Resort can always be made to the technical description as stated in the certificates of title covering the two properties.

Subject matter is still determinable

Determinable despite lack of specific quantity National Grains v. IAC – subject matter was the

rice to be harvested from seller’s farmland



The fact that the quantity is not determinate shall not be an obstacle to the existence of the contract provided it is possible to determine the same without the need for a further agreement

NATIONAL GRAINS AUTHORITY, CABAL vs. IAC, SORIANO (March 8, 1989)

FACTS: National Grains Authority (now National Food Authority, NFA for short) is a government agency wherein one of its incidental functions is the buying of palay grains from qualified farmers.

Soriano offered to sell palay grains to the NFA, through William Cabal, the Provincial Manager of NFA stationed at Tuguegarao, Cagayan. Private respondent Soriano's documents were processed and accordingly, he was given a quota of 2,640 cavans of palay. The quota noted in the Farmer's Information Sheet represented the maximum number of cavans of palay that Soriano may sell to the NFA.

In the afternoon of August 23, 1979 and on the following day, August 24, 1979, Soriano delivered 630 cavans of palay. The palay delivered during these two days were not rebagged, classified and weighed. when Soriano demanded payment of the 630 cavans of palay, he was informed that its payment will be held in abeyance since Mr. Cabal was still investigating on an information he received that Soriano was not a bona tide farmer and the palay delivered by him was not produced from his farmland but was taken from the warehouse of a rice trader, Ben de Guzman.

Cabal wrote Soriano advising him to withdraw from the NFA warehouse the 630 cavans Soriano delivered stating that NFA cannot legally accept the said delivery on the basis of the subsequent certification of the BAEX technician, Napoleon Callangan that Soriano is not a bona fide farmer.

Soriano insisted that the palay grains delivered be paid. He then filed a complaint for specific performance and/or collection of money with damages. The trial court rendered judgment ordering petitioner National Food Authority, its officers and agents to pay respondent Soriano. The IAC upheld the findings of the trial court.

ISSUE: Whether or not there was a contract of sale in the case at bar.

RULING: The petition is not impressed with merit. In the case at bar, Soriano initially offered to sell palay grains produced in his farmland to NFA. When the latter accepted the offer by noting in Soriano's Farmer's Information Sheet a quota of 2,640 cavans, there was already a meeting of the minds between the parties. The object of the contract, being the palay grains produced in Soriano's farmland and the NFA was to pay the same depending upon its quality. The fact that the exact number of cavans of palay to be

delivered has not been determined does not affect the perfection of the contract. Article 1349 of the New Civil Code provides: ". . .. The fact that the quantity is not determinate shall not be an obstacle to the existence of the contract, provided it is possible to determine the same, without the need of a new contract between the parties." In this case, there was no need for NFA and Soriano to enter into a new contract to determine the exact number of cavans of palay to be sold. Soriano can deliver so much of his produce as long as it does not exceed 2,640 cavans.

The acceptance referred to which determines consent is the acceptance of the offer of one party by the other and not of the goods delivered as contended by petitioners.

The reason why NFA initially refused acceptance of the 630 cavans of palay delivered by Soriano is that it (NFA) cannot legally accept the said delivery because Soriano is allegedly not a bona fide farmer. The trial court and the appellate court found that Soriano was a bona fide farmer and therefore, he was qualified to sell palay grains to NFA. (Jazzie Sarona )

LICIT SM must be LICIT: (Art. 1347)

licit – not outside the commerce of man, includes all rights which are transmissible

sale of future inheritance, sale of animals suffering from contagious disease ARE void

ARTICLE 1347. All things which are not outside the commerce of men, including future things, may be the object of a contract. All rights which are not intransmissible may also be the object of contracts.

No contract may be entered into upon future inheritance except in cases expressly authorized by law.

All services which are not contrary to law, morals, good customs, public order or public policy may likewise be the object of a contract. (1271a)

Illegal Sale due to Illegal Subject Matter narcotics (RA 6425, RA 9165) wild bird / mammal (Art No. 2950) rare wild plants (Art No. 3893) poisonous plants / fruits (RA 1288) dynamited fish (RA 428) gunpowder and explosives (Act

No.2255) firearms and ammunitions (PD#9)

Note:

People vs Alejandro William – “outside the commerce of men” (drugs defense)

The probative value of an object evidence is not affected by the fact that it is beyond the commerce of man. — Appellants raise the strange argument that Exhibit "C" has probative value because the subject thereof — marijuana — is beyond the commerce of man This is simply absurd. The transfer of marijuana



was incidental to the arrest of appellants and the confiscation of the subject matter of the crime. Exhibit "C" is in the same category as a death certificate and autopsy report which are admissible evidence of the subject of the crime — the human cadaver which is also beyond the commerce of man. Transfer of goods as a consequence or by virtue of police or state action such as forfeiture, seizure, condemnation, confiscation did not fall within the phrase "commerce of man" even in its broadest meaning.

3rd ELEMENT: PRICE

Price – sum stipulated as the equivalent of the thing sold and also every incident taken into consideration for the fixing of the price put to the debit of the buyer and agreed to by him

“Price” signifies the sum stipulated as the equivalent of the thing sold and also every incident taken 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).

Price must be: Real not simulated or fictitious in money or its equivalent certain or ascertainable at perfection by:

a third person the courts reference to a definite day/particular exchange or market reference to another thing certain never by one party to the contract

(VOID) Effect if:

There is no price – void contract for lack of consideration

Mapalo v. Mapalo – illiterate farmers signed a contract which provided for P500 consideration when the amount was never paid. Since there was no real consideration, the contract is VOID

MAPALO VS. MAPALO

FACTS: Sps. Miguel and Candida Mapalo, (illiterate) farmers, were registered owners of a 1,635 square-meter residential land in Manaoag, Pangasinan with OCT No. 46503 They decided to donate the eastern half of the property to Maximo (brother of Miguel) who was about to get married. The OCT was delivered. As a result however, they were deceived into signing a deed of absolute sale over the entire land in his (maximo) favor. Their signature thereto were procured by fraud, that is, they were made to believe by Maximo Mapalo and the attorney who acted as notary public who "translated" the document, that the same was a deed of donation in Maximo's favor covering one half (the eastern half) of their land. Although the document of sale stated a consideration of Five Hundred (P500.00) Pesos, the aforesaid spouses did not receive anything of value for the land.

Following the execution of the afore-stated document the spouses Miguel Mapalo and Candida Quiba immediately built a fence of permanent

structure in the middle of their land segregating the eastern portion from its western portion.Not known to them, meanwhile, Maximo, on March 15, 1938, registered the deed of sale in his favor and obtained in his name Transfer Certificate of Title over the entire land. On October 20, 1951, he sold for P2,500.00 said entire land in favor the Narcisos, which was subsequently registered and a TCT issued in their name over the entire property.

The Narcisos took possession only of the eastern portion of the land in 1951, after the sale. On February 7, 1952 they filed suit in the Court of First Instance of Pangasinanto be declared owners of the entire land; for possession of its western portion; for damages; and for rentals. It was brought against the Mapalo spouses as well as against Floro Guieb and Rosalia Mapalo Guieb who had a house on the western part of the land with the consent of the spouses Mapalo.

CFI ruled in favor of spouses Mapalo but CA reversed the decision upon appeal, solely on the ground that the consent of the Mapalo sps. to the deed of sale having been obtained by fraud, was voidable, not void ab initio. Hence, the action to annul the same had long prescribed. It reckoned said notice of the fraud from the date of registration of the sale on March 15, 1938. The Court of First Instance and the Court of Appeals are therefore unanimous that the spouses Mapalo and Quiba were definitely the victims of fraud. It was only on prescription that they lost in the Court of Appeals.

ISSUE: W/N the sale (as to the western portion) was void or voidable (Appelants contention was that it was void for being absolutely simulated)

HELD: The sale is void. The Court of Appeals is right in that the element of consent is present as to the deed of sale of October 15, 1936. For consent was admittedly given, albeit obtained by fraud. Accordingly, said consent, although defective, did exist. In such case, the defect in the consent would provide a ground for annulment of a voidable contract, not a reason for nullity ab initio.The parties are agreed that the second element of object is likewise present in the deed of October 15, 1936, namely, the parcel of land subject matter of the same.Not so, however, as to the third element of cause or consideration. And on this point the decision of the Court of Appeals is silent.

As to the sale of the eastern portion of the land, there is no question, it being admitted that said land was donated to Maximo. However, as regards the western portion, the question is whether or not there was a cause or consideration to support the existence of a contract of sale.

The rule under the Civil Code, again be it the old or the new, is that contracts without a cause or consideration produce no effect whatsoever. Nonetheless, under the Old Civil Code, the statement of a false consideration renders the contract voidable, unless it is proven that it is supported by another real and licit consideration. And it is further provided by the Old Civil Code that the action for annulment of a contract on the ground of falsity of consideration shall



last four years, the term to run from the date of the consummation of the contract.

Accordingly, since the deed of sale of 1936 is governed by the Old Civil Code, it should be asked whether its case is one wherein there is no consideration, or one with a statement of a false consideration. If the former, it is void and inexistent; if the latter, only voidable, under the Old Civil Code. As observed earlier, the deed of sale of 1936 stated that it had for its consideration Five Hundred (P500.00) Pesos. In fact, however, said consideration was totally absent. The problem, therefore, is whether a deed which states a consideration that in fact did not exist is a contract without consideration, and therefore void ab initio, or a contract with a false consideration, and therefore, at least under the Old Civil Code, voidable.

From the foregoing it can be seen that where, as in this case, there was in fact no consideration, the statement of one in the deed will not suffice to bring it under the rule of Article 1276 of the Old Civil Code as stating a false consideration.

(Hanniyah Sevilla )

Effect if: Simulated – represented to have been paid

BUT was NOT in fact paid If price is SIMULATED, the sale is VOID but the

contract may be shown to have been in reality a donation or some other contract (1471)

It is void because the third element (price) is lacking.

For example: the contract in reality is a donation but it was simulated as a contract of sale to pay lesser taxes

ARTICLE 1471. If the price is simulated, the sale is void, but the act may be shown to have been in reality a donation, or some other act or contract. (n)

Illustration:

Ong v. Ong - “P1.00 and other valuable considerations” – void sale but may be a donation

Bagnas v. CA - gross disproportion between consideration stipulated and value of the thing shows that the price is false and fictitious. The contract is VOID

ONG VS ONG

FACTS: Records show that on February 25, 1976 Imelda. Ong, for and in consideration of One (P1.00) Peso and other valuable considerations, executed in favor of private respondent Sandra Maruzzo, then a minor, a Quitclaim Deed whereby she transferred, released, assigned and forever quitclaimed to Sandra Maruzzo, her heirs and assigns, all her rights, title, interest and participation in the ONE-HALF (1/2) undivided portion of the parcel of land consisting of an area of 125 sq. m.

On November 19, 1980, Imelda Ong revoked the aforesaid Deed of Quitclaim and, thereafter, on January 20, 1982 donated the whole property described above to her son, Rex Ong Jimenez.

On June 20,1983, Sandra Maruzzo, through her guardian ad litem Alfredo Ong, filed with the Regional Trial Court of Makati, Metro Manila an action against petitioners, for the recovery of ownership/possession and nullification of the Deed of Donation over the portion belonging to her and for Accounting.

On December 12, 1983, the trial court rendered judgment in favor of respondent Maruzzo and held that the Quitclaim Dead is equivalent to a Deed of Sale and, hence, there was a valid conveyance in favor of the latter. Petitioners appealed to the respondent Intermediate Appellate Court. They reiterated their argument below and, in addition, contended that the One (P1.00) Peso consideration is not a consideration at all to sustain the ruling that the Deed of Quitclaim is equivalent to a sale.

On June 20, 1984, respondent Intermediate Appellate Court promulgated its Decision affirming the appealed judgment and held that the Quitclaim Deed is a conveyance of property with a valid cause or consideration; that the consideration is the One (P1.00) Peso which is clearly stated in the deed itself; that the apparent inadequacy is of no moment since it is the usual practice in deeds of conveyance to place a nominal amount although there is a more valuable consideration given.

ISSUE: w/n the quitclaim was a deed of sale, and if so w/n the same was valid. (YES)

HELD: A careful perusal of the subject deed reveals that the conveyance of the one-half (½) undivided portion of the above described property was for and in consideration of the One (Pl.00) Peso and the other valuable considerations paid by private respondent Sandra Maruzzo, through her representative, Alfredo Ong, to petitioner Imelda Ong. Stated differently, the cause or consideration is not the One Peso alone but also the other valuable considerations. As aptly stated by the Appellate Court "x x x although the cause is not stated in the contract it is presumed that it is existing unless the debtor proves the contrary (Article 1354 of the Civil Code). One of the disputable presumptions is that there is a sufficient cause of the contract (Section 5, (r), Rule 131, Rules of Court). It is a legal presumption of sufficient cause or consideration supporting a contract even if such cause is not stated therein. This presumption cannot be overcome by a simple assertion of lack of consideration especially when the contract itself states that consideration was given, and the same has been reduced into a public instrument with all due formalities and solemnities. To overcome the presumption of consideration the alleged lack of consideration must be shown by preponderance of evidence in a proper action. (Hanniyah Sevilla )



BAGNAS vs. CA, RETONIL, ENCARNACION AND NAMBAYAN

FACTS: Hilario Mateum of Kawit, Cavite, died on March 11, 1964, single, without ascendants or descendants, and survived only by collateral relatives, of whom petitioners herein, his first cousins, were the nearest. Mateum left no will, no debts, and an estate consisting of twenty-nine parcels of land in Kawit and Imus, Cavite, ten of which are involved in this appeal.

On April 3, 1964, the private respondents, themselves collateral relatives of Mateum though more remote in degree than the petitioners, registered with the Registry of Deeds for the Province of Cavite two deeds of sale purportedly executed by Mateum in their (respondents') flavor covering ten parcels of land. Both deeds were in Tagalog, save for the English descriptions of the lands conveyed under one of them; and each recited the consideration of P1.00 and services rendered to and for Mateum's benefit.

On May 22, 1964 the petitioners commenced suit against the respondents in the Court of First Instance of Cavite, seeking annulment of the deeds of sale as fictitious, fraudulent or falsified, or, alternatively, as donations void for want of acceptance embodied in a public instrument. Claiming ownership pro indiviso of the lands subject of the deeds by virtue of being intestate heirs of Hilario Mateum, the petitioners prayed for recovery of ownership and possession of said lands, accounting of the fruits thereof and damages.

Defendants aver that they were collateral relatives of Hilario Mateum and had done many good things for him, nursing him in his last illness, which services constituted the bulk of the consideration of the sales.

Trial court dismissed the petition on the ground that the plaintiff's evidence of alleged fraud was insufficient, the fact that the deeds of sale each stated a consideration of only P1 .00 not being in itself evidence of fraud or simulation. Also on the ground (laid down in Armential vs. Patriarca) that the plaintiffs as mere collateral relatives could not legally question the disposition made by the deceased during his life time. CA affirmed the decision.

ISSUE: w/n the deeds of sale were void or inexistent from teh beginning or merely voidable.

[f they were only voidable, then it is a correct proposition that since the vendor Mateum had no forced hairs whose legitimes may have been impaired, and the petitioners, his collateral relatives, not being bound either principally or subsidiarily to the terms of said deeds, the latter had and have no actionable right to question those transfers.

On the other hand, if said deeds were void ab initio because to all intents and purposes without consideration, then a different legal situation arises since if there has no cause or consideration, the property allegedly conveyed never really leaves the

patrimony of the transferor, and upon the death without testament, such property would have passed to the transferors' heirs intestate and can be recoverable by them, or by the Administrator of the transferor's estate.. (so in this case pwede ma-recover ng petitioners)]

HELD: The deeds of sale are void and of no force or effect whatsoever. Upon the consideration alone that the apparent gross, not to say enormous, disproportion between the stipulated price (in each deed) of P1 .00 plus unspecified and unquantilled services and the undisputably valuable real estate allegedly sold - worth at least P10,500.00 going only by assessments for tax purposes which, it is well-known, are notoriously low indicators of actual value - plainly and unquestionably demonstrates that they state a false and fictitious consideration, and no other true and lawful cause having been shown, the Court finds both said deeds, insofar as they purport to be sales, not merely voidable, but void ab initio.

The transfers in question being void, it follows as a necessary consequence and conformably to the concurring opinion in Armentia, with which the Court fully agrees, that the properties purportedly conveyed remained part of the estate of Hilario Mateum, said transfers notwithstanding, recoverable by his intestate heirs, the petitioners herein, whose status as such is not challenged.

(Hanniyah Sevilla )

Effect if Price is Uncertain - the contract is inefficacious but if

buyer nevertheless appropriates the object he must pay reasonable price (Art. 1474)

Manner of payment must be agreed upon

ARTICLE 1474. Where the price cannot be determined in accordance with the preceding articles, or in any other manner, the contract is inefficacious. However, if the thing or any part thereof has been delivered to and appropriated by the buyer he must pay a reasonable price therefor. What is a reasonable price is a question of fact dependent on the circumstances of each particular case. (n)

Inadequacy of price: Effect

Voluntary sale - does not affect the validity of sale

But the price must not be grossly disproportionate



Inadequacy of Price: Judicial Sale

General rule: may avoid the judicial sale when it is shocking to the conscience of man

Exception: when there’s a right of redemption

Inadequacy of Price: Sales A Retro Raises the presumption of equitable mortgage

Inadequacy of Price: Wards and Guardians sale by guardians or by representatives when

wards/persons represented suffer lesion of > ¼ of the value of the things – rescissible contract unless approved by court (Art.1381, Art.1386)

ARTICLE 1381. The following contracts are rescissible:

(1) Those which are entered into by guardians whenever the wards whom they represent suffer lesion by more than one-fourth of the value of the things which are the object thereof;

(2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding number;

(3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them;

(4) Those which refer to things under litigation if they have been entered into by the defendant without the knowledge and approval of the litigants or of competent judicial authority;

(5) All other contracts specially declared by law to be subject to rescission. (1291a)

ARTICLE 1386. Rescission referred to in Nos. 1 and 2 of Article 1381 shall not take place with respect to contracts approved by the courts. (1296a)

Lesion as to wards and guardians: If the price is P 750,000 of P 1M, it is still valid. Lesion suffered is equal (not more) to ¼ of the value of the thing.

SUMMARY

FORMATION OF A CONTRACT OF SALE

3 stages


CONSENT SUBJECT MATTER

PRICE

Spouses Emptio rei v. Emptio spei

Rules on inadequacy

Minors, insane, demented, deaf mute who can’t read and write

Generic No price

Guardians, judges, attorneys, agents, public officers, executors

Illegal objects Simulated

Determinate Uncertain


FIRST PHASE: PREPARATORY

period of negotiation and bargaining ending at the moment of agreement of the parties

CONTRACTS IN THE FIRST PHASE Policitation Option Contract Right of First Refusal Contract to Sell

POLICITACION

UNACCEPTED unilateral promise to buy or sell. Even if accepted by the other party, it is not binding upon the promissor and may be withdrawn at any time.

violation does not give rise to any relief on the part of the other party since there is no valid contract

Take note that public advertisements are mere invitations to make an offer

Article 1326. Advertisements for bidders are simply invitations to make proposals, and the advertiser is not bound to accept the highest or lowest bidder, unless the contrary appears. (n)

BAR 1999 A promised to sell property to B if B passes the

Bar Exam A sold house to C before B passed the Bar Is the sale VALID? Is B entitled to rentals since he there was a

promise to sell?

ANSWER Yes, the sale to C is valid. A merely made an

unaccepted unilateral promise to sell to B in the nature of a policitacion. This contract does not give rise to any obligation. It does not prevent the owner from selling the thing to another.

No, B is not entitled to rentals. A's promise to sell was unilateral and unaccepted. Hence, there was no perfected contract of sale that will transfer ownership over the thing to B. B is not entitled to rentals because he does not own the property.

BAR

A contract granting a privilege to a person, for which he has paid a consideration, which gives him the right to buy certain merchandise or specified property, from another person, at anytime within the agreed period, at a fixed price. What contract is being referred to?

a) Option Contract

b) Contract to Sell

c) Contract of Sale

d) Lease

OPTION CONTRACT ACCEPTED unilateral promise to buy or sell a

determinate thing which is supported by a consideration distinct from the price

if with consideration gives rise to a case for damages but NOT for specific performance

Option contract must have consideration separate and distinct from the purchase price. Otherwise, the option contract is VOID (Sugar Molasses case)

If there is no consideration, the contract is VOID BUT offer can still be accepted until it is withdrawn (Sanchez v. Rigos)

LIMSON V. CA An option is a continuing offer or contract by

which the owner stipulates with another that the latter shall have the right to buy the property at a fixed price within a time certain, or under, or in compliance with, certain terms and conditions, or which gives to the owner of the property the right to sell or demand a sale. An option is not itself a purchase, but merely secures the privilege to buy. It is not a sale of property but a sale of right to purchase.

LIMSON VS C.A.( 357 s 209 )

FACTS: Petitioner Limson filed a complaint alleging that in July 1978, Spouses de Vera, through their agent Marcosa Sanchez, offered to sell to petitioner a parcel of land.

Petitioner agreed to buy the property and gave P20k as earnest money. Respondent spouses signed a receipt and gave petitoner a 10-day option period to purchase the property and informed them that the property was mortgage to Ramoses, and asked Limson to pay the balance of the purchase price to enable to settle their obligation with Ramoses.

On Aug. 5, 1978, Petitioner agreed to meet respondent spouses and the Ramoses to consummate the transaction but due to failure of respondent spouses and the Ramose to appear, no transaction was formalized.

On Aug. 11,1978, petitioner claimed that she was willing to pay the balance but the transaction again did not materialized as respondent spouse failed to pay the back taxes. Subsequently, petitioner gave 3 checks (P36,170.00) for the settlement of the back taxes and for payment of the quitclaims of the 3 tenants. The amount was considered part of the purchase price with a receipt signed by respondent spouses.

On Sept. 5 1978, petitioner was surprised to learn that the property was the subject of a negotiation for the sale to Sunvar Realty Dev’t Corp. represented by Cuenca. As a consequence, petitoner filed an affidavit of Adverse Claim with the Registry of Deeds and informed Cuenca of her contract to purchase the property.

On Sept. 15 1978, the Deed of Sale was executed between respondent spouses and Sunvar, and a TCT was issued in favor of Sunvar with the adverse claim annotated therein.



ISSUE: WON there was perfected contract to sell between petitioner and respondent spouses? NO

HELD: The agreement between the parties was a contract of option and not a contract to sell.

An option, is a continuing offer or contract by which the owner stipulates with another that the latter shall have the right to buy the property at a fixed price within a time certain, or under certain terms and conditions or which gives to the owner the right to sell or demand a sale. It is also called an “unaccepted offer”. It is not itself a purchase, but merely secures the privilege to buy. It is not a sale of property but a sale of the right to purchase. An option imposes no binding obligation on the person holding the option, aside from the consideration for the offer.

On the other hand, a contract, like a contract to sell, involves the meeting of minds between two persons whereby one binds himself with respect to the other, to give something or to render some service. Contracts, in general, are reflected by mere consent, which is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute.

In this case, the receipt readily shows that the parties entered into was a contract of option, which respondent spouses agreed with petitioner the right to buy the former’s property at a fixed price within 10-days, and did not sell their property; they did not also agree to sell it; but they sold something, and the agreement imposed no binding obligation on petitioner, aside from the consideration for the offer.

The consideration of P20k paid by petitioner to respondent spouses was not earnest money but option money.

Earnest money and option money are not the same but distinguished thus:

Earnest money is part of the purchase price, while option money is the money given as a distinct consideration for an option contract;

Earnest money is given only where there is already a sale, while option money applies to a sale not yet perfected;

When earnest money is given, the buyer is bound to pay the balance, while when the would –be buyer gives option money, he is not required to buy, but may even forfeit it depending on the terms of the option.

In this case, there is nothing in the receipt which indicates that the P20k was part of the purchase price. Moreover, it was not shown that there was a perfected sale between the parties where earnest money was given. Finally, the receipt did not reveal that petitioner was bound to pay the balance of the purchase price. In fact, respondent spouses could even forfeit the money given if the terms of the option were not met. The option period having expired and acceptance was not

made by petitioner, the purchase of subject property by Sunvar was perfectly valid and entered into in good faith.

(from: Erwin Vicente)

BAR 1996, 1998A gave B an option to purchase his apartment for

P5MB offered to buy for P4.5 MCounter-offer was not acceptable to AA sold to C who bought it at P5 MCan B compel A to cancel sale to C and execute

deed in his favor?

ANSWER B cannot compel A to execute a deed in his

favor because what B only had was an option contract. Said contract was not a valid one since it was not supported by a consideration distinct from the purchase price.

Even if with consideration, B can only sue A for damages but not for specific performance

Ang Yu Asuncion vs CA reiterated in Equitorial vs Mayfair

An option or an offer would require, among other things, a clear certainty on both the object and the cause or consideration of the envisioned contract. In a right of first refusal, while the object might be made determinate, the exercise of the right, however, would be dependent not only on the grantor's eventual intention to enter into a binding juridical relation with another but also on terms, including the price, that obviously are yet to be later firmed up. Prior thereto, it can at best be so described as merely belonging to a class of preparatory juridical relations governed not by contracts (since the essential elements to establish the vinculum juris would still be indefinite and inconclusive) but by, among other laws of general application, the pertinent scattered provisions of the Civil Code on human conduct

Even on the premise that such right of first refusal has been decreed under a final judgment, like here, its breach cannot justify correspondingly an issuance of a writ of execution under a judgment that merely recognizes its existence, nor would it sanction an action for specific performance without thereby negating the indispensable element of consensuality in the perfection of contracts. It is not to say, however, that the right of first refusal would be inconsequential for, such as already intimated above, an unjustified disregard thereof, given, for instance, the circumstances expressed in Article 19 of the Civil Code, can warrant a recovery for damages.

So that is the reason why you can only ask for damages and not specific performance

BAR 2002 If the parties entered into an option contract

which is supported by a separated consideration from the purchase price and the option contract is not respected, can the would-be-buyer ask for specific performance?



Can the seller escape liability by saying honoring the option contract would be financially disadvantageous to him?

ANSWER An option contract with separate consideration

will only give rise to a case for damages and not for specific performance.

Seller cannot escape liability by claiming economic lesion since seller who enters into an option contract has the obligation to sustain offer until the end of agreed period.

Right to enter into contractual relations is an ABSOLUTE right, meaning, you cannot be forced to enter into contract. You cannot be compelled to do something against your will.

RIGHT OF FIRST REFUSAL

Contract or a stipulation in a contract which grants a person the right to buy a property before it is offered to another. This doesn’t need a separate consideration since such stipulation is part and parcel of the entire contract. Therefore, what is deemed to be the consideration of the sale is also the consideration of the right of first refusal.

“KATUNGOD NA UNA MUBALIBAD”

This is usually present if you are the lessee.

RIGHT OF FIRST REFUSAL If

offeree and offerror’s terms are IDENTICAL offeror violates the agreement SPECIFIC PERFORMANCE

If offeree and offerror’s terms are DIFFERENT offeror violates the agreement DAMAGES

Status of the contract of sale: if there is uniformity in terms and conditions between the owner and the lessee, but the owner sells it to another, the contract of sale is rescissible.

Right of first refusal contained in a lease, when breached by promissor allows enforcement by the promisee by way of rescission of the sale entered into with the third party, pursuant to Arts. 1381(3) and 1385 of Civil Code. Guzman, Bocaling & Co. v. Bonnevie, 206 SCRA 668 (1992)

Right of First Refusal; Lessee; Effect (1996)

Ubaldo is the owner of a building which has been leased by Remigio for the past 20 years. Ubaldo has repeatedly assured Remigio that if he should decide to sell the building, he will give Remigio the right of first refusal. On June 30, 1994, Ubaldo informed Remigio that he was willing to sell the building for P5 Million. The following day, Remigio sent a letter to Ubaldo offering to buy the building at P4.5 Million. Ubaldo did not reply. One week later, Remigio received a letter from Santos informing him that the building has been sold to him by Ubaldo for P5 Million, and that he will not renew Remigio's lease when it expires. Remigio filed an action against Ubaldo and Santos for cancellation of the sale, and to compel Ubaldo to

execute a deed of absolute sale in his favor, based on his right of first refusal.

a. Will the action prosper? Explain. b. If Ubaldo had given Remigio an option to

purchase the building instead of a right of first refusal, will your answer be the same? Explain.

SUGGESTED ANSWER:

No, the action to compel Ubaldo to execute the deed of absolute sale will not prosper. According to Ang Yu v. Court of Appeals (238 SCRA 602), the right of first refusal is not based on contract but is predicated on the provisions of human relations and, therefore, its violation is predicated on quasi-delict. Secondly, the right of first refusal implies that the offer of the person in whose favor that right was given must conform with the same terms and conditions as those given to the offeree. In this case, however, Remigio was offering only P4.5 Million instead of P5 Million.

ALTERNATIVE ANSWER:

No, the action will not prosper. The lessee's right of first refusal does not go so far as to give him the power to dictate on the lessor the price at which the latter should sell his property. Upon the facts given, the lessor had sufficiently complied with his commitment to give the lessee a right of first refusal when he offered to sell the property to the lessee for P5 Million, which was the same price he got in selling it to Santos. He certainly had the right to treat the lessee's counter-offer of a lesser amount as a rejection of his offer to sell at P5 Million. Thus, he was free to find another buyer upon receipt of such unacceptable counter-offer (Art. 1319. NCC).

SUGGESTED ANSWER:

Yes, the answer will be the same. The action will not prosper because an option must be supported by a consideration separate and distinct from the purchase price. In this case there is no separate consideration. Therefore, the option may be withdrawn by Ubaldo at any time. (Art. 1324, NCC)

RIGHT OF FIRST REFUSAL

A owns a house which is leased to B

B was given the right of first refusal - P5M

B offered to buy for P4.5 M - not acceptable counter-offer

A sold the house to C for P5 M

Can B compel A to cancel the sale with C and sell the house to him?

ANSWER B cannot compel A to execute a deed of sale in

his favor because B’s counter-offer is not the same as A’s price.

However, since there was a breach of the right of first refusal since the property was not sold to B as the lessee, B may file a case for damages.


Title remains in the vendor and he can eject vendee for non-compliance with suspensive condition

Vendor has lost control and can recover only if K is rescinded

Full payment is a positive resolutory condition

Non-payment is a negative resolutory condition

Vendor reserves ownership and will not pass until full payment of price

Title passes to the buyer upon delivery of SM


CONTRACT TO SELL Bilateral contract whereby the prospective

seller, while expressly reserving the ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to sell the said property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of the purchase price.

Take note again: Contract to sell is different from conditional sale

CONTRACT TO SELL IS NOT A CONTRACT OF SALE The first essential element of consent of parties is

ABSENT The seller does not consent to transfer

ownership to the buyer until the happening of an event, which may be the full payment of price which is a suspensive condition, the non-fulfillment of which prevents the obligation from arising (Coronel v. CA, Oct. 7,1996)

CONTRACT OF SALE V. CONTRACT TO SELL

CONTRACT TO SELL IS NOT A CONDITIONAL SALE In a conditional sale, the first element of

consent is present although it is conditioned on the happening of an event.

There is no consent to transfer ownership in a contract to sell

In the case of Ventura vs Spouses Endaya:

A contract to sell is defined as a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to sell the said property exclusively to the latter upon his fulfillment of the conditions agreed upon, i.e., the full payment of the purchase price and/or compliance with the other obligations stated in the contract to sell. Given its contingent nature, the failure of the prospective buyer to make full payment and/or abide by his commitments stated in the contract to sell prevents the obligation of the prospective seller to execute the corresponding deed of sale to effect the transfer of ownership to the buyer from arising. As discussed in Sps. Serrano and Herrera v. Caguiat:

A contract to sell is akin to a conditional sale where the efficacy or obligatory force of the vendor's obligation to transfer title is subordinated to the happening of a future and uncertain event, so that if the suspensive condition does not take place, the parties would stand as if the conditional obligation had never existed. x x x.

To note, while the quality of contingency inheres in a contract to sell, the same should not be confused with a conditional contract of sale. In a contract to sell, the fulfillment of the suspensive condition will not automatically transfer ownership to the buyer although the property may have been previously delivered to him. The prospective seller still has to convey title to the prospective buyer by entering into a contract of absolute sale. On the other hand, in a conditional contract of sale, the fulfillment of the suspensive condition renders the sale absolute and the previous delivery of the property has the effect of automatically transferring the seller’s ownership or title to the property to the buyer

2012 BAR

a) A contract to sell is the same as a conditional contract of sale. Do you agree? Explain your answer. (5%)

Of course, you disagree. So you have to master distinctions here

CORONEL V. CA “Receipt of Downpayment” contains the ff:

Juan has given Maria P50,000 as downpayment for a lot of Maria

Since the lot is under the name of Maria’s father who is deceased, Maria will have the lot transferred under her name

After Maria has the TCT in her name, she will execute a deed of sale

Juan will then pay the balance of P1,119,000

Maria sold the lot to Pedro Can Juan sue Maria for specific

performance? Contract to sell or conditional sale?

ANSWER: Conditional sale Receipt shows that Maria intended to transfer

title to Juan if not for the fact that lot was still under the name of Maria’s father

Maria did not reserve title to the lot and agreed to execute a deed of absolute sale in the name of Juan

Juan can sue for specific performance with damages

CORONEL vs CA (263 S 15 – October 7, 1996)

FACTS:This case has its roots in a complaint for specific performance to compel herein petitioners to consummate the sale of a parcel of land with its improvements located along Roosevelt Ave., QC entered in to by the parties sometime in January 1985 for the price of P1,240,000.00.

On January 19, 1985, Coronel, et. al executed a document entitled “Receipt of Down Payment” in favor of plaintiff Ramona Patricia Alcaraz after plaintiff-appellee Concepcion Alcaraz, mother of Ramona, paid the down payment of P50,000.00. However, on February 18, 1985, the Coronels sold the property to



intervenor-appellant Catalina Mabanag for P1,580,000.00 after the latter has paid P300,000.00. For this reason, Coronels cancelled and rescinded the contract with Ramona by depositing the down payment paid in the bank in trust for Ramona.

On February 22, 1985, Concepcion, et.al filed a complaint for specific performance against the Coronels.

RTC-QC rendered judgment favorable to Concepcion and ordered the cancellation of sale to Mabanag. Concepcion’s Motion for Reconsideration was denied; hence an appeal was made to Ca which affirmed RTC’s decision.

Hence, this petition where Concepcion contended that the “Receipt of Down Payment” embodied a perfected contract of sale, while Coronels insisted that what the document signified was a mere executory contract to sell, subject to certain suspensive conditions, and because of the absence of Ramona, who left for the USA, said contract could not possibly ripen into a contract of absolute sale.

ISSUE: WON the “Receipt of Down Payment” was a binding contract of sale? (contract of sale vs. contract to sell; contract to sell and conditional contract of sale)

RULING: The document entitled “Receipt of Down Payment” which was offered in evidence by both the parties embodied the binding contract between Ramona and the Coronels, pertaining to a particular house and lot.

Art. 1305. A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or render some service.

Art. 1458. by the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefore a price certain in money or its equivalent.

Sale, by its very nature, is a consensual contract because it is perfected by mere consent. The essential elements of a contract of sale are the following:

Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price;

Determinate subject matter; and

Price certain in money or its equivalent.

Contract to sell may not be considered as a Contract of Sale because the first essential element is lacking. In Contract to Sell, the prospective seller explicitly reserves the transfer of title to the prospective buyer, meaning, the prospective seller does not as yet agree or consent to transfer ownership of property subject of the contract to sell until the happening of an event, which for present purposes we shall take as the full payment of the purchase price.

What the seller agrees or obliges himself to do is to fulfill his promise to sell the subject property when the entire amount of the purchase price is delivered to him. In other words, the full payment of the purchase price partakes of a suspensive condition, the non-fulfillment of which prevents the obligation to sell from arising and thus, ownership is retained by the prospective seller without further remedies by the prospective buyer.

A Contract to Sell may thus be defined as a bilateral contract whereby the prospective seller while expressly reserving the ownership of the subject property despite deliver thereof to the prospective buyer, binds himself to sell the property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that is full payment of the purchase price.

In a contract to sell, upon the fulfillment of the suspensive condition which is the full payment of the purchase price, ownership will not automatically transfer to the buyer although the property may have been previously delivered to him. The prospective seller still has to convey the title to the prospective buyer by entering into a contract of absolute sale.

In conditional contract of sale, however, upon the fulfillment of the suspensive condition, the sale becomes absolute and this will definitely affect the seller’s title thereto. In fact, if there had been previous delivery of the subject property, the seller’s ownership or title to the property is automatically transferred to the buyer such that, the seller will no longer have nay title to transfer to any third person. Applying Art. 1544 of the CC, such second buyer of the property who may have had actual or constructive knowledge of such defect in the seller’s title, or atleast was charged with the obligation to discover such defect, cannot be a registrant in good faith. Such second buyer cannot defeat the first buyer’s title. In case the title is issued to the second buyer, the first buyer may seek reconveyance of the property subject of the sale.

When the “Receipt of Down Payment” is considered in its entirety, it becomes more manifest that there was a clear intent on the part of petitioners to transfer title to the buyer, but since the Transfer Certificate of Title (TCT) was still in the name of petitioner’s father, they could not fully effect such transfer although the buyer was then willing and able to immediately pay the purchase price.

The agreement could not have been a contract to sell because the seller herein made no express reservation of ownership or title to the subject parcel of land.

What is clearly established by the plain language of the subject document is that when the said “Receipt of Down Payment” was prepared and signed by petitioners Romeo Coronel, et. al, the parties had agreed to a conditional contract of sale, consummation of which is subject only to the successful transfer of the certificate of title from the name of petitioner’s father, Constancio Coronel, to their names.

Since the condition contemplated by the parties which is the issuance of a certificate of title in



petitioner’s name was fulfilled on February 6,19854, the respective obligations of the parties under the contract of sale became mutually demandable, that is, petitioners, as sellers, were obliged to present the transfer certificate of title already in their names to private respondent Ramona Alcaraz, the buyer, and to immediately execute the Deed of Absolute Sale, while the buyer on her part, was obliged to forthwith pay the balance of the purchase price amounting to P1,190,000.00.

(Jazzie Sarona )

BAR 1997 Compare a conditional sale from an absolute

sale

ANSWER An absolute sale is a contract where the seller

has transferred ownership over a property to the buyer and the latter has given the seller the full consideration for the sale

A conditional sale is likewise a contract of sale where the seller agrees to transfer ownership to the buyer, however, subject to the happening of suspensive condition.

SECOND PHASE - PERFECTION

What do you think is the shortest stage in the stages of a contract? It’s the perfection because it happens upon the meeting of the minds.

WHAT HAPPENS

“meeting of the minds” “consent” – offer must be certain and acceptance absolute meeting of offer and acceptance

qualified acceptance is merely a counter-offer which in turn must be absolutely accepted to give rise to a valid and binding contract

Article 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer.

Acceptance made by letter or telegram does not bind the offerer except from the time it came to his knowledge. The contract, in such a case, is presumed to have been entered into in the place where the offer was made. (1262a)

If A is selling his property for P 5M and B is willing to pay P 4M for it, there is no meeting of the minds. The counter-offer has to be accepted by the seller before we can say that there is a meeting of the minds

WHAT HAPPENS acceptance by letter / telegram – becomes

effective from the time acceptance comes to the knowledge of offeror

earnest money – considered part of the price and proof of the perfection of a contract

If you sell your laptop for P 60T and buyer will inform you, through e-mail that he will buy it for P60T, there is perfection if you get the acceptance of the buyer. If you did not open your inbox to read the buyer’s acceptance, there is no perfection of the contract of sale.

SECOND PHASE: PERFECTION

An earnest payment is a specific form of security deposit to demonstrate an earnest of good faith about wanting to complete the transaction. In ancient times, the earnest payment was called variously an earnest penny, Aries penny, or God's silver (in Latin Argentum Dei ). It was either money or a valuable coin or token given to bind a bargain, notably for the purchase or hiring of a servant.

What is the treatment of earnest money in the Civil Code?

Article 1482. Whenever earnest money is given in a contract of sale, it shall be considered as part of the price and as proof of the perfection of the contract. (1454a)

When can you say that it is earnest and not option contract?

It depends,

If given during the negotiation stage, it is not earnest but mere guaranty for buyer not to back out.

If given during the perfection stage, it is earnest money and therefore, proof of the perfection of the contract.

If it a means to reserve the property for the prospect fo a future transaction, the rules on option will apply.

Adelfa Properties vs CA

There are clear distinctions between earnest money and option money, viz.:

(a) earnest money is part of the purchase price, while option money ids the money given as a distinct consideration for an option contract;

(b) earnest money is given only where there is already a sale, while option money applies to a sale not yet perfected; and


Earnest Money Option Money

Part of the purchase price Distinct and separate from the purchase price

Presupposes perfected contract of sale

No perfected contract of sale yet

Buyer is bound to pay the balance after the earnest money is paid

Optioner is not required to pay

Prima facie evidence of the perfected contract

Perfection of the option contract only

http://en.wikipedia.org/wiki/Financial_transaction

http://en.wikipedia.org/wiki/Exonumia

http://en.wikipedia.org/wiki/Coin

http://en.wikipedia.org/wiki/Latin

http://en.wikipedia.org/wiki/Aries_(astrology)#Mythology

http://en.wikipedia.org/wiki/Good_faith_(law)


(c) when earnest money is given, the buyer is bound to pay the balance, while when the would-be buyer gives option money, he is not required to buy.

Sir

(d) Earnest money is merely creates disputable presumption of the contract of sale. In option, payment is evidence of a contract of privilege to buy at a certain property at a certain price and for a certain period,

(e) Earnest Money can be recovered if there is stipulation. Option Money, cannot be recovered unless stipulated.

(f)The payment of Earnest Money would mean that it is partially executed hence, Statute of frauds will not apply while OM as a consideration is not governed by Statute of frauds.

BAR 2006

Biong and Linda are spouses who own real property.

Ray prepared a deed of sale and a manager’s check for P2 M.

After receiving the P2M, Biong signed the deed of sale but Linda was abroad

When Linda returned, she refused to sign since she changed her mind.

Linda filed a case to nullify the sale and for damages against Ray

Will the case prosper?

ANSWER Linda’s case to annul the sale will not prosper

since all the elements of a perfected contract of sale are present.

When the couple’s offer was accepted by Ray and the acceptance was made known to the couple, there was already a perfected contract of sale. Absent any ground to annul, Linda’s action will not prosper

BAR 2013

Sergio is the registered owner of a 500-square meter land. His friend, Marcelo, who has long been interested in the property, succeeded in persuading Sergio to sell it to him. On June 2, 2012, they agreed on the purchase price of P600,000 and that Sergio would give Marcelo up to June30, 2012 within which to raise the amount. Marcelo, in a light tone usual between them, said that they should seal their agreement through a case of Jack Daniels Black and P5,000 "pulutan" money which he immediately handed to Sergio and which the latter accepted. The friends then sat down and drank the first bottle from the case of bourbon.

On June 15, 2013, Sergio learned of another buyer, Roberto, who was offering P800,000 in ready cash for the land. When Roberto confirmed that he could pay in cash as soon as Sergio could get the documentation ready, Sergio decided to withdraw his offer to Marcelo, hoping to just explain matters to his friend. Marcelo, however, objected when the withdrawal was communicated to him, taking the position that they have a firm and binding agreement that Sergio cannot simply walk away from because he has an option to buy that is duly supported by a duly accepted valuable consideration.

(A) Does Marcelo have a cause of action against Sergio? (5%)

(B) Can Sergio claim that whatever they might have agreed upon cannot be enforced because any agreement relating to the sale of real property must be supported by evidence in writing and they never reduced their agreement to writing? (3%)

Suggested Answer:

A. Yes Marcelo has a cause of action against Sergio because there existed an option to buy through the payment of pulutan money. Applying Ang Yu case, Marcelo has a cause of action for damages.

B. Yes Sergio can claim that whatever they might have agreed upon cannot be enforced because any agreement relating to the sale of real property must be supported by evidence in writing and they never reduced their agreement to writing. The SOF provides that any sale of real property or interest must be in writing to be enforceable.

Atty. Espejo’s Answer :

A. Yes, Marcelo has a cause of action there exist a perfected contract of sale for the following reasons:

There is already a meeting of the minds. There was acceptance of the thing and the cause which are to constitute the contract. The fact that Marcelo is given a period is not the duration of the option to buy but the period within which to pay the consideration of the contract itself.

Based on the facts, the parties sealed their agreement by the payment of P5,000 pulutan money. It is submitted that this constitute earnest money which is proof of the contract between the parties.

B. No Sergio cannot claim that whatever they might have agreed upon cannot be enforced because any agreement relating to the sale of real property must be supported by evidence in writing. In effect, Sergio is claiming that any sale of real property or interest therein must be in writing to be enforceable. However, jurisprudence dictates that SOF only applies to executor and not to executed or partially executed contracts.

In this case, there is already payment which takes it out of the purview of statute of frauds.

BAR 2012

Which of the following statements is correct?

a) Offers in interrelated contracts are perfected upon consent.

b) Offers in interrelated contracts require a single acceptance.

c) Business advertisements are definite offers that require specific acceptance.

d) Advertisements for Bidders are only invitations to make proposals and the



advertiser is not bound to accept the highest/lowest bidder, unless it appears otherwise.

FORM OF SALES

Subject to the provision of statute of fraud, a contract of sale may be made in writing, by word of mouth or partly in writing and party by word of mouth or may be inferred from the conduct of the parties.

General Rule: no form required Exception: a) statute of frauds (Art 1403 and 1405) b) sale of realty through agent

ARTICLE 1403. The following contracts are unenforceable, unless they are ratified:

(1) Those entered into in the name of another person by one who has been given no authority or legal representation, or who has acted beyond his powers;

(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum, thereof, be in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement cannot be received without the writing, or a secondary evidence of its contents:

(a) An agreement that by its terms is not to be performed within a year from the making thereof;

(b) A special promise to answer for the debt, default, or miscarriage of another;

(c) An agreement made in consideration of marriage, other than a mutual promise to marry;

(d) An agreement for the sale of goods, chattels or things in action, at a price not less than five hundred pesos, unless the buyer accept and receive part of such goods and chattels, or the evidences, or some of them, of such things in action or pay at the time some part of the purchase money; but when a sale is made by auction and entry is made by the auctioneer in his sales book, at the time of the sale, of the amount and kind of property sold, terms of sale, price, names of the purchasers and person on whose account the sale is made, it is a sufficient memorandum;

(e) An agreement of the leasing for a longer period than one year, or for the sale of real property or of an interest therein;

(f) A representation as to the credit of a third person.

(3) Those where both parties are incapable of giving consent to a contract.

ARTICLE 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of Article 1403, are ratified

by the failure to object to the presentation of oral evidence to prove the same, or by the acceptance of benefit under them.

STATUTE OF FRAUDS 1403(2) UNENFORCEABLE unless in writing:

Sale agreement which is not to be performed within 1 year from making of agreement

Agreement for sale of goods, chattels or movables valued at P500 or more

Sale of real property or any interest therein

Article 1878. Special powers of attorney are necessary in the following cases:

(1) To make such payments as are not usually considered as acts of administration;

(2) To effect novations which put an end to obligations already in existence at the time the agency was constituted;

(3) To compromise, to submit questions to arbitration, to renounce the right to appeal from a judgment, to waive objections to the venue of an action or to abandon a prescription already acquired;

(4) To waive any obligation gratuitously;

(5) To enter into any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration;

(6) To make gifts, except customary ones for charity or those made to employees in the business managed by the agent;

(7) To loan or borrow money, unless the latter act be urgent and indispensable for the preservation of the things which are under administration;

(8) To lease any real property to another person for more than one year;

(9) To bind the principal to render some service without compensation;

(10) To bind the principal in a contract of partnership;

(11) To obligate the principal as a guarantor or surety;

(12) To create or convey real rights over immovable property;

(13) To accept or repudiate an inheritance;

(14) To ratify or recognize obligations contracted before the agency;

(15) Any other act of strict dominion. (n)

Yoshizaki vs Joy Training Center of Aurora

As a general rule, a contract of agency may be oral. However, it must be written when the law requires a



specific form. Specifically, Article 1874 of the Civil Code provides that the contract of agency must be written for the validity of the sale of a piece of land or any interest therein. Otherwise, the sale shall be void. A related provision, Article 1878 of the Civil Code, states that special powers of attorney are necessary to convey real rights over immovable properties.

The special power of attorney mandated by law must be one that expressly mentions a sale or that includes a sale as a necessary ingredient of the authorized act. We unequivocably declared in Cosmic Lumber Corporation v. Court of Appeals that a special power of attorney must express the powers of the agent in clear and unmistakable language for the principal to confer the right upon an agent to sell real estate. When there is any reasonable doubt that the language so used conveys such power, no such construction shall be given the document. The purpose of the law in requiring a special power of attorney in the disposition of immovable property is to protect the interest of an unsuspecting owner from being prejudiced by the unwarranted act of another and to caution the buyer to assure himself of the specific authorization of the putative agent.

BAR 2012

Which of the following contracts is void?

a) An oral sale of a parcel of land.

b) A sale of land by an agent in a public instrument where his authority from the principal is oral.

c) A donation of a wrist watch worth P 4,500.00.

d) A relatively simulated contract.

Which of the following contracts of sale is void?

a) Sale of EGM’s car by KRP, EGM’s agent, whose authority is not reduced into writing.

b) Sale of EGM’s piece of land by KRP, EGM’s agent, whose authority is not reduced into writing.

c) Sale of EGM’s car by KRP, a person stranger to EGM, without EGM’s consent or authority.

d) Sale of EGM’s piece of land by KRP, a person stranger to EGM, without EGM’s consent or authority.

Aligada orally offered to sell his two-hectare rice land to Balane for P 10Million. The offer was orally accepted. By agreement, the land was to be delivered (through execution of a notarized Deed of Sale) and the price was to be paid exactly one-month from their oral agreement. Which statement is most accurate?

a) If Aligada refuses to deliver the land on the agreed date despite payment by Balane, the latter may not successfully sue Aligada because the contract is oral.

b) If Aligada refused to deliver the land, Balane may successfully sue for fulfillment of the obligation even if he has not tendered payment of the purchase price.

c) The contract between the parties is rescissible.

d) The contract between the parties is subject to ratification by the parties.

THIRD PHASE: CONSUMMATION and PERFORMANCE

Obligations of the Seller Obligations of the Buyer Double Sales Sale by non-owner Sale by one having voidable title

Obligations of the seller

Preserve the thing (1163) Deliver the subject matter

ARTICLE 1163. Every person obliged to give something is also obliged to take care of it with the proper diligence of a good father of a family, unless the law or the stipulation of the parties requires another standard of care. (1094a)

Why Deliver?

Ownership is transferred to the buyer upon actual or constructive delivery (1477)

ownership of SM is acquired by the vendee from the moment it is delivered to him in any of the ways specified in articles 1497-1501 (1496)

ARTICLE 1477. The ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof. (n)

ARTICLE 1496. The ownership of the thing sold is acquired by the vendee from the moment it is delivered to him in any of the ways specified in Articles 1497 to 1501, or in any other manner signifying an agreement that the possession is transferred from the vendor to the vendee. (n)

ARTICLE 1497. The thing sold shall be understood as delivered, when it is placed in the control and possession of the vendee. (1462a)

ARTICLE 1498. When the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred.

With regard to movable property, its delivery may also be made by the delivery of the keys of the place or depository where it is stored or kept. (1463a)



ARTICLE 1499. The delivery of movable property may likewise be made by the mere consent or agreement of the contracting parties, if the thing sold cannot be transferred to the possession of the vendee at the time of the sale, or if the latter already had it in his possession for any other reason. (1463a)

ARTICLE 1500. There may also be tradition constitutum possessorium. (n)

ARTICLE 1501. With respect to incorporeal property, the provisions of the first paragraph of article 1498 shall govern. In any other case wherein said provisions are not applicable, the placing of the titles of ownership in the possession of the vendee or the use by the vendee of his rights, with the vendor's consent, shall be understood as a delivery. (1464)

Delivered but no transfer of ownership?

1478 – parties may stipulate that ownership shall not pass to the buyer until he has fully paid

Article 1478. The parties may stipulate that ownership in the thing shall not pass to the purchaser until he has fully paid the price. (n)

Types of Delivery

Physical Delivery (1497) – when the SM is placed in the possession and control of the vendee

Constructive delivery- IMMOVABLES

sale through public instrument, execution of instrument = delivery if the contrary does not appear in the deed (1498)

Placing the title of ownership in vendee’s possession with vendor's consent (1501)

Constructive delivery-MOVABLES

delivery of the keys or depository where it is stored (1498)

tradition longa manu - delivery by consent of the parties if SM cannot be transferred to buyer at the time of sale or the buyer already had possession before sale (1499)

Constitutum Possessorium (Art. 1500) – A provision in the deed of sale granting to seller a right to lease the subject matter of the sale is valid: the possession is deemed to be constituted in the vendee by virtue of this mode of tradition.” Amigo v. Teves, 96 Phil. 252 (1954).

Traditio Brevi Manu – Prior to the sale, petitioners were in possession of the subject property as lessees. Upon sale to them of the rights, interests and participation as to the ½ portion pro indiviso, they remained in possession, not in the concept of lessees anymore but as owners now through symbolic delivery known as traditio brevi manu. Heirs of Pedro Escanlar v. CA, 281 SCRA 176 (1997).

person to whom negotiable document of title has been negotiated acquires the right of person to whom delivery shall be made by the terms of the document (1513)

ARTICLE 1513. A person to whom a negotiable document of title has been duly negotiated acquires thereby:

(1) Such title to the goods as the person negotiating the document to him had or had ability to convey to a purchaser in good faith for value and also such title to the goods as the person to whose order the goods were to be delivered by the terms of the document had or had ability to convey to a purchaser in good faith for value; and

(2) The direct obligation of the bailee issuing the document to hold possession of the goods for him according to the terms of the document as fully as if such bailee had contracted directly with him. (n)

Documents of Title

Bill of lading, dock warrant, quedan, warehouse receipt or any document used in the ordinary course of business in the sale or transfer of goods as proof of possession and control or authorizing or purporting to authorize the possessor of the document to transfer or receive either by endorsement or delivery the goods covered by the document (1636)

ARTICLE 1636. In the preceding articles in this Title governing the sale of goods, unless the context or subject matter otherwise requires:

(1) "Document of title to goods" includes any bill of lading, dock warrant, "quedan," or warehouse receipt or order for the delivery of goods, or any other document used in the ordinary course of business in the sale or transfer of goods, as proof of the possession or control of the goods, or authorizing or purporting to authorize the possessor of the document to transfer or receive, either by endorsement or by delivery, goods represented by such document.

"Goods" includes all chattels personal but not things in action or money of legal tender in the Philippines. The term includes growing fruits or crops.

"Order" relating to documents of title means an order by endorsement on the documents.

"Quality of goods" includes their state or condition.

"Specific goods" means goods identified and agreed upon at the time a contract of sale is made.

An antecedent or pre-existing claim, whether for money or not, constitutes "value" where goods or documents of title are taken either in satisfaction thereof or as security therefor.

(2) A person is insolvent within the meaning of this Title 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.

(3) Goods are in a "deliverable state" within the meaning of this Title when they are in such a state that



the buyer would, under the contract, be bound to take delivery of them. (n)

Documents of Title – Purpose

Evidence of control and possession or control of goods described

Medium of transferring possession and control of goods described without having to undertake actual delivery

Types of Documents of Title

Negotiable – states that goods will be delivered to bearer or to the order of one person

Non-Negotiable- does not state that the goods referred to therein will be delivered to the bearer or the order of any person

Delivery through Carrier

1523 - delivery of goods to the carrier is deemed delivery of goods to the buyer

ARTICLE 1523. Where, in pursuance of a contract of sale, the seller is authorized or required to send the goods to the buyer, delivery of the goods to a carrier, whether named by the buyer or not, for the purpose of transmission to the buyer is deemed to be a delivery of the goods to the buyer, except in the case provided for in Article 1503, first, second and third paragraphs, or unless a contrary intent appears.

Unless otherwise authorized by the buyer, the seller must make such contract with the carrier on behalf of the buyer as may be reasonable, having regard to the nature of the goods and the other circumstances of the case. If the seller omit so to do, and the goods are lost or damaged in course of transit, the buyer may decline to treat the delivery to the carrier as a delivery to himself, or may hold the seller responsible in damages.

Unless otherwise agreed, where goods are sent by the seller to the buyer under circumstances in which the seller knows or ought to know that it is usual to insure, the seller must give such notice to the buyer as may enable him to insure them during their transit, and, if the seller fails to do so, the goods shall be deemed to be at his risk during such transit. (n)

F.A.S. sales - seller pays all charges and is subject to all risks until the goods are places alongside the vessel

F.O.B. sales - “free on board” seller shall bear all expenses until the goods are delivered whether at the point of shipment or the point of destination

C.I.F. sales - “cost, insurance & freight” price covers cost of goods and freight and insurance costs paid by the seller

Accessory Obligations

Delivery of the fruits

Article 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)

Article 1164. The creditor has a right to the fruits of the thing from the time the obligation to deliver it arises. However, he shall acquire no real right over it until the same has been delivered to him. (1095)

Warranty of the thing sold

Express Warranty

Article 1546. Any affirmation of fact or any promise by the seller relating to the thing is an express warranty if the natural tendency of such affirmation or promise is to induce the buyer to purchase the same, and if the buyer purchases the thing relying thereon. No affirmation of the value of the thing, nor any statement purporting to be a statement of the seller's opinion only, shall be construed as a warranty, unless the seller made such affirmation or statement as an expert and it was relied upon by the buyer. (n)

Implied Warranties

Article 1547. In a contract of sale, unless a contrary intention appears, there is:

(1) An implied warranty on the part of the seller that he has a right to sell the thing at the time when the ownership is to pass, and that the buyer shall from that time have and enjoy the legal and peaceful possession of the thing;

(2) An implied warranty that the thing shall be free from any hidden faults or defects, or any charge or encumbrance not declared or known to the buyer.

This article shall not, however, be held to render liable a sheriff, auctioneer, mortgagee, pledgee, or other person professing to sell by virtue of authority in fact or law, for the sale of a thing in which a third person has a legal or equitable interest. (n)

Seller Has Right to Sell Warranty Against Eviction (Arts. 1548-1560)

1. Buyer is Evicted in whole or in part from the

subject matter of sale

2. Final Judgment

3. Basis of eviction is a right Prior to sale or act

imputable to seller

4. Seller has been Summoned in the suit for

eviction at the instance of buyer; or made 3rd

party defendant through 3rd party complaint

brought by buyer



5. No waiver on the part of the buyer Note: For

eviction – disturbance in law is required and

not just trespass in fact.

d. Warranty Against Hidden Defects (Arts. 1561-1580)

Article 1561. The vendor shall be responsible for warranty against the hidden defects which the thing sold may have, should they render it unfit for the use for which it is intended, or should they diminish its fitness for such use to such an extent that, had the vendee been aware thereof, he would not have acquired it or would have given a lower price for it; but said vendor shall not be answerable for patent defects or those which may be visible, or for those which are not visible if the vendee is an expert who, by reason of his trade or profession, should have known them. (1484a)

Article 1566. The vendor is responsible to the vendee for any hidden faults or defects in the thing sold, even though he was not aware thereof.

This provision shall not apply if the contrary has been stipulated, and the vendor was not aware of the hidden faults or defects in the thing sold. (1485)

REMEDY

Article 1567. In the cases of articles 1561, 1562, 1564, 1565 and 1566, the vendee may elect between withdrawing from the contract and demanding a proportionate reduction of the price, with damages in either case. (1486a)

Action quanti minoris

Warranty for redhibitory defects

Article 1576. If the hidden defect of animals, even in case a professional inspection has been made, should be of such a nature that expert knowledge is not sufficient to discover it, the defect shall be considered as redhibitory.

But if the veterinarian, through ignorance or bad faith should fail to discover or disclose it, he shall be liable for damages. (1495)

Redhibitory does not refer to the defect but it refers to the nature of the remedy given by law.

OBLIGATIONS OF THE BUYER

Pay price of thing sold (1582) Accept delivery of thing sold (1582-

1585) Pay expenses of delivery

ARTICLE 1582. The vendee is bound to accept delivery and to pay the price of the thing sold at the time and place stipulated in the contract.

If the time and place should not have been stipulated, the payment must be made at the time and place of the delivery of the thing sold. (1500a)

ARTICLE 1583. Unless otherwise agreed, the buyer of goods is not bound to accept delivery thereof by installments.

Where there is a contract of sale of goods to be delivered by stated installments, which are to be separately paid for, and the seller makes defective deliveries in respect of one or more instalments, or the buyer neglects or refuses without just cause to take delivery of or pay for one more instalments, it depends in each case on the terms of the contract and the circumstances of the case, whether the breach of contract is so material as to justify the injured party in refusing to proceed further and suing for damages for breach of the entire contract, or whether the breach is severable, giving rise to a claim for compensation but not to a right to treat the whole contract as broken. (n)

ARTICLE 1584. Where goods are delivered to the buyer, which he has not previously examined, he is not deemed to have accepted them unless and until he has had a reasonable opportunity of examining them for the purpose of ascertaining whether they are in conformity with the contract if there is no stipulation to the contrary.

Unless otherwise agreed, when the seller tenders delivery of goods to the buyer, he is bound, on request, to afford the buyer a reasonable opportunity of examining the goods for the purpose of ascertaining whether they are in conformity with the contract.

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

ARTICLE 1585. The buyer is deemed to have accepted the goods when he intimates to the seller that he has accepted them, or when the goods have been delivered to him, and he does any act in relation to them which is inconsistent with the ownership of the seller, or when, after the lapse of a reasonable time, he retains the goods without intimating to the seller that he has rejected them. (n)



Problematic Sales

DOUBLE SALES

Elements

2 or more sales must be valid sales 2 or more sales must pertain to exactly the

same subject 2 buyers must each represent conflicting

interests 2 buyers must each have bought from the

very same seller

Article 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)

Double Sales (2001)

On June 15, 1995, Jesus sold a parcel of registered land to Jaime. On June 30, 1995, he sold the same land to Jose. Who has a better right if:

a. the first sale is registered ahead of the second sale, with knowledge of the latter. Why? (3%)

b. the second sale is registered ahead of the first sale, with knowledge of the latter? Why? (5%)

SUGGESTED ANSWER:

(a) The first buyer has the better right if his sale was first to be registered, even though the first buyer knew of the second sale. The fact that he knew of the second sale at the time of his registration does not make him as acting in bad faith because the sale to him was ahead in time, hence, has a priority in right. What creates bad faith in the case of double sale of land is knowledge of a previous sale.

b) The first buyer is still to be preferred, where the second (2) years, or until 3 June 1973. It is further stated therein sale is registered ahead of the first sale but with knowledge of the latter. This is because the second buyer, who at the time he registered his sale knew that the property had already been sold to someone else, acted in bad faith. (Article 1544, C.C.)

Double Sales (2004)

JV, owner of a parcel of land, sold it to PP. But the deed of sale was not registered. One year later, JV sold the parcel again to RR, who succeeded to register the deed and to obtain a transfer certificate of title over the property in his own name. Who has a better right over

the parcel of land, RR or PP? Why? Explain the legal basis for your answer. (5%)

SUGGESTED ANSWER:

It depends on whether or not RR is an innocent purchaser for value. Under the Torrens System, a deed or instrument operated only as a contract between the parties and as evidence of authority to the Register of Deeds to make the registration. It is the registration of the deed or the instrument that is the operative act that conveys or affects the land. (Sec. 51, P.D. No. 1529).

In cases of double sale of titled land, it is a well-settled rule that the buyer who first registers the sale in good faith acquires a better right to the land. (Art. 1544, Civil Code).

Persons dealing with property covered by Torrens title are not required to go beyond what appears on its face.

(Orquiola v. CA 386, SCRA 301, [2002]; Domingo v. Races 401 SCRA 197, [2003]). Thus, absent any showing that RR knew about, or ought to have known the prior sale of the land to PP or that he acted in bad faith, and being first to register the sale, RR acquired a good and a clean title to the property as against PP.

Kaning last na principle, can you recall this? This is what we call Mirror Principle. Because it seems that in titled lands, the buyer need not go beyond the title of the land. This is on the principle that the certificate mirrors the actual status of the land.

In land titles we have 3 principles:

1. Mirror2. Curtain3. Insurance

Take note in order for article 1544 to apply:

1. Both conveyances must be sales.

It does not apply if one is a mortgage and the other is a sale.

Example:

A sold the land to B. After the sale, A mortgaged the land to C. C with knowledge of the sale, registers the mortgage. Who is preferred? Again, it’s not 1544 because there is a mortgage subsequent to the sale. A is preferred even if C registers the mortgage. Its not a double sale under Article 1544 and it will not give C any preference. 2nd when A mortgage the property, he was no longer the owner. C’s knowledge of the prior sale makes him a mortgagee in bad faith.

2. Both must purport to convey the same subject matter to different vendees in a way that delivery to one of them is impossible.

Example.



On January 14, A sold his car a retro to B. They stipulated that the right to repurchase can be exercised within 1 year from the date of sale. A then sold the same to C, stipulating that the delivery can be made within 1 month. Is there a double sale?

NO. because there is still a chance that A can deliver the car to B. Delivery to B is not impossible thus there is no double sale.

The principle to remember is if delivery is impossible to both transaction, deleivery to one of them is impossible because of the double sales transactions, then article 1544 applies.

3. Both contract must be valid sales where it not for the fact that there had been a double sale. So no double sale is 1 of the contracts is not valid.

X was the owner of an unregistered parcel of land in Cabanatuan City. As she was abroad, she advised her sister Y via overseas call to sell the land and sign a contract of sale on her behalf.

Y thus sold the land to B1 on March 31, 2001 and executed a deed of absolute sale on behalf of X. B1 fully paid the purchase price.

B2, unaware of the sale of the land to B1, signified to Y his interest to buy it but asked Y for her authority from X. Without informing X that she had sold the land to B1, Y sought X for a written authority to sell.

X e-mailed Y an authority to sell the land. Y thereafter sold the land on May 1, 2001 to B2 on monthly installment basis for two years, the first installment to be paid at the end of May 2001.

Who between B1 and B2 has a better right over the land? Explain. (5%)

Answer:

Neither sale is valid. Subject matter here is unregistered land. Sale of unregistered land must appear in public instrument. Also, the authority of an agent to sell must be in writing. Take note

Under PD 1529

Section 113. Recording of instruments relating to unregistered lands. No deed, conveyance, mortgage, lease, or other voluntary instrument affecting land not registered under the Torrens system shall be valid, except as between the parties thereto, unless such instrument shall have been recorded in the manner herein prescribed in the office of the Register of Deeds for the province or city where the land lies.

As an exception to Article 1544, In sales of unregistered land, there must be recording for you to get preference.

Article 1878. Special powers of attorney are necessary in the following cases:

(1) To make such payments as are not usually considered as acts of administration;

(2) To effect novations which put an end to obligations already in existence at the time the agency was constituted;

(3) To compromise, to submit questions to arbitration, to renounce the right to appeal from a judgment, to waive objections to the venue of an action or to abandon a prescription already acquired;

(4) To waive any obligation gratuitously;

(5) To enter into any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration;

(6) To make gifts, except customary ones for charity or those made to employees in the business managed by the agent;

(7) To loan or borrow money, unless the latter act be urgent and indispensable for the preservation of the things which are under administration;

(8) To lease any real property to another person for more than one year;

(9) To bind the principal to render some service without compensation;

(10) To bind the principal in a contract of partnership;

(11) To obligate the principal as a guarantor or surety;

(12) To create or convey real rights over immovable property;

(13) To accept or repudiate an inheritance;

(14) To ratify or recognize obligations contracted before the agency;

(15) Any other act of strict dominion. (n)

Article 1879. A special power to sell excludes the power to mortgage; and a special power to mortgage does not include the power to sell. (n)

Sale by one who is not an owner

Nemo dat quod non habet, literally meaning "no one gives what he doesn't have”

Article 1505. Subject to the provisions of this Title, where goods are sold by a person who is not the owner thereof, and who does not sell them under authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had, unless the owner of the goods is by his conduct precluded from denying the seller's authority to sell.

Nothing in this Title, however, shall affect:

(1) The provisions of any factors' act, recording laws, or any other provision of law enabling the apparent owner of goods to dispose of them as if he were the true owner thereof;



(2) The validity of any contract of sale under statutory power of sale or under the order of a court of competent jurisdiction;

(3) Purchases made in a merchant's store, or in fairs, or markets, in accordance with the Code of Commerce and special laws. (n)

What is the effect? The buyer acquires no title therefrom. So if you are a buyer, as a general rule, you merely step in the shoes of your immediate transferor. If your transferor has a voidable title. Dili pud ka kaacquire ug higher rights. Dili nimo pde lampas an imong transferor. That’s the general rule except sa land titles, sometimes sale by non-owner can lead to a valid title.

Status of contract here is VOID

Jurisprudence

Article 559

Article 559. The possession of movable property acquired in good faith is equivalent to a title. Nevertheless, one who has lost any movable or has been unlawfully deprived thereof, may recover it from the person in possession of the same.

If the possessor of a movable lost or which the owner has been unlawfully deprived, has acquired it in good faith at a public sale, the owner cannot obtain its return without reimbursing the price paid therefor. (464a)

Aznar vs Yapdiangco

ART. 1506. Where the seller of goods has a voidable title thereto, but his, title has not been voided at the time of the sale, the buyer acquires a good title to the goods, provided he buys them in good faith, for value, and without notice of the seller's defect of title.

The contention is clearly unmeritorious. Under the aforequoted provision, it is essential that the seller should have a voidable title at least. It is very clearly inapplicable where, as in this case, the seller had no title at all.

Vicente Marella did not have any title to the property under litigation because the same was never delivered to him. He sought ownership or acquisition of it by virtue of the contract. Vicente Marella could have acquired ownership or title to the subject matter thereof only by the delivery or tradition of the car to him.

Naay Theft so article 559 applies because there is unlawful deprivation.

Exceptions:

1. When the owner is precluded from denying title the sellers authority on account of his action. Herethere is estoppel.

2. When the contrary is provided for in recording clause. ( under the torrens system) teher are cases under the TS that unlawful deprivation/forgery can be a source of valid

title for innocent purchaser for value and in good faith.

3. When sale is made under statury or order of the court. Example foreclosure sale.

4. When the sale is made in Merchant’s store. But this should not relieve the Merchant’s from liability under fencing laws.

Example:

A, a non-owner sells the thing and delivers to buyer. Later, A becomes the owner. Effect: title automatically passes to the buyer although the sale previously not valid is in effect validated.

2005 bar

Rod, the owner of an FX taxi, found in his vehicle anenvelope containing TCT No. 65432 over a lot registered inCesar's name. Posing as Cesar, Rod forged Cesar's signatureon a Deed of Sale in Rod's favor. Rod registered the saiddocument with the Register of Deeds, and obtained a newtitle in his name. After a year, he sold the lot to Don, a buyerin good faith and for value, who also registered the lot in hisname.

a) Did Rod acquire title to the land? Explain. (2%)

SUGGESTED ANSWER:No, Rod did not acquire title to the land. The inscription inthe registry, to be effective, must be made in good faith. Thedefense of indefeasibility of a Torrens Title does not extendto a transferee who takes the certificate of title with notice ofa flaw. A holder in bad faith of a certificate of title is notentitled to the protection of the law, for the law cannot beused as a shield for frauds. (Samonte v. Court of Appeals, G.R.No. 104223, July 12, 2001)

In the case at bar, Rod only forged Cesar's signature on the-Deed of Sale. It is very apparent that there was bad faith onthe part of Rod from the very beginning. As such, he is notentitled to the protection of the Land Registration Act.

b) Discuss the rights of Don, if any, over the property.(2%)SUGGESTED ANSWER:CIVIL LAW Answers to the BAR as Arranged by Topics (Year 1990-2006)It is a well-known rule in this jurisdiction that personsdealing with registered land have the legal right to rely on theface of the Torrens Certificate of Title and to dispense withthe need to inquire further, except when the party concernedhas actual knowledge of facts and circumstances that wouldimpel a reasonably cautious man to make such inquiry.(Naawan Community Rural Bank v. Court of Appeals, G.R. No.



128573, January 13, 2003)In the given problem, the property was already registered inthe name of Rod when he bought the same from the latter.Thus, Don could be considered as a buyer in good faith andfor value. However, since Rod did not actually sell anyproperty to him, Don has no right to retain ownership overthe property. He has only the right to recover the purchaseprice plus damages.

Again the general rule is you merely step into the shoes of your immediate transferor. But in this situation diba the forger has no rights? Is it not? He does not even have any title to the property was registered thru fraud, but the transferee in IFV AND in Good faith can rely the cert of title except when the party concerned has actual knowledge of facts and circumstances that wouldimpel a reasonably cautious man to make such inquiry.

2009

Before migrating to Canada in 1992, the spouses Teodoro and Anita entrusted all their legal papers and documents to their nephew, Atty. Tan. Taking advantage of the situation, Atty. Tan forged a deed of sale, making it appear that he had bought the couple‚Äôs property in Quezon City. In 2000, he succeeded in obtaining a TCT over the property in his name. Subsequently, Atty. Tan sold the same property to Luis, who built an auto repair shop on the property. In 2004, Luis registered the deed of conveyance, and title over the property was transferred in his name.

In 2006, the spouses Teodoro and Anita came to the Philippines for a visit and discovered what had happened to their property. They immediately hire you as lawyer. What action or actions will you institute in order to vindicate their rights? Explain fully. (4%)

Answer:

Atty. Tan did not acquire title necause he forged the signature of the real owner. Since the vendor is a non owner, Luis did not acauire title to the land despite his registration. He acquires no better title than the non owner who sold the lot to him.

Seller has voidable title

Article 1506. Where the seller of goods has a voidable title thereto, but his title has not been avoided at the time of the sale, the buyer acquires a good title to the goods, provided he buys them in good faith, for value, and without notice of the seller's defect of title. (n)

ELEMENTS (1506)

-Seller has a voidable title -Title has not been avoided at the time of the sale -The buyer acquires a good title to the goods,

provided he buys them in good faith for value and without notice of seller’s defect of title

Remember that a voidable title is valid until annulled.

What does “time of the sale” mean? The phrase means at the time of the delivery of

the subject matter since it is the fact of DELIVERY which transfers ownership

Latin: Non nobis factis sed traditionis dominio di na nakis maapas si sir xxxx

“It is delivery as a consequence of contracts that transfers ownership not the contract itself.”

Okay so let’s go to scenarios here

SCENARIO 1

A and B already agreed on a sale A has voidable title, B does not know about it A’s title is annulled after perfection but BEFORE

delivery = B does not obtain good title over the thing

Why: because when there was transfer of ownership, the title of the seller has already been avoided. Even if it was annulled only after perfection.

SCENARIO 2

A and B already agreed on a sale A has voidable title, B does not know about it annulment takes place after perfection and

AFTER delivery B obtains good title over the thing as long as

he is an innocent purchaser for value

So ireckon nimo kanus a ban a siya na avoid.

INNOCENT PURCHASER FOR VALUE

- Special animal under the law. One who buys property of another,

without notice that some other person has a right to, or an interest in such property

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

JURISPRUDENCE

A sold his car to B, B issued a check Check bounced C bought the car from B, in good faith and for

value

Ruling: C acquires good title to the car A can only rescind but sale must be set

aside by the court first before A can recover title

BUT A must reimburse C the price paid (Tagatac v. Jimenez)

TAGACTAC VS. JIMENEZ

FACTS: Tagactac sold the car to Feist, who sold it to Sanchez, who sold it to Jimenez. Feist failed to pay, so Tagactac wants to recover the vehicle from Jimenez on the ground that she had been unlawfully deprived of it by reason of Feist’s deception.



HELD: no unlawful deprivation since there was delivery

The point of inquiry is whether plaintiff-appellant Trinidad C. Tagactac has been unlawfully deprived of her car. At first blush, it would seem that she was unlawfully deprived thereof, considering that she was induced to part with it by reason of the chicanery practiced on her by Feist. Certainly, swindling, like robber is an illegal method of deprivation of property. In a manner of speaking, plaintiff-appellant was "illegally deprived' of her car, for the way by which Feist induced her to part with it is illegal and punishable by law. But does this “unlawful deprivation” come within the scope of Article 559 of the New Civil Code?

The fraud and deceit practiced by Feist earmarks this sale as a voidable contract (Art 1390). Being a voidable contract, it is susceptible of either ratification or annulment. If the contract is ratified, the action to annul it is extinguished (Art 1392) and the contract is cleansed from all its defects (Article 1396, NCC); if the contract is annulled, the contracting parties are restored to their respective situations before the contract and mutual restitution follows as a consequence (Art 1398).

However, as long as no action is taken by the party entitled, either that of annulment or of ratification, the contract of sale remains valid and binding. When plaintiff-appellant Tagactac delivered the car to Feist by virtue of said voidable contract of sale, the title to the car passed to Feist. Of course, the title that Feist acquired was defective and voidable. Nevertheless, at the time he sold the car to Felix his title was avoided and he therefore conferred good title on the latter, provided he bought the car in good faith, for value and without notice of the defect in Feist’s title (Art 1506).

Principle: Check does not go into the perfection of the contract but as to the performance of the contract.

BAR 1998

A sold car to B

B paid by using a falsified check

B registered the sale with LTO

B sold the car to C who knew nothing about the check

ANSWER

A can recover from C only when the court annuls the sale between B and C

In this case, B had a voidable title which was not yet annulled at the time C purchased the car. C acquired the car for value, in good faith and without notice as to defect in B's title. Hence, C has good title to the car and A can only recover the car by reimbursing C the purchase price the latter paid.

Using a falsified manager’s check, Justine, as the buyer, was able to take delivery of a second hand car which she had just bought from United Car Sales Inc. The sale was registered with the Land Transportation Office. A week later, the seller learned that the check had been dishonored, but by that time, Justine was

nowhere to be seen. It turned out that Justine had sold the car to Jerico, the present possessor who knew nothing about the falsified check. In a suit by United Car Sales, Inc. against Jerico for recovery of the car, plaintiff alleges it had been unlawfully deprived of its property through fraud and should, consequently, be allowed to recover it without having to reimburse the defendant for the price the latter had paid. Should the suit prosper?

SUGGESTED ANSWER:

The suit should prosper as to the recovery of the car.

However, since Jerico was not guilty of any fraud and

appears to be an innocent purchaser for value, he

should be reimbursed for the price he paid. This is

without prejudice to United Car Sales, Inc. right of

action against Justine. As between two innocent

parties, the party causing the injury should suffer the

loss. Therefore, United Car Sales, Inc. should suffer the

loss.

ALTERNATIVE ANSWER:

Yes, the suit will prosper because the criminal act of

estafa should be deemed to come within the meaning

of unlawful deprivation under Art. 559, Civil Code,

as without it plaintiff would not have parted with the

possession of its car.

ANOTHER ANSWER:

No, the suit will not prosper. The sale is valid and Jerico

is a buyer in good faith.

ANOTHER ANSWER:

Under the law on Sales, when the thing sold is

delivered by the seller to the buyer without reservation

of ownership, the ownership is transferred to the

buyer. Therefore in the suit of United Car Sales, Inc.

against Jerico for the recovery of the car, the plaintiff

should not be allowed to recover the car without

reimbursing the defendant for the price that the latter

paid. (EDCA Publishing and Distributing Corp. vs. Santo

s, 184 SCRA 614. April 26, 1900).

BAR 2001

A bought condominium from developer

A was not given CTC

developer mortgaged condominium to bank and mortgage was foreclosed, valid auction sale?



NO. Bank is not an IPV, a financial institution is unlike a normal buyer since SOP requires a bank to look beyond the title and investigate

LOSS, DETERIORATION, FRUITS AND OTHER BENEFITS

It depends kung kanusa nahitabo ang loss, deterioration, fruits and other benefits

Loss:

Article 1189. 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. (1122)

That definition of LOSS should be memorized because that is the only definition of loss.

Rules:

TIME LOSS DETERIORATION FRUITS

PREPARATORY STAGE

SELLER SELLER SELLER

CONSUMMATION

BUYER BUYER BUYER

BEFORE DELIVERY AFTER PERFECTION

SELLER BUYER BUYER

AFTER PERFECTION AND AFTER DELIVERY

BUYER BUYER BUYER

Remember this principle: res perit domino : the thing perishes with the owner

- So it means that if you are the owner of the thing at that point of the transaction, you will bear the risk of loss. The owner also bears the benefits and the deterioration subject to certain exceptions.

- Before perfection of contract, any LOSS, DETERIORATION, FRUITS AND OTHER BENEFITS shall be with the owner who, in the contract of sale, is the seller.

- At the time of perfection but before delivery, suppose the buyer or seller or both are not aware that the subject matter is loss, it will depend if the subject matter is specific/determinate or generic/indeterminate.

o If specific and total loss, the obligation is extinguished, the seller cannot demand payment and he bears the loss.

o If generic, its loss will not extinguish the contract of sale based on genus nunquam perit (genus never perishes).

o IF loss is in part only, the vendee can choose between withdrawing and demanding the remaining part paying only in proportion to the total price. So there is recoupment or reduction of the price (quanti minoris) ( an action quanti minoris)

o Sale of several goods

Article 1494. Where the parties purport a sale of specific goods, and the goods without the knowledge of the seller have perished in part or have wholly or in a material part so deteriorated in quality as to be substantially changed in character, the buyer may at his option treat the sale:

(1) As avoided; or

(2) As valid in all of the existing goods or in so much thereof as have not deteriorated, and as binding the buyer to pay the agreed price for the goods in which the ownership will pass, if the sale was divisible. (n)

- If loss after perfection but before delivery

o The seller being the owner bears the risk of loss

Except:

- When loss is caused by the buyer, the buyer bears the loss

- Where goods are delivered to the buyer, but under the contract the ownership of the goods has been retained by the seller mainly to



secure the performance of the buyer of his obligations.

Should the buyer be made to pay if the loss is after perfection but before delivery without the fault of the seller or the buyer?

No definite answer to this question.

Paras’ view:

The buyer still has to pay the price because pursuant to Article 1189, the obligation of the seller is extinguished. So the obligation of the seller to transfer ownership is extinguished since compliance therewith is impossible.

Tolentino’s view:

The buyers obligation to pay the price is extinguished because a contract of sale involves reciprocal obligations. The ext of obligation due to loss of the thing affects both the d and c . this is the result of recirprocal obligations. He who gives nothing has no reason to demand.

How about deterioration or improvement?

Again let’s look if it is after perfection before delivery

Article 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)

Article 1189. 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. (1122)

How about fruits?

They all pertain to the buyer after perfection regardless of whether there is delivery or not.

Why?

Article 1164. The creditor has a right to the fruits of the thing from the time the obligation to deliver it arises. However, he shall acquire no real right over it until the same has been delivered to him. (1095)

Article 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)

What about after delivery?

The buyer as owner already bears the loss, fruits and benefits pursuant to the rule of res perit domino.

What if there is transfer of ownership but the thing is not delivered to the buyer?

Article 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is transferred to the buyer, but when the ownership therein is transferred to the buyer the goods are at the buyer's risk whether actual delivery has been made or not, except that:

(1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance of the contract and the ownership in the goods has been retained by the seller merely to secure performance by the buyer of his obligations under the contract, the goods are at the buyer's risk from the time of such delivery;

(2) Where actual delivery has been delayed through the fault of either the buyer or seller the goods are at the risk of the party in fault. (n)


Mutually exclusive


REMEDIES IN CASE OF BREACH

Breach by Seller:

Breach Relief

Non-delivery Specific performance with damages

( if the breach is substantial, buyer can ask for rescission under Article 1191

Warranty

-- Seller has right to sell

-- Against eviction

-- Hidden defects

-- Non-apparent servitude

Accept goods plus recoupment

Accept goods plus damages

Don’t accept plus damages

Rescind, refuse to accept or return

Disturbance in possession

Suspend payment of price until end of disturbance

NOTE: Trespassing is not disturbance

To know that seller committed breach, know first the obligations of the seller (see previous discussion)

Recoupment – means to get everything back, restored to the place where you were before the contract

Arrow (mutally exclusive) means that you cannot do everything. You must choose your option.

Contract of Sale; Marital Community Property; Formalities (2006)

Spouses Biong and Linda wanted to sell their house. They found a prospective buyer, Ray. Linda negotiated

with Ray for the sale of the property. They agreed on a fair price of P2 Million. Ray sent Linda a letter confirming his intention to buy the property. Later, another couple, Bernie and Elena, offered a similar house at a lower price of P 1.5 Million. But Ray insisted on buying the house of Biong and Linda for sentimental reasons. Ray prepared a deed of sale to be signed by the couple and a manager's check for P2 Million. After receiving the P2 Million, Biong signed the deed of sale. However, Linda was not able to sign it because she was abroad. On her return, she refused to sign the document saying she changed her mind. Linda filed suit for nullification of the deed of sale and for moral and exemplary damages against Ray.

Will the suit prosper? Explain. (2.5%)

ALTERNATIVE ANSWER:

No, the suit will not prosper. The contract of sale was

In a CONTRACT OF SALE, ownership is transferred to

perfected when Linda and Ray agreed on the object of the sale and the price [Art. 1475, New Civil Code]. The consent of Linda has already been given, as shown by her agreement to the price of the sale. There is therefore consent on her part as the consent need not be given in any specific form. Hence, her consent may be given by implication, especially since she was aware of, and participated in the sale of the property (Pelayo v. CA, G.R. No. 141323, June 8, 2005). Her action for moral and exemplary damages will also not prosper because the case does not fall under any of those mentioned in Art. 2219 and 2232 of the Civil Code.

ALTERNATIVE ANSWER:

The suit will prosper. Sale of community property requires written consent of both spouses. The failure or refusal of Linda to affix her signature on the deed of sale, coupled with her express declaration of opposing the sale negates any valid consent on her part. The consent of Biong by himself is insufficient to effect a valid sale of community property (Art. 96, Family Code; Abalos v. Macatangay, G.R. No. 155043, September 30, 2004).

Does Ray have any cause of action against Biong and Linda? Can he also recover damages from the spouses? Explain. (2.5%)

Considering that the contract has already been perfected and taken out of the operation of the statute of frauds, Ray can compel Linda and Biong to observe the form required by law in order for the property to be registered in the name of Ray which can be filed together with the action for the recovery of house [Art. 1357 New Civil Code]. In the alternative, he can recover the amount of Two million pesos (P2,000,000.00) that he paid. Otherwise, it would result in solutio indebiti or unjust enrichment.



Ray can recover moral damages on the ground that the action filed by Linda is clearly an unfounded civil suit which falls under malicious prosecution {Ponce v. Legaspi, G.R. No. 79184, May 6,1992).

Breach by Buyer

Breach Relief

Movable is sold and delivery is unaccepted

Rescission

Delivery is accepted but no price is paid

Rescission

Title is passed but price is not paid

Sue for price plus damages

Repudiation of sale before delivery

Rescission with damages

Inability to pay before delivery

Rescission with damages

Does not pay price

Possessory Lien

Stoppage in transitu

Special right to resale

Special right to rescind

Concept: Unpaid Seller

◦ whole of the price has not been paid or tendered

◦ negotiable document of title was received as conditional payment and condition was broken

Article 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)

Special Remedies

Possessory Lien Stoppage in transitu Special right of resale Special right to rescind

◦ Special Rights 3&4 (resale and rescind) can only be used when Right 1 or 2 has been exercised

As special rights, you must first choose either possessory lien or stoppage in transitu before you can choose between resale or rescind.

Possessory Lien (1526)

◦ ownership has been transferred to the buyer◦ Seller is still unpaid◦ seller may retain goods for the price while still in

possession of the goods◦ Can only be exercised when

◦ goods were sold without any stipulation as to credit OR

◦ goods were sold on credit but term of credit has expired OR

◦ buyer becomes insolvent

ARTICLE 1526. 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)

Stoppage in Transitu (1526, 1530)

Seller no longer has possession of thing Buyer becomes insolvent Seller can stop the goods in transitu or resume

possession at any time while goods are in transit

Seller enjoys same rights as if he never parted possession with thing



Goods are deemed in transit• Period between delivery to the carrier for

transmission to the buyer until buyer claims them from the carrier

• Goods are rejected by the buyer and carrier continues to have possession even if the seller refuses to take goods back

ARTICLE 1530. Subject to the provisions of this Title, when the buyer of goods is or becomes insolvent, 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)

In this case, time is of the essence.

Status of Sale Made by Buyer while in transitu

If buyer sells thing without consent of seller while in transitu, the seller's right of stoppage in transitu IS NOT AFFECTED (1535)

Right of stoppage DOES NOT defeat title of an innocent purchaser for value who is issued a negotiable document of title (1535)

ARTICLE 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)

Special right to Resell Goods

Available only after exercise of either possessory lien or stoppage in transitu

Can be exercised when:◦ goods are perishable in nature◦ seller expressly reserves the right to

resell in case of buyer’s default◦ buyer has been in default for an

unreasonable period of time

Special Right to Rescind – 1526, 1534

After exercise of possessory lien or stoppage May hold buyer liable for damages

ARTICLE 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)

Rescission of Sale of Immovable

• 1592 - in the sale of immovables, even if it was stipulated that upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period FOR AS LONG AS NO DEMAND FOR RESCISSION OF THE CONTRACT HAS BEEN MADE UPON HIM EITHER JUDICIALLY OR BY A NOTARIAL ACT

ARTICLE 1592. In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act. After the demand, the court may not grant him a new term. (1504a)

Immovable Property; Rescission of Contract (2003)

X sold a parcel of land on 01 January 2001, payment and delivery to be made on 01 February 2002. It was stipulated that if payment were not to be made by Y on 01 February 2002, the sale between the parties would automatically be rescinded. Y failed to pay on 01 February 2002, but offered to pay three days later, which payment X refused to accept, claiming that their contract of sale had already been rescinded. Is X’s contention correct? Why? 5%

SUGGESTED ANSWER:

No, X is not correct. In the sale of immovable property, even though it may have been stipulated, as in this case, that upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him



either judicially or by a notarial act (Article 1592, New Civil code). Since no demand for rescission was made on Y, either judicially or by a notarial act, X cannot refuse to accept the payment offered by Y three (3) days after the expiration of the period.

SALE ON INSTALLMENT

RECTO LAW – 1484

Article 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)

Options when seller discontinues instalments

➢ exact fulfillment of the obligation➢ cancel the sale if the buyer fails to pay TWO OR

MORE installments➢ foreclose the chattel mortgage if the buyer fails

to pay TWO OR MORE installments (without right to sue for unpaid balance)

Recto Law: Sale of Movables on Installments

Remedies under 1484 are alternative and not cumulative. This is based on the principle that no one should enrich himself at the expense of another.

When the unpaid seller has already enforced the obligation by collecting the amount due, he can no longer rescind or cancel the same. He cannot also foreclose the mortgage over the subject matter. For the exercise of one in full forecloses the right to exercise remedies (Nonato v. CA, Nov. 22, 1985)

Recto Law: Sale of Movables on Installments

If the seller forecloses the chattel mortgage, it can no longer sue for deficiency/balance of purchase price

If the seller choses specific performance in a replevin suit for damages, seller is still entitled to alias writ of execution for unsatisfied balance (Industrial v. Ramirez)

Recall: In chattel mortgage, the general rule is that there is right to the balance and to the excess. The exception is the Recto law

Take note: Options are mutually exclusive

MACEDA LAW – RA 6552

COVERED SALES

residential real estate sales on installments financing of real estate on installment

payments residential condominium apartments

When the buyer defaults

Number of installments

Option 1 Option 2

Less than 2 annual

Grace period of 60 days

If no payment within grace period, sale will be cancelled within 30 days from receipt of notice of cancellation

2 or more annual

Pay without interest within grace period

CASH SURRENDER VALUE = 50%

Grace period: 1 month for every year of installment made

PLUS 5% for every year in excess of 5 years BUT

Grace period: used once every 5 years

NOT MORE THAN 90% of installments made

Installments include option money, downpayment

Cash Surrender Value• 4 years of installments at P100,000 per year =

50% of P400,000 = P200,000• 6 years of installments at P100,000 a year =

50% of P600,000 = P300,000 + 5% (P600,000) = P330,000

When developer commits breach of contract: PD 957• Buyer desists from paying further installments

because• Owner or developer fails to develop the

subdivision or condominium according to approved plans and within the time limit

• Buyer is entitled to reimbursement of all installments made

Maceda Law (2000)

Priscilla purchased a condominium unit in Makati City from the Citiland Corporation for a price of P10 Million, payable P3 Million down and the balance



with interest thereon at 14% per annum payable in sixty (60) equal monthly installments of P198,333.33. They executed a Deed of Conditional Sale in which it is stipulated that should the vendee fail to pay three (3) successive installments, the sale shall be deemed automatically rescinded without the necessity of judicial action and all payments made by the vendee shall be forfeited in favor of the vendor by way of rental for the use and occupancy of the unit and as liquidated damages. For 46 months, Priscilla paid the monthly installments religiously, but on the 47th and 48th months, she failed to pay. On the 49th month, she tried to pay the installments due but the vendor refused to receive the payments tendered by her. The following month, the vendor sent her a notice that it was rescinding the Deed of Conditional Sale pursuant to the stipulation for automatic rescission, and demanded that she vacate the premises. She replied that the contract cannot be rescinded without judicial demand or notarial act pursuant to Article 1592 of the Civil Code.

a. Is Article 1592 applicable? (3%) b. Can the vendor rescind the contract? (2%)

SUGGESTED ANSWER:

a) Article 1592 of the Civil Code does not apply to a

conditional sale. In Valarao v. CA, 304 SCRA 155, the Supreme Court held that Article 1592 applies only to a contract of sale and not to a Deed of Conditional Sale where the seller has reserved title to the property until full payment of the purchase price. The law applicable is the Maceda Law.

SUGGESTED ANSWER:

b) No, the vendor cannot rescind the contract under the circumstances. Under the Maceda Law, which is the law applicable, the seller on installment may not rescind the contract till after the lapse of the mandatory grace period of 30 days for every one year of installment payments, and only after 30 days from notice of cancellation or demand for rescission by a notarial act. In this case, the refusal of the seller to accept payment from the buyer on the 49th month was not justified because the buyer was entitled to 60 days grace period and the payment was tendered within that period. Moreover, the notice of rescission served by the seller on the buyer was not effective because the notice was not by a notarial act. Besides, the seller may still pay within 30 days from such notarial notice before rescission may be effected. All these requirements for a valid rescission were not complied with by the seller. Hence, the rescission is invalid.

Maceda Law; Recto Law (1999)

What are the so-called "Maceda" and "Recto" laws in connection with sales on installments? Give the most important features of each law. (5%)

SUGGESTED ANSWER:

The MACEDA LAW (R.A. 655) is applicable to sales of immovable property on installments. The most important features are (Rillo v. CA, 247 SCRA 461):

(1) After having paid installments for at least two years, the buyer is entitled to a mandatory grace period of one month for every year of installment payments made, to pay the unpaid installments without interest.

If the contract is cancelled, the seller shall refund to the buyer the cash surrender value equivalent to fifty percent (50%) of the total payments made, and after five years of installments, an additional five percent (5%) every year but not to exceed ninety percent (90%) of the total payments made.

(2) In case the installments paid were less than 2 years, the seller shall give the buyer a grace period of not less than 60 days. 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 demand for rescission by notarial act. The RECTO LAW (Art. 1484} refers to sale of movables payable in installments and limiting the right of seller, in case of default by the buyer, to one of three remedies:

a) exact fulfillment;

b) cancel the sale if two or more installments have not been paid;

c) foreclose the chattel mortgage on the things sold, also in case of default of two or more installments, with no further action against the purchaser.

Non-Payment of Amortizations; Subdivision Buyer; When

justified (2005)

Bernie bought on installment a residential subdivision lot from

DEVLAND. After having faithfully paid the installments for

48 months, Bernie discovered that DEVLAND had failed to

develop the subdivision in accordance with the approved



plans and specifications within the time frame in the plan. He

thus wrote a letter to DEVLAND informing it that he was

stopping payment. Consequently, DEVLAND cancelled the

sale and wrote Bernie, informing him that his payments are

forfeited in its favor.

a) Was the action of DEVLAND proper? Explain. (2%)

SUGGESTED ANSWER:

No, the action of DEVLAND is not proper. Under Section 23 of

Presidential Decree No. 957, otherwise known as the Subdivision and Condominium Buyer's Protection Decree, non-payment of amortizations by the buyer is justified if non-payment is due to the failure of the subdivision owner to develop the subdivision project according to the approved plans and within the limit for complying.

(Eugenio v. Drilon, G.R. No. 109404, January 22, 1996)

b) Discuss the rights of Bernie under the circumstances. (2%)

SUGGESTED ANSWER:

Under P.D. No. 957, a cancellation option is available to Bernie. If Bernie opts to cancel the contract, DEVLAND must reimburse Bernie the total amount paid and the amortizations interest, excluding delinquency interest, plus interest at legal rate. (Eugenio v. Drilon, G.R. No. 109404, January 22, 1996)

c) Supposing DEVLAND had fully developed the subdivision but Bernie failed to pay further installments after 4 years due to business reverses. Discuss the rights and obligations of the parties. (2%)

SUGGESTED ANSWER:

In this case, pursuant to Section 24 of P.D. No. 957, R.A. No. 6552 otherwise known as the Realty Installment Buyer Protection Act, shall govern. Under Section 3 thereof, Bernie is entitled: 1) to pay without additional interest the unpaid installments due within a grace period of four (4) months or one month for every year of installment paid; 2) if the contract is cancelled, Bernie is entitled to the refund of the cash surrender value equal to 50% of the total payments made.

DEVLAND on the other hand has the right to cancel the contract after 30 days from receipt by Bernie of notice of cancellation. DEVLAND is however obliged to refund toBernie e 50% of the total payments made (Rillo vs CA 1997)

EXTINGUISHMENT OF SALE

Article 1231. Obligations are extinguished:

(1) By payment or performance;

(2) By the loss of the thing due;

(3) By the condonation or remission of the debt;

(4) By the confusion or merger of the rights of creditor and debtor;

(5) By compensation;

(6) By novation.

Other causes of extinguishment of obligations, such as annulment, rescission, fulfillment of a resolutory condition, and prescription, are governed elsewhere in this Code. (1156a)

GROUNDS

payment/performance loss of SM condonation/remission confusion/merger of rts of creditor & debtor compensation novation annulment rescission conventional/legal redemption (additional)

Recall: Pacto de Retro (sale with right to repurchase) – seller has right to redeem

REDEMPTION

Right to redeem must already be incorporated in the contract of sale

It must reduced in public instrument (Statute of Frauds)

Q: Can you redeem if there is no period provided?

A: Yes, the law will automatically set it at 4 years

Among Co-Heirs (1088)• An heir sells his hereditary rights to a stranger

before partition



• Any or all co-heirs may be subrogated to buyer's rights by reimbursing him for the price

• Co-heirs must redeem within 1 month from time they were notified in writing of the sale

ARTICLE 1088. Should any of the heirs sell his hereditary rights to a stranger before the partition, any or all of the co-heirs may be subrogated to the rights of purchaser by reimbursing him for the price of the sale, provided they do so within the period of one month from the time they were notified in writing of the sale by the vendor. (1067a)

Among Co-Owners (1620)• If a co-owner sells his share to a third person• A co-owner may redeem from the third person• Rule in case of redemption by two or more co-

owners: Redemption shall be in proportion to the share they may have in the thing owned in common

ARTICLE 1620. A co-owner of a thing may exercise the right of redemption in case the shares of all the other co-owners or of any of them, are sold to a third person. If the price of the alienation is grossly excessive, the redemptioner shall pay only a reasonable one.

Should two or more co-owners desire to exercise the right of redemption, they may only do so in proportion to the share they may respectively have in the thing owned in common. (1522a)

BAR 2001, 2002• When can a co-owner legally redeem property?

Among Adjoining Owners • Rural Land – area should not exceed 1 hectare

unless grantee does not own rural land• Urban Land – small urban land is situated that

a major portion cannot be used for any practical purpose within a reasonable period

Sale of Credit in Litigation (1634)• Creditor assigns his right to credit to a third

person• Debtor may extinguish the credit by

reimbursing the assignee for the price he paid for the credit

• Debtor may reimburse within 30 days from time assignee demands payment from him

ARTICLE 1634. When a credit or other incorporeal right in litigation is sold, the debtor shall have a right to extinguish it by reimbursing the assignee for the price the latter paid therefore, the judicial costs incurred by him, and the interest on the price from the day on which the same was paid.

A credit or other incorporeal right shall be considered in litigation from the time the complaint concerning the same is answered.

The debtor may exercise his right within thirty days from the date the assignee demands payment from him. (1535)

Example: A borrows P 1M from B. B sues A to get P 1M plus interest. B cannot wait and sells his right to C to get the P 1M for P 700,000. A can talk to C that instead of paying P1M, A will instead pay C P 700,000.

Take note: “assignment” in sales is different.

Period of Redemption Right to redeem shall not be exercised except

within 30 days from notice in writing by prospective seller or seller

Deed of sale shall not be recorded in Registry of Property unless with seller's affidavit that he has sent written notices to all possible redemptioners (1623)

ARTICLE 1623. The right of legal pre-emption or redemption shall not be exercised except within thirty days from the notice in writing by the prospective vendor, or by the vendor, as the case may be. The deed of sale shall not be recorded in the Registry of Property, unless accompanied by an affidavit of the vendor that he has given written notice thereof to all possible redemptioners.

The right of redemption of co-owners excludes that of adjoining owners.

Seller is obligated to co-owner, adjoining owner, debtor, co-heir to said a written notice if he sells to a stranger.

This is not strictly followed but it is nonetheless the law.

If you were not informed, you can file an action for breach of this provision.

Redemption = repurchase

Xx SURPRISE QUIZ xX

BULK SALE LAW

This is still good law – a favorite of Bar Examiners.

ACT No. 3952THE BULK SALES LAW (as amended)

Purpose and general scheme of the Bulk Sales Law.

(a) Purpose. — Bulk Sales Act is designed to prevent the defrauding of creditors by the secret sale in bulk of substantially all of a merchant's stock of goods.

(b) General scheme — The general scheme of these statutes is to declare such bulk sales fraudulent and void as to creditors of the vendor, or presumptively so, unless specified formalities are observed, such as the demanding and the giving of a list of creditors, the giving of actual or constructive notice to such creditors, by record or otherwise, and the making of an inventory. (27 C.J. Sec. 881.)

Transactions CoveredSale, transfer, mortgage or assignments of:

(a) all or substantially all stock of goods, wares, merchandise, provisions or materials otherwise than in the ordinary course of trade

(b) all or substantially all of the business or trade thereto conducted by the seller, mortgagor, transferor or assignor and



(c) all or substantially all, of the fixtures and equipment used in & about the business of the seller, mortgagor, transferor or assignor

Exceptions— It will not be deemed a sale and transfer in bulk in contemplation of this Act,

(1) if such vendor, mortgagor, transferor, or assignor produces and delivers a written waiver of the provisions of this Act from his creditors as shown by verified statements (Sec. 2, Bulk Sales Law), or

(2) if such vendor, mortgagor, transferor, or assignor is an executor, administrator, receiver assignee in insolvency, or public officer, acting under judicial process. (Sec. 8, Bulk Sales Law.)

(3)"Exempt properties," not within the law. — Bulk sales statutes are intended to operate only on property to which creditors may look for satisfaction of their claims and consequently have no application to property which is exempt. (27 C.J. Sec. 889.) See "Property exempt from execution," Sec. 12, Rule 39, Rules of Court. See also Sec. 35, Act No. 3428, as amended; Arts. 223 et seq., and 1708, new Civil Code; and Sec. 17, Rep. Act No. 1161 (refer to annotations placed above Sec. 48, Insolvency Law, in Volume 2.)

Obligations of Seller• Delivery of sworn statement of listing of

creditors who might be affected by the sale in bulk

• Make an inventory of items of the sale in bulk• If sold, pro-rata application of proceeds among

the creditors• written advance disclosure to creditors

Penalty for Violation Imprisonment = not less than 6 mos. OR Fine =

not exceeding P5,000.00 OR both

BAR 2007• Seeking to streamline its operations and to bail

out its losing ventures, the stockholders of X Corporation unanimously adopted a proposal to sell substantially all of the machineries and equipment used in and out its manufacturing business and to sink the proceeds of the sale for the expansion of its cargo transport services.

• Would the transaction be covered by the provisions of the Bulk Sales Law?

ANSWER• Yes, the proposed sale is covered by the Bulk

Sales Law. The sale involves all or substantially all, of the fixtures and equipment used in & about the business of the seller. Hence, X Corp must deliver a sworn statement of listing of creditors, make a pro-rata application of proceeds and a written advance disclosure to creditors

That is still the duty of the corporation despite the fact that there is no mention of creditors.

2006 BAR

Pursuant to a writ of execution issued by the Regional Trial Court in "Express Bank v. Don Rubio," the sheriff levied and sold at public auction 8 photocopying

machines of Don Rubio. Is the sheriff's sale covered by the Bulk Sales Law? 5%

No. The bulk sales law only covers of all or substantiall all use din or about the seller mortgager assignor or transfere. Furthere, the law seeks to prevent the seller from disposing the proeprtues without the consent of the creditors. In this case, it was the sheriff who disposed the machisne pursuant of the court order. Udner Section 6 of the bulk sales law, an officer selling under judicial process is not covered by the said law.

LAUREL VS ABROGAR (NOT REALLY BULK SALES but SIR MENTIONED IT )

FACTS

Laurel was charged with Theft under Art. 308 of

the RPC for allegedly taking, stealing, and using PLDT's

international long distance calls by conducting

International Simple Resale (ISR) – “a method of outing

and completing international long-distance calls using

lines, cables, antennae, and/or air wave frequency

which connect directly to the local/domestic exchange

facilities of the country where the call is destined”.

PLDT alleged that this service was stolen from them

using their own equipment and caused damage to

them amounting to P20,370,651.92.

PLDT alleges that the international calls and business

of providing telecommunication or telephone service

are personal properties capable of appropriation and

can be objects of theft.

ISSUE

WON Laurel's act constitutes Theft

HELD

Art.308, RPC: Theft is committed by any person who,

with intent to gain but without violence against, or

intimidation of persons nor force upon things, shall

take personal property of another without the latter’s

consent.

Elements of Theft under Art.308, RPC:

1. There be taking of Personal Property;

2. Said Personal Property belongs to another;

3. Taking be done with Intent to Gain;

4. Taking be done without the owner’s consent;

5. No violence against , or intimidation of, persons

or force upon things

Personal Property – anything susceptible of

appropriation and not included in Real Property



Thus, the term “personal property” as used in Art.308,

RPC should be interpreted in the context of the Civil

Code's definition of real and personal property.

Consequently, any personal property, tangible or

intangible, corporeal or incorporeal, capable of

appropriation may be the subject of theft (*US v Carlos;

US v Tambunting; US v Genato*), so long as the same

is not included in the enumeration of Real Properties

under the Civil Code.

The only requirement for personal property to capable

of theft, is that it be subject to appropriation.

Art. 416 (3) of the Civil Code deems “Forces of Nature”

which are brought under the control of science, as

Personal Property.

The appropriation of forces of nature which are brought

under control by science can be achieved by tampering

with any apparatus used for generating or measuring

such forces of nature, wrongfully redirecting such

forces of nature from such apparatus, or using any

device to fraudulently obtain such forces of nature.

In the instant case, the act of conducting ISR

operations by illegally connecting various equipment or

apparatus to PLDT’s telephone system, through which

petitioner is able to resell or re-route international long

distance calls using PLDT’s facilities

constituteSubtraction.

Moreover, interest in business should be classified as

personal property since it is capable of appropriation,

and not included in the enumeration of real properties.

Therefore, the business of providing

telecommunication or telephone service are personal

property which can be the object of theft under Art.

308 of the RPC. The act of engaging in ISR is an act of

“subtraction” penalized under the said article.

While international long-distance calls take the form of

electrical energy and may be considered as personal

property, the said long-distance calls do not belong to

PLDT since it could not have acquired ownership over

such calls. PLDT merely encodes, augments, enhances,

decodes and transmits said calls using its complex

communications infrastructure and facilities.

Since PLDT does not own the said telephone calls, then

it could not validly claim that such telephone calls were

taken without its consent.

What constitutes Theft is the use of the PLDT's

communications facilities without PLDT's consent. The

theft lies in the unlawful taking of the telephone

services & businesses.

The Amended Information should be amended to show

that the property subject of the theft were services and

business of the offended party.

RA 8762 – RETAIL TRADE LIBERALIZATION ACT OF 2000

• Retail Trade means any act, occupation or calling of habitually selling direct to the general public merchandise, commodities or good for consumption.

• The restriction of this law shall not apply to the following::

▫ (a) Sales by a manufacturer, processor, laborer, or worker, to the general public the products manufactured, processed or produced by him if his capital does not exceed P 100,000.00;

▫ (b) Sales by a farmer or agriculturist selling the products of his farm;

▫ (c) Sales in restaurant operations by a hotel owner or inn-keeper irrespective of the amount of capital: Provided, That the restaurant is incidental to the hotel business: and

▫ (d) Sales which are limited only to products manufactured, processed or assembled by a manufacturer through a single outlet, irrespective of capitalization.

• “High-end or luxury goods” shall refer to goods which are not necessary for life maintenance and whose demand is generated in large part by the higher income groups. Luxury goods shall include, but are not limited to, products such as: jewelry, branded or designer clothing and footwear, wearing apparel, leisure and sporting goods, electronics and other personal effects

Treatment of Natural-Born Citizens• Natural-born citizen of the Philippines who has

lost his Philippine citizenship but who resides in the Philippines shall be granted the same rights as Filipino citizens for purposes of this Act.



Foreign Equity ParticipationCategor

yCapitalization Ownershi

pComment

A < US$2.5 M Wholly by Filipinos

B US$2.5M-<US$7.5M

1st 2 years from this law- 60% foreignThereafter-100% foreign-owned

Investment shallnotbe

If foreign equity >80%, must offer 30% of their equity to Filipinos within eight years from

C US$7.5 M or more

Wholly foreign-owned

lessthan US$830,000

start of operations

D US$250,000 or more

Wholly foreign-owned if

High-end or luxury products

Maintenance of Capital• Foreign investor must maintain the full amount

of the prescribed minimum capital• UNLESS foreign investor has notified the SEC

and the DTI of its intention to repatriate its capital and cease operations in the Philippines.

• Failure to maintain the full amount of the prescribed minimum capital prior to notification of SEC and the DTI = penalties or restrictions on any future trading activities/business in the Philippines.

• Foreign retail stores shall secure a certification from the Bangko Sentral ng Pilipinas and the DTI, which will verify or confirm inward remittance of the minimum required capital investment.

Qualifications of Foreign Retailers• (a) A minimum of US$200 Million net worth in

its parent corporation for Categories B and C, and US$50 Million net worth in its parent corporation for Category D;

• (b) Five retailing branches or franchises in operation anywhere around the world unless such retailer has at least one store capitalized at a minimum of US$25 Million;

• (c) Five (5)-year track record in retailing; and • (d) Only nationals from, or juridical entities

formed or incorporated in countries which allow the entry of Filipino retailers shall be allowed to engage in retail trade in the Philippines. (based on the principle of reciprocity)

These qualifications are cumulative.

Promotion of Locally-Manufactured Products

• For 10 years after the effectivity of this Act, at least 30% of the aggregate cost of the stock inventory of foreign retailers falling under Categories B and C and 10% for Category D shall be made in the Philippines.

• Qualified foreign retailers shall not be allowed to engage in certain retailing activities outside their accredited stores through the use of mobile or rolling stores or carts, the use of sales representatives, door-to-door selling, restaurants and sari-sari stores and such other similar retailing activities: Provided, That a detailed list of prohibited activities shall hereafter be formulated by the DTI.

Penalties• Imprisonment of not less than 6 years and 1

day but not more than 8 years, and a fine of not less than P1 Million but not more than 20 Million .

• In the case of associations, partnerships or corporations – penalty imposed on partners, president, directors, manager and other officers responsible for the violation.

• Foreign offender - deported immediately after service of sentence.

• Filipino public officer offender- penalty plus dismissal and permanent disqualification from public office.

MCQs

Can future inheritance be the subject of a contract of sale?

(A) No, since it will put the predecessor at the risk of harm from a tempted buyer, contrary to public policy.

(B) Yes, since the death of the decedent is certain to occur.

(C) No, since the seller owns no inheritance while his predecessor lives.

(D) Yes, but on the condition that the amount of the inheritance can only be ascertained after the obligations of the estate have been paid.

An agent, authorized by a special power of attorney to sell a land belonging to the principal succeeded in selling the same to a buyer according to the instructions given the agent. The agent executed the deed of absolute sale on behalf of his principal two days after the principal died, an event that neither the agent nor the buyer knew at the time of the sale. What is the standing of the sale?

(A) Voidable.

(B) Valid.

(C) Void.

(D) Unenforceable.

A buyer ordered 5,000 apples from the seller at P20 per apple. The seller delivered 6,000 apples. What are the rights and obligations of the buyer?



(A) He can accept all 6,000 apples and pay the seller at P20 per apple.

(B) He can accept all 6,000 apples and pay a lesser price for the 1,000 excess apples.

(C) He can keep the 6,000 apples without paying for the 1,000 excess since the seller delivered them anyway.

(D) He can cancel the whole transaction since the seller violated the terms of their agreement.

Lino entered into a contract to sell with Ramon, undertaking to convey to the latter one of the five lots he owns, without specifying which lot it was, for the price of P1 million. Later, the parties could not agree which of five lots he owned Lino undertook to sell to Ramon. What is the standing of the contract?

(A) Unenforceable.

(B) Voidable.

(C) Rescissible.

(D) Void.

Knowing that the car had a hidden crack in the engine, X sold it to Y without informing the latter about it. In any event, the deed of sale expressly stipulated that X was not liable for hidden defects. Does Y have the right to demand from X a reimbursement of what he spent to repair the engine plus damages?

(A) Yes. X is liable whether or not he was aware of the hidden defect.

(B) Yes, since the defect was not hidden; X knew of it but he acted in bad faith in not disclosing the fact to Y.

(C) No, because Y is in estoppel, having changed engine without prior demand.

(D) No, because Y waived the warranty against hidden defects.

Acme Cannery produced sardines in cans known as "Sards." Mylene bought a can of Sards from a store, ate it, and suffered from poisoning caused by a noxious substance found in the sardines. Mylene filed a case for damages against Acme. Which of the following defenses will hold?

(A) The expiry date of the "Sards" was clearly printed on its can, still the store sold and Mylene bought it.

(B) Mylene must have detected the noxious substance in the sardines by smell, yet she still ate it.

(C) Acme had no transaction with Mylene; she bought the "Sards" from a store, not directly from Acme.

(D) Acme enjoys the presumption of safeness of its canning procedure and Mylene has not overcome such presumption.

X, who was abroad, phoned his brother, Y, authorizing him to sell X’s parcel of land in Pasay. X sent the title to Y by courier service. Acting for his brother, Y executed a notarized deed of absolute sale of the land to Z after receiving payment. What is the status of the sale?

(A) Valid, since a notarized deed of absolute sale covered the transaction and full payment was made.

(B) Void, since X should have authorized agent Y in writing to sell the land.

(C) Valid, since Y was truly his brother X’s agent and entrusted with the title needed to effect the sale.

(D) Valid, since the buyer could file an action to compel X to execute a deed of sale.

In a true pacto de retro sale, the title and ownership of the property sold are immediately vested in the vendee a retro subject only to the resolutory condition of repurchase by the vendor a retro within the stipulated period. This is known as

(A) equitable mortgage.

(B) conventional redemption.

(C) legal redemption.

(D) equity of redemption.

_FIN

“Sometimes the odds are against you but sometimes you are stronger than the odds”


Sales - Espejo - 4th Yr

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