SALES and LEASE Reviewer_diory

(by Diory Rabajante)

Any error in this reviewer is the author’s alone. The brilliance of her professor, Atty. Manuel Casiño, is not an assurance that nothing will be lost in the transmission. Caveat Emptor - Buyers (of my ideas) beware. Read at your own risk.

dioryRabajante ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

* CONTRACT OF SALE, defined (Art. 1458, CC) 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 therefor a price certain in money or its equivalent. * SOURCES OF RIGHTS / OBLIGATIONS (Art. 1156) 1. Law 2. Contracts 3. Quasi – Contracts 4. Acts or omissions punished by law; and 5. Quasi – delicts Sale is a contract and is, therefore, a source of obligations. It has the force of law between the contracting parties, which should be complied with in good faith. (Art. 1159) * CHARACTERISTICS OF A CONTRACT OF SALE 1.

Nominate - law gave it a name, i.e . ―SALE‖

2.

Principal - can stand on its own, unlike an accessory contract

3.

Bilateral - imposes obligation on both parties a. obligation of seller – transfer ownership & deliver b. obligation of buyer – pay price Consequence of being bilateral: power to rescind is implied in bilateral contracts (Art. 1191)

4. 5.

Onerous – imposes valuable consideration Consequence: all doubts in construing contract to be resolved in greater reciprocity of interest Commutative – a thing of value is exchanged for equal value Subjective Test: as long as parties believe in all honesty that he is receiving equal value then it complies with the test & o o

would not be deemed a donation. Inadequacy of price or aleatory character not sufficient ground to cancel contract of sale; sale may be annulled based on vice of consent regarding inadequacy but not on inadequacy per se

6.

Consensual – a contract of sale is perfected by mere consent.

7.

Title & not a mode – title gives rise to an obligation to transfer; it is not a mode w/c actually transfers ownership. On its own, sale is not a mode which transfers ownership. It creates an obligation to transfer ownership. It is the delivery that transfers ownership.

* CONTRACT OF ABSOLUTE SALE VS. CONTRACT OF CONDITIONAL SALE A contract of sale may be absolute or conditional. (Art. 1458)

True Test:

A contract of sale gives rise to two obligations: for the seller, to transfer the ownership of and deliver a determinate thing; for the buyer, the payment of the price.

If the condition is imposed upon the seller’s obligation to transfer the ownership of and deliver the thing, there is a conditional sale. Note that the essence of sale is the acquisition of ownership. However, if the condition is imposed upon the buyer’s obligation to pay the price, the sale is still absolute. Payment of the purchase price is part of the consummation stage (not perfection stage) of the contract of sale. Perfection of the contract of sale is not affected by the fact that payment is subject to conditions, it being the case that a contract of sale is perfected by mere consent.

SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------HYPOTHETICAL QUESTIONS: 1.

A and B entered into a contract of sale whereby A obliges himself to transfer the ownership of and deliver a certain piano to B for P5,000. A and B further agreed that the piano will be delivered to B immediately after the execution of the contract, and that B is given ten days to pay the price. The ownership is, however, reserved to A until the full payment of the purchase price. Was the contract of sale entered into by A and B absolute? No. The contract of sale between A and B was conditional because there was a condition imposed upon A’s obligation to transfer the ownership of the piano. B’s ownership of piano is automatically transferred to the buyer by operation of law upon fulfillment of a suspensive condition which is the payment of the purchase price.

2.

A and B entered into a contract of sale whereby A obliges himself to transfer the ownership of and deliver a certain piano to B for P5,000. They further agreed that payment of the price by B is subject to the condition that B will receive money from C. Is the contract of sale entered into by A and B absolute? Yes. The condition is imposed only upon the payment of the price.

Jurisprudential Doctrines: People's Homesite & Housing Corp. vs CA

Dignos vs CA

There was no perfected sale of a lot when it was conditionally or contingently awarded subject to the approval by the city council of the proposed consolidation subdivision plan and the approval of the award by the valuation committee and higher authorities. When the plan was approved, the Mendozas should have manifested in writing their acceptance of the award for the purchase of the lot just to show that they were still interested in its purchase, although the area was reduced. Yet, they did not do so. Article 1475 of the NCC provides that ―the contract of sale is perfected at the moment there is a meeting of the minds..." Under the facts of this case, there was no meeting of minds on the purchase of Lot 4 with an area of 2,608.7 square meters at P21 a square meter. As to the conditional nature of the sale, Article 1181 of the NCC states that ―in conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition. A deed of sale is absolute in nature although denominated as a "Deed of Conditional Sale" where nowhere in the contract in question is a proviso or stipulation to the effect that title to the property sold is reserved in the vendor until full payment of the purchase price, nor is there a stipulation giving the vendor the right to unilaterally rescind the contract the moment the vendee fails to pay within a fixed period. In this case, there is no such stipulation reserving the title of the property on the vendors nor does it give them the right to unilaterally rescind the contract upon non-payment of the balance thereof within a fixed period. Furthermore, all the elements of a valid contract of sale under Article 1458 of the Civil Code, are present.

* CONTRACT OF SALE VS. CONTRACT TO SELL With the passage of the Maceda Law, which has lumped together both remedies of rescission and cancellation into a uniform procedural and substantial straight-jacket, even the Supreme Court has, in its fairly recent cases, began to blur what used to be different remedies, and in the process has almost made indistinguishable the substantive differences between a contract of sale and a contract to sell involving residential real estate and condominium units. – Villanueva, C., Law on Sales, 2004 ed.

Art. 1478: The parties may stipulate that ownership in the thing shall not pass to the purchaser until he has fully paid the price. CONTRACT OF SALE Title passes to buyer upon delivery Failure to pay is a resolutory condition which puts an end to the transaction; Remedies: (1) Specific performance (2) Rescission (1191) Seller loses ownership upon delivery

CONTRACT TO SELL Ownership is retained and will be transferred upon payment Failure to pay is a positive suspensive condition, failure of which is not a breach but prevents the obligation of the vendor to convey title to arise Title remains in the vendor even after delivery

CONTRACT OF CONDITIONAL SALE CONTRACT TO SELL Both: Reservation of ownership until full payment First element (consent) is present albeit conditioned upon Ownership is not automatically transferred to the buyer (even the happening of contingent event which may or may not if there has been previous delivery to him) upon fulfillment of occur, in effect, contract of sale is automatically perfected suspensive condition (i.e. full payment of purchase price). without further act having to be performed by the seller Seller still has to convey title to prospective buyer by entering into a contract of absolute sale.

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SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------With respect to sale to third person: Upon fulfillment of suspensive condition, sale becomes absolute which affects seller’s title 3P becomes buyer in bad faith if possesses constructive or actual knowledge of defect in seller’s title Second buyer cannot defeat the first buyer’s title Art. 1544 (Double Sale) is applicable

With respect to sale to third person: No double sale (because no previous sale of property despite fulfillment of suspensive condition) 3P not a buyer in bad faith Prospective buyer cannot seek relief of reconveyance of property, but only sue under Art 19 (unjustified disregard of right) Art. 1544 (Double Sale) is not applicable

* CONTRACT OF SALE VS. CONTRACT FOR A PIECE OF WORK

Article 1713: By the 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. The contractor may either employ only his labor or skill or also furnish the material.

Article 1467: CONTRACT OF SALE: 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 CONTRACT FOR A PIECE OF WORK: if the goods are to be manufactured specially for the customer AND upon his special order, and not for the general market. Here, service is the Subject Matter BUT: THERE CAN BE NO CONTRACT FOR PIECE OF WORK FOR PAST SERVICE RESULTING IN THE CREATION OF THE OBJECT (ALWAYS A SALE)

JURISPRUDENTIAL DOCTRINES: Celestino Co. vs Collector

Commissioner vs Engineering and Supply Company

When a factory accepts a job that requires the use of extraordinary or additional equipment, or involves services not generally performed by it, it thereby contracts for a piece of work. - In the case at bar, the orders exhibited were not shown to be special. They were merely orders for work — nothing is shown to call them special requiring extraordinary service of the factory. The factory sold materials ordinarily manufactured by it — sash, panels, mouldings — to Teodoro & Co., although in such form or combination as suited the fancy of the purchaser. Such new form does not divest the factory of its character as manufacturer. Neither does it take the transaction out of the category of sales under Article 1467 above quoted, because although the Factory does not, in the ordinary course of its business, manufacture and keep on stock doors of the kind sold to Teodoro, it could stock and/or probably had in stock the sash, mouldings and panels it used therefor (some of them at least). The distinction between a contract of sale and one for work, labor and materials is tested by the inquiry whether the thing transferred is one not in existence and which never would have existed but for the order of the party desiring to acquire it, or a thing which would have existed and has been the subject of sale to some other persons even if the order had not been given. If the article ordered by the purchaser is exactly such as the plaintiff makes and keeps on hand for sale to anyone, and no change or modification of it is made at defendant's request, it is a contract of sale, even though it may be entirely made after, and in consequence of, the defendants order for it. The word "contractor" has come to be used with special reference to a person who, in the pursuit of the independent business, undertakes to do a specific job or piece of work for other persons, using his own means and methods without submitting himself to control as to the petty details.

IMPORTANCE OF DISTINCTION

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SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------

Difference in the rules governing both contracts (e.g. tax rates and other charges are lower for contractors) and application of SoF  Inchausti v Cromwell - SC adopted Massachusetts rule that the test whether the thing transferred is one not in existence and which never would have existed but for the order of the party desiring to acquire it, or a thing which would have existed and been subject of sale to some other person, even if the order had not been given.  True test of a Contractor – he renders service in the course of an independent occupation, representing the will of his employer only as to the result of his work, and not as to the means by which it is accomplished (Luzon Stevedoring Co v Trinidad and La Carlota Sugar Central v Trinidad).  More examples of CONTRACT OF SALE: o future sale of articles which he is habitually making although at the time not made or finished article ordered is exactly such as plaintiff makes and keeps on hand for sale to anyone and no change or modification of it is made at defendant’s request although made after and in consequence of, defendant’s order for it CONTRACT OF SALE Contract for delivery of an article, which the vendor in the ordinary course of business manufactures or procures for general market (whether on hand or not) Essence is object Jurisprudence: * Timing Test under Art. 1467: whether the thing transferred would have never existed but for the order * Habituality Test: if manufacturer engages in activity with need to employ extraordinary skills and equipment (Celestino vs. CIR) * Nature of the Object Test: each product’s nature of execution differs from the others; products are not ordinary products of manufacturer (EEI vs CIR)

CONTRACT FOR A PIECE OF WORK Goods are to be manufactured specially for a customer and upon special order and not for the general market Essence is service

* CONTRACT OF SALE VS. CONTRACT OF AGENCY TO SELL

Article 1868: By a contract of agency, a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter.

Articles 1868 to 1932: (provisions on Agency) Article 1466: In construing a contract containing provisions characteristic of both the contract of sale and of the contract of agency to sell, essential clauses of the whole instrument shall be considered.

Article 1322: An offer made through an agent is accepted from the time acceptance is communicated to him SALE Buyer pays the price Buyer acquires ownership over the object of the contract Seller warrants Essence of sale: transfer of title or agreement to transfer it for the price paid or promised

CONTRACT OF AGENCY TO SELL Agent does not pay Agent does not acquire ownership Agent does not warrant, unless he agrees Essence of agency: delivery to the agent of the goods not as the agent’s property but of the principal who remains the owner and has the right to control the sales by the agent, fix the price and terms, demand and receive the proceeds of the sales less the agent’s commission

JURISPRUDENTIAL DOCTRINES: Quiroga vs Parsons Hardware Where the price of the objects is paid within the terms fixed without any other consideration and Co. regardless as to whether the objects are sold, the contract is one of sale. (In order to classify a contract, due regard must be given to its essential clauses. A contract is what the law defines it to be, and not what it is called by the contracting parties.) - In the case at bar, it shows that the cause and subject matter which are to furnish the defendant with beds and in turn, pay for the stipulated price, are precisely the essential features of contract of purchase and sale. There was an obligation on the part of the plaintiff to supply beds and on defendant’s part, to pay the price which in turn, excludes the legal conception of an agency.

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SALES AND LEASE REVIEWER by Diory Rabajante -------------------------------------------------------------------------------------------------------------------------------------------------------------

Kerr vs Lingad

- In an agency, there is an order to sell whereby the agent receives a thing to sell it and he is not required to pay its price but is required to turn over to the principal the price he obtains for the sale. If he does not succeed in selling it, he will have to return the thing. This is not the case of the matter in the case at bar. By virtue of the contract between the plaintiff and the defendant, the latter, on receiving the beds, was necessarily obliged to pay their price within the term fixed, without any other consideration and regardless as to whether he had or had not sold the beds. Hence, the contract by and between the parties is one of purchase and sale. The transfer of title or agreement to transfer it for a price paid is the essence of sale. If such transfer puts the transferee in the position of an owner and makes him liable for the agreed price, the transaction is a sale. On the other hand, the essence of an agency to sell is the delivery to an agent, not as his property, but as the property of his principal, who remains the owner and has the right to control sales, fix the price and terms, demand and receive the proceeds less the agent's commission upon sales made. - In the case at bar, the relationship between the petitioner and US Rubber International is one of brokerage or agency because of the following contractual stipulations: *that petitioner can dispose of the products of the Company only to certain persons or entities and within stipulated limits, unless excepted by the contract or by the Rubber Company (Par. 2); *that it merely receives, accepts and/or holds upon consignment the products, which remain properties of the latter company (Par. 8); *that every effort shall be made by petitioner to promote in every way the sale of the products (Par. 3); *that sales made by petitioner are subject to approval by the company (Par. 12); *that on dates determined by the rubber company, petitioner shall render a detailed report showing sales during the month (Par. 14); *that the rubber company shall invoice the sales as of the dates of inventory and sales report (Par. 14); *that the rubber company agrees to keep the consigned goods fully insured under insurance policies payable to it in case of loss (Par. 15); *that upon request of the rubber company at any time, petitioner shall render an inventory of the existing stock which may be checked by an authorized representative of the former (Par. 15); and *that upon termination or cancellation of the Agreement, all goods held on consignment shall be held by petitioner for the account of the rubber company until their disposition is provided for by the latter (Par. 19).

* CONTRACT OF SALE VS. DACION EN PAGO

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.  

There is a novation of the contract of loan into a contract of sale when creditor agrees to accept a thing in payment of the debt. If thing given in payment turns out to belong to another, creditor’s remedy is governed by law on sales, not on loan.

SALE No pre-existing credit Gives rise to obligations Cause or consideration is the price from the viewpoint of the seller; or the obtaining of the object, from the viewpoint of the buyer Greater freedom in the determination of the price Giving of the price may generally end the obligation of the buyer

DACION EN PAGO Pre-existing credit Extinguishes obligations Cause or consideration from the viewpoint of the person offering the dation in payment is the extinguishment of his debt; from the viewpoint of the creditor, the cause is the acquisition of the object offered in lieu of the original credit Less freedom in determining the price Giving of the object in lieu of the credit may extinguish completely or partially the credit (depending on the agreement)

* CONTRACT OF SALE VS. BARTER

Article 1638: By a 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.

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:

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SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------BARTER: if value of the thing given as part of the consideration > amount of the money or its equivalent  Because the true cause of the contract for the other party is the thing transferred and not the money. SALE: if  

value of thing < amount of money or its equivalent value of thing = value of money

―Manifest intention‖ – judged by the parties’ contemporaneous and subsequent acts * CONTRACT OF SALE VS. LEASE

Article 1643: In the lease of things, one of the parties binds himself to give to another, the enjoyment or use of a thing for a price certain, and for a period which may be definite or indefinite. However, no lease for more than 99 years shall be valid. Article 1484: Vendor’s alternative remedies in a contract of sale of personal property price of which is payable in installments: 1. Exact fulfillment of obligation in case of failure to pay (specific performance) 2. Cancel sale in case of failure to pay two or more installments 3. Foreclose the chattel mortgage

Article 1485: Art 1484 is also applicable to contracts purporting to be leases of personal property with option to buy, when lessor has deprived lessee of the possession or enjoyment of thing.  So-called rents must be regarded as payment of price in installments since due payment of the agreed amount results in the transfer of title to the lessee JURISPRUDENTIAL DOCTRINES: Jose v. Barrueco, 67 Phil 747 (1939)

The total rents being equal to the value of the thing leased, the SC considered the transaction as one of sale.

* PARTIES TO A CONTRACT OF SALE (DISQUALIFICATIONS)

Article 1489: All persons authorized in this Code to obligate themselves, may enter into 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 therefor. Necessaries are those referred to in Art 290 (now Art 194 of FC) 

Art. 194, Family Code: Necessaries = everything indispensable for sustenance, dwelling, clothing, medical



Art 1399,Civil Code: obligation of incapacitated person who entered into contract to restitute that which he has

attendance, education, and transportation benefited from

Article 234, Family Code: Emancipation takes place by the attainment of majority. Unless otherwise provided, majority commences at the age of 18 years (as amended by R.A. 6809).

Article 44: The following are juridical persons: (1) The State and its political subdivision (2) Other corporations, institutions and entities for public interest or purpose, created by law; their personality begins as soon as they have been constituted according to law (3) Corporations, partnerships and associations for private interest or purpose to which the law grants a juridical personality, separate and distinct from that of each shareholder, partner or member.

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SALES AND LEASE REVIEWER by Diory Rabajante -------------------------------------------------------------------------------------------------------------------------------------------------------------

Article 46: Juridical persons may acquire and possess property of all kinds, as well as incur obligations and bring civil or criminal actions, in conformity with the laws and regulations of their organization.

Article 36(6), Corporation Code: Every corporation incorporated under this Code has the power and capacity: 6. In case of stock corporations, to issue or sell stocks to subscribers and to sell stocks to subscribers and to sell treasury stocks in accordance with the provisions of this Code; and to admit members to the corporation if it be a non-stock corporation;

a.

Absolute Incapacity

Article 1327: The following cannot give consent to a contract: (1) Unemancipated minors (2) Insane or demented persons and (3) Deaf-mutes who do not know how to write

Article 1328: Contracts entered into during a lucid interval are valid. Contracts agreed to in a state of drunkenness or during a hypnotic spell are voidable.

Article 1390: The following contracts are voidable or annullable, even though there may have been no damage to the contracting parties: (1) One of the parties is incapable of giving consent (want of capacity) (2) Consent is vitiated by mistake, violence, intimidation, undue influence or fraud (vitiated consent) These contracts are binding, unless they are annulled by a proper court action. They are susceptible of ratification.

Article 1393: Ratification may be effected expressly or tacitly. It is understood that there is a tacit ratification if with knowledge of the reason which renders the contract voidable and such reason having ceased, the person who has a right to invoke it should execute an act which necessarily implies an intention to waive his right.

Article 1397: The action for annulment of the 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.

Article 1399: When the defect of the contract consists in the incapacity of one of the parties, the incapacitated person is not obliged to make any restitution except insofar as he has been benefited by the price or thing received by him.

Article 1489: (refer above) Article 194, Family Code: Support comprises 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 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.

b.

Relative Incapacity

Articles 1490: Husband and wife cannot sell property to each other, except 1. 2.

When separation of property was agreed upon in marriage settlements When there has been judicial separation of property under Art 191

REASON FOR THE RULE   

To prevent commission of fraud or prejudice to third persons To prevent one from unduly influencing the other To avoid indirect donations

Article 1492: The prohibitions in the two preceding articles are applicable to sales in:

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SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------1. 2. 3.

Legal redemption [Article 1619: Legal redemption is the right to be subrogated, upon the same terms and conditions stipulated in the contract, in the place of one who acquires a thing by purchase or dation in payment, or by any other transaction whereby ownership is transmitted by onerous title.] Compromises [Article 2028: a compromise is a contract whereby the parties, by making reciprocal concessions, avoid a litigation or put an end to one already commenced.] – amicable settlement of a controversy Renunciations [Article 1270: Condonation or remission is essentially gratuitous, and requires the acceptance of the obligor…] – exists when creditor gratuitously abandons his right against debtor as in condonation or remission

Article 73, Family Code: Either spouse may exercise any legitimate profession, occupation, business or activity without the consent of the other. The latter may object only on a 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 accrued to the family prior to the objection (resulting obligation shall be enforced against the separate property of the spouse who has not obtained consent) or thereafter. Foregoing provisions shall not prejudice the rights of creditors who acted in good faith.

Article 96, Family Code: 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. Prohibition can be taken advantage of only by persons who bear such a relationship to the spouses making the transfer or to the property itself that such transfer interferes with their rights or interest.

c.

Specific Incapacity

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: [GAEP-JS] (1) The guardian, the property of the person or persons who may be under his guardianship; o Actual collusion is hard to prove between purchaser and guardian, but such fact can be deduced from the very short time between the two sales and the relationship between them. (2) Agents, the property whose administration or sale may have been entrusted to them, unless the consent of the principal has been given; o Incapacity to buy rests on the fact that greed might get the better of the sentiments of loyalty and disinterestedness which should animate an administrator or agent. o A broker does not come within the prohibition because he is a mere go-between or middleman between the seller and the buyer, bringing them together to make the contract themselves. (3) Executors and administrators, the property of the estate under administration; o But an executor can buy the hereditary rights of an heir to the estate under his administration ( Naval v Enriquez) (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 entrusted to them; this provision shall apply to judges and government experts who, in any manner whatsoever, take part in the sale; o Intended not only to remove any occasion for fraud but also to surround them with the prestige necessary to carry out their functions by freeing them from all suspicion which although unfounded, tends to discredit the institution by putting into question the honor of said functionaries. (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. o Law intends to avoid improper interference by a judge in a thing levied upon or sold by his order (Gan Tingco v Pabinquit). o Incapacity of SC or CA Justice extends to properties or rights in litigation in their territorial jurisdiction. o CFI Judge can buy properties in litigation pending outside his territorial jurisdiction.

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SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------Prohibition likewise extends to properties levied upon an execution before the court within whose territorial jurisdiction they exercise their respective functions. o As to lawyers: curtail any undue influence of the lawyer on his client on account of their confidential association. o Violation of this prohibition also constitutes a breach of professional ethics. o No prohibition if client assigns to the lawyer after the judgment has been rendered and became final. Contingent fee of lawyer maybe annotated as an adverse claim on property awarded to client. (6) Any others specially disqualified by law.  Such contracts made in violation of this provision are void for public policy. They cannot be ratified neither can the right to set up the defense of illegality be waived.  REASON FOR THE RULE: 1. The persons occupy fiduciary relationship with the owner of properties mentioned 2. Prevent them from being tempted to take advantage of their position o

Mercado and Mercado vs Espiritu

Sia Suan vs Alcantara

Uy Sui Pin vs Cantollas Maharlika Pub. Co. vs Tagle

Bautista vs Montilla Rubias vs Batiller

Fornilda vs RTC

The courts have laid down the rule that the sale of real property made by minors who have already passed the ages of puberty and adolescence and are near the adult age when they pretend to have already reached their majority, while in fact they have not, is valid, and they cannot be permitted afterwards to excuse themselves from compliance with the obligation assumed by them or to seek their annulment. This doctrine is entirely in accord with the provisions of the Rules of Court (Rule 131, Sec. 1) and the principle of estoppel. The ruling in Mercado case is affirmed. To bind a minor who represents himself to be of legal age, it is not necessary for his vendee to actually part with cash, as long as the contract is supported by a valid consideration. Since appellee's conveyance to the appellants was admittedly for and in virtue of a pre-existing indebtedness (unquestionably a valid consideration), it should produce its full force and effect in the absence of any other vice that may legally invalidate the same. It is not here claimed that the deed of sale is null and void on any ground other than the appellee's minority. Appellee's contract has become fully efficacious as a contract executed by parties with full legal capacity. The circumstance that, about one month after the date of the conveyance, the appellee informed the appellants of his minority, is of no moment, because appellee's previous misrepresentation had already estopped him from disavowing the contract. Said belated information merely leads to the inference that the appellants in fact did not know that the appellee was a minor on the date of the contract, and somewhat emphasizes appellee's bad faith, when it is borne in mind that no sooner had he given said information than he ratified his deed of sale upon receiving from the appellants the sum of P500. The sale from Uy Sui Pin to his wife Chua Hue is null and void not only because the former had no right to dispose of the land in controversy in view of the existence of the contract but because such sale comes within the prohibition of article 1458 of the Civil Code. It is a policy of the law that public officers who hold positions of trust may not bid directly or indirectly to acquireproperties foreclosed by their offices and sold at public auction. Article XIII, Section 1 of our Constitution states that: Public office is a public trust. Public officers and employees shall serve with the highest degree of responsibility, integrity, loyalty and efficiency, and shall remain accountable to the people. 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. The reasons are grounded on public order and public policy. Assuming the transaction to be fair and not tainted with irregularity, it is still looked upon with disfavor because it places the officer in a position which might become antagonistic to his public duty. The purchase by a lawyer of the property in litigation from his client is categorically prohibited by Article 1491, paragraph (5) of the Philippine Civil Code, and that consequently, plaintiff's purchase of the property in litigation from his client (assuming that his client could sell the same since his client's claim to the property was defeated and rejected) was void and could produce no legal effect, by virtue of Article 1409, paragraph (7) of our Civil Code which provides that contracts "expressly prohibited or declared void by law are inexistent‖ and that "these contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived." The fact that the property in question was first mortgaged by the client to his lawyer and only subsequently acquired by the latter in a foreclosure sale long after the termination of the case will not remove it from the scope of the prohibition for at the time the mortgage was executed the relationship of lawyer and client still existed, the very relation of trust and confidence sought to be protected by the

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SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------prohibition, when a lawyer occupies a vantage position to press upon or dictate terms to a harassed client. To rule otherwise would be to countenance indirectly what cannot be done directly. Director of Lands vs Ababa Article 1491 prohibits only the sale or assignment between the lawyer and his client of property which is the subject of litigation. In other words, for the prohibition to operate, the sale of the property must take place during the pendency of the litigation involving the property. A contract for a contingent fee is not covered by Article 1491 because the transfer or assignment of the property in litigation takes effect only after the finality of a favorable judgment. In the instant case, the attorney's fees of Atty. Fernandez, consisting of one-half (1/2) of whatever Maximo Abarquez might recover from his share in the lots in question, is contingent upon the success of the appeal. Hence, the payment of the attorney's fees, that is, the transfer or assignment of one-half (1/2) of the property in litigation will take place only if the appeal prospers. Therefore, the tranfer actually takes effect after the finality of a favorable judgment rendered on appeal and not during the pendency of the litigation involving the property in question. Consequently, the contract for a contingent fee is not covered by Article 1491. Krivenko vs Register of Deeds Aliens are disqualified to purchase agricultural lands (1987 Consitution, Art. XII, Secs. 3 and 7). Our lands form part of our heritage thus we should preserve them. We need to nationalize them otherwise foreigners might end up owning them which would make a mockery out of our independence. They can lease lands if they wish or if they really want to own land, they can always acquire Filipino citizenship. Sarsosa vda. de Barsobia vs Where a land is sold to an alien who later sold it to a naturalized Filipino, the sale to the latter cannot be Cuenco impugned. In such case, there would be no more public policy to be served in allowing the Filipino seller or his heirs to recover the land as the same is already owned by a qualified person. Herrera vs Luy Kim Guan Where a land is sold to an alien who later sold it to a Filipino, the sale to the latter cannot be impugned. In such case, there would be no more public policy to be served in allowing the Filipino seller or his heirs to recover the land as the same is already owned by a qualified person. Vicente Godinez vs Fong Pak Prescription may never be invoked to defend that which the Constitution prohibits. However, where a land Luen is sold to an alien who later sold it to a Filipino, the sale to the latter cannot be impugned. In such case, there would be no more public policy to be served in allowing the Filipino seller of his heirs to recover the land as the same is already owned by a qualified person Jacobus Bernard Hulst vs PR Under Republic Act (R.A.) No. 4726, otherwise known as the Condominium Act, foreign nationals can own Builders, Inc. Philippine real estate through the purchase of condominium units or townhouses constituted under the Condominium principle with Condominium Certificates of Title. It expressly allows foreigners to acquire condominium units and shares in condominium corporations up to not more than 40% of the total and outstanding capital stock of a Filipino-owned or controlled corporation. Under this set up, the ownership of the land is legally separated from the unit itself. The land is owned by a Condominium Corporation and the unit owner is simply a member in this Condominium Corporation. As long as 60% of the members of this Condominium Corporation are Filipino, the remaining members can be foreigners. * ELEMENTS OF A CONTRACT OF SALE * CONSENT -See Perfection Stage A contract of sale is perfected by mere consent. (Art. 1475)

Consent = meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. (Art. 1319) ELEMENTS OF CONSENT: 1. 2. 3. 4.

Subjects / Contracting parties Concurrence of offer and acceptance (Arts. 1319 - 1326) Legal Capacity of the Contracting parties (Arts. 1327 – 1329) The consent must be intelligent, free and spontaneous (Arts. 1330 – 1336)

* SUBJECT MATTER

ELEMENTS OF SUBJECT MATTER 1. 2. 3.

It must be existing, future, or subject to resolutory condition. (It must be at least a ―possible‖ subject matter) It must be licit. It must be determinate or determinable.

POSSIBLE THING Art. 1461: Things having a potential existence (Emptio rei speratae) may be the object of the contract of sale. The efficacy of the sale of a mere hope or expectancy (Emptio Spei) is ―deemed subject to the condition that the thing will

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SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------come into existence‖ (this phrase should apply to emptio rei speratae and not to emptio spei)). The sale of a vain hope or expectancy is void. Art. 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.

Art. 1463: The sole owner of a thing may sell an undivided interest therein. Art. 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. Art. 1465: Things subject to a resolutory condition (pacto de retro sale) may be the object of the contract of sale.

*EMPTIO SPEI – sale of a mere hope or expectancy (e.g. sale of a sweepstake ticket for P100 where the buyer purchases the ticket with the hope that upon the draw the ticket would win him a million pesos. The object of sale here is not the prize, but rather the ticket or the chance to win)

*EMPTIO REI SPERATAE – sale of a thing with potential existence, subject to a suspensive condition that the thing will

come into existence. If the subject matter does not come into existence, the contract is deemed extinguished as soon as the time expires or if it has become indubitable that the event will not take place. (e.g. sale of pending crops)

LICIT – Art. 1459: The thing must be licit and the vendor must have a right to transfer the ownership thereof at the time it is delivered.

Art. 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.

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; (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.

Art. 1416: When the agreement is not illegal per se but is merely prohibited, and the prohibition by the law is designated for the protection of the plaintiff, he may, if public policy is thereby enhanced, recover what he has paid or delivered.

Examples of void sale due to being illicit: Sale of animals suffering from contagious diseases (Art. 1575) Sale of animals if the use or service for which they are acquired has been stated in the contract, and they are found to be unfit therefor (Art. 1575) Sale of future inheritance. (Art. 1347)

DETERMINATE OR AT LEAST DETERMINABLE (Art. 1460) A thing is determinate when it is particularly designated or physically segregated from all others of the same class. A thing is determinable (and this satisfies the requirement that the thing be determinate as per Art. 1458) when the following concur: (a) If at the time the contract is entered into, the thing is capable of being made determinate; and (b) Without the necessity of a new or further agreement between the parties. Martin vs Reyes

Property or goods which at the time of the sale are not owned by the seller but which thereafter are to be acquired by him, cannot be the subject of an executed sale but may be

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SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------the subject of a contract for the future sale and delivery thereof, even though the acquisition of the goods depends upon a contingency which may or may not happen. In such case, the vendor assumes the risk of acquiring the title and making the conveyance, or responding in damages for the vendee's loss of his bargain. Melizza vs City of The requirement of the law that a sale must have for its object a determinate thing, is Iloilo fulfilled as long as, at the time the contract is entered into, the object of the sale is capable of being made determinate without the necessity of a new or further agreement between the parties (Art. 1273, old Civil Code; Art. 1460, New Civil Code). The specific mention of some of the lots plus the statement that the lots object of the sale are the ones needed for city hall site; avenues and parks, according to the Arellano plan, sufficiently provides a basis, as of the time of the execution of the contract, for rendering determinate said lots without the need of a new and further agreement of the parties. Appellant however fails to consider that the area needed under that plan for city hall site was then already known; it could be determined which, and how much of the portions of land contiguous to those specifically named, were needed for the construction of the city hall site. National Grains The object of the contract, being the palay grains produced in Soriano's farmland and the Authority vs IAC 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. Pichel vs Alonzo A valid sale may be made of "the wine a vine is expected to produce; or the grain a field may grow in a given time; or the milk a cow may yield during the coming year; or the wool that shall thereafter grow upon a sheep; or what may be taken at the next cast of a fisherman's net; or the goodwill of a trade, or the like. The thing sold, however, must be specific and identified. They must be also owned by the vendor at the time. Domingo Realty vs The object of a contract, in order to be considered as "certain," need not specify such CA object with absolute certainty. It is enough that the object is determinable in order for it to be considered as "certain." -In the instant case, the title over the subject property contains a technical description that provides the metes and bounds of the property of petitioners. Such technical description is the final determinant of the extent of the property of petitioners. Thus, the area of petitioners’ property is determinable based on the technical descriptions contained in the TCTs. *Art. 1459 provides that the seller must have the right to transfer the ownership at the time the thing is delivered. Hence, it is not required that the seller is the owner of the thing at the moment of the perfection of the contract of sale. GEN. RULE: The seller need not be the owner of the thing at the time of perfection. EXCEPTION: Conchita Nool vs CA and Cavite Development Bank vs Lim Cavite Development In the case at bar, a contract of sale was perfected. The sum of P30,000.00, Bank, et al vs Cyrus although denominated in the offer to purchase as "option money," is actually in the Lim, et al. nature of earnest money or down payment when considered with the other terms of the offer. Contracts are not defined by the parties thereto but by principles of law. In determining the nature of a contract, the courts are not bound by the name or title given to it by the contracting parties. - However, a legal obstacle has rendered it impossible in the case at bar, to perform its obligation. The sale to Lim of the property mortgaged by Rodolfo is deemed a nullity for CDB never acquired a valid title to the property because the foreclosure sale, in which CDB has been awarded the property is also a nullity since the mortgagor is not the real owner of the said property. Conchita Nool vs CA Article 1505 of the Civil Code provides that "where goods are sold by a person who is not the owner thereof, and who does not sell them under authority or with 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." Here, there is no allegation at all that petitioners were authorized by DBP to sell the property to the private respondents. Jurisprudence, on the other hand, teaches us that "a person can sell only what he owns or is authorized to sell; the buyer can as a consequence acquire no more than what the seller can legally transfer." As petitioners "sold" nothing, it follows that they can also "repurchase" nothing. In this light, the contract of repurchase is also inoperative — and by the same analogy, void.

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SALES AND LEASE REVIEWER by Diory Rabajante -------------------------------------------------------------------------------------------------------------------------------------------------------------

HYPOTHETICAL QUESTIONS: 1.

A brought B to the place where A’s property is located. A told B that the size of his land is as big as far as B’s eyes can see. A offered to sell this land to B for P500k. B accepted the offer. Is there a perfected contract? Yes. The subject matter is determinable or capable of being made determinate without the need for a new or further agreement between A and B.

2.

In 1911, the sale of alcoholic drinks to members of the non-Christian tribes is prohibited. During that time, A sold B (a member of the non-Christian tribe) an alcoholic drink. In 1912, Congress passed a law decriminalizing the sale of alcoholic drinks to members of non-Christian tribes. Is the sale between A and B valid? No. The contract of sale is still void for being illegal. The validity of the contract is determined as of the time it is perfected.

3.

A sold B a very old lottery ticket (dated 1965). Is the sale valid? It is void as it is a sale of vain hope. However, if the lottery ticket is a collector’s item, there is a valid sale.

* PRICE

Art. 1469: In order that the price may be considered certain, it shall be sufficient that it be so with reference to another thing certain, or that the determination thereof be left to the judgment of specified person or persons. Should such person or persons be unable or unwilling to fix it, the contract shall be inefficacious, unless the parties subsequently agree upon the price. If the third person or persons acted in bad faith or by mistake, the courts may fix the price. Where such third person or persons are prevented from fixing the price or terms by fault of the seller or the buyer, the party not in fault may have such remedies against party in fault as are allowed the seller or the buyer, as the case may be.

Art. 1470: Gross inadequacy of price does not affect a contract of sale, except as it may indicate a defect in the consent or that the parties really intended a donation or some other act or contract.

Art. 1355: Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract, unless there has been fraud, mistake or undue influence. Alarcon vs. Kasilag Pascua vs. Simeon

Inadequacy of price may be a ground for setting aside an execution sale but is not a sufficient ground for cancellation of a voluntary contract of sale otherwise free from invalidating effects. Gross inadequacy of price may avoid judicial sale only when it is shocking to the conscience of man.

Art. 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.

Art. 1346: (simulated contract) An absolutely simulated or fictitious contract is void. A relative simulation, when it does

not prejudice a third person and is not intended for any purpose contrary to law, morals, good customs, public order or public policy binds the parties to their real agreement.

Art. 1472: The price of securities, grain, liquids, and other things shall also be considered certain, when the price fixed is that which the thing sold would have on a definite day, or a particular exchange or market, or when an amount is fixed above or below the price on such day, or in such exchange or market, provided said amount be certain.

Art. 1473: The fixing of the price can never be left to the discretion of one of the contracting parties. However, if the price

fixed by one of the parties is accepted by the other, the sale is perfected. (The owner of a thing has the right to quote his own price, reasonable or unreasonable. It is up to the prospective buyer to accept or reject it.)

Art. 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. Requisites of 1474 as exception (however, if the thing or any part thereof has been delivered to and appropriated by the buyer…): a. Meeting of the minds as to the subject matter; b. Agreement that a price will be paid; and c. Delivery by the seller and appropriation by the buyer of the subject matter

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SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------o Article 1249, par. 2 – is applicable only to negotiable instruments issued by a person other than the debtor. Otherwise, there will be an unjust enrichment in favor of the debtor. Why should the price be certain? If the price is not certain then the requisite that there must be a meeting of the offer and acceptance upon the thing and the cause which are to constitute the contract will not be satisfied. What is the meaning of ―or its equivalent‖? This means that there is certainty as to the price but what is given as payment is an object (e.g. P50k worth of Maggi noodles) * ―or its equivalent‖ does not refer to negotiable instruments. A negotiable instrument, by its form, is intended as a substitute for money. Simulated price vs Simulated contract? Art. 1346: (simulated contract) An absolutely simulated or fictitious contract is void. A relative simulation, when it does not prejudice a third person and is not intended for any purpose contrary to law, morals, good customs, public order or public policy binds the parties to their real agreement. Simulated price: The contract is not simulated, but the price (cause) is. Art. 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.

ELEMENTS OF PRICE 1. Real (not simulated) – when at the perfection of the contract, there is every intention on the part of the buyer to pay the 2.

price, and every intention on the part of the seller to receive such price.

Certain or Ascertainable a. b.

3. 4.

Certain – expressed and agreed in terms of specific pesos and centavos Ascertainable – i. By third persons ii. By the courts – where the third person fixes the price in bad faith or by mistake iii. By reference to a definite day, particular exchange or market iv. By reference to another thing certain

In money or its equivalent Manner of payment must be agreed upon (Marnelego vs. Banco Filipino Savings and Mortgage Bank)

HYPOTHETICAL QUESTIONS: 1.

A offered to sell his parcel of land to B. B accepted the offer. However, there is no agreement as to the price. A appointed C to fix the price. C fixed the price at P500k. Is there a perfected contract? No, there is none. There must be an agreement between A and B as to the price.

* STAGES IN THE LIFE OF A CONTRACT OF SALE * NEGOTIATION STAGE (OPTION CONTRACT, RIGHT OF FIRST REFUSAL)

Art. 1324: When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance by communicating such withdrawal, except when the option is founded upon a consideration, as something paid or promised.

Art. 1479: A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.

An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price. What is an Option Contract? o It is a contract that grants an exclusive right in one person, for which he has paid a separate consideration, to buy a certain object within an agreed period.

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SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------o

An option is a contract granting a privilege to buy or sell within an agreed time and at a determined price. [Laforteza vs. Machuca; Spouses Buot vs. CA]

Contract of Sale vs. Option Contract? Is an option contract necessary to have a perfected contract of sale? o No. Is an Option Contract a consensual contract? Can there be an option contract without a consideration? Option Contract vs. Right of First Refusal? OPTION CONTRACT Principal contract; stands on its own Needs separate consideration Subject matter and price must be valid Not conditional Not subject to specific performance

RIGHT OF FIRST REFUSAL Accessory; cannot stand on its own Does not need separate consideration There must be subject matter but price not important Conditional Subject to specific performance

Option Money vs. Earnest Money? OPTION MONEY Ownership is reserved, and is not to pass until full payment In cases of non-payment, there can be action for specific performance Money given as a distinct consideration for an option contract The would-be buyer is not required to buy Applies to a sale not yet perfected

EARNEST MONEY Title passes to the buyer upon delivery of the thing sold In case of non-payment, an action for specific performance or for rescission can be filed by the injured party Part of the purchase price When given, the buyer is bound to pay the balance There is already a sale

HYPOTHETICAL QUESTIONS: 1.

On 1 June 2009, A offered to sell a parcel of land to B for P500k. B was given a period to accept the offer (up to 1 July 2009). B said he will give the consideration on 30 August 2009. Rule the case. There is an offer, but there is no option contract. Even if B paid the consideration on 30 June, there is still no option contract unless A agreed to enter into an option contract should B pay on 30 June.

2.

On 1 June 2009, A offered to sell a parcel of land to B for P500k. B was given a period to accept the offer (up to 1 July 2009). On 2 July 2009, B accepted the offer. Rule the case. There is no perfected contract of sale because A’s offer already expired.

3.

On 1 June 2009, A offered to sell a parcel of land to B for P500k. B was given a period to accept the offer (up to 1 July 2009). On 2 June 2009, B accepted the offer. Rule the case. The sale between A and B is perfected.

4.

On 1 June 2009, A offered to sell a parcel of land to B for P500k. B was given a period to accept the offer (up to 1 July 2009). On 2 June 2009, B accepted the offer. However, on 3 June 2009, A said that he is no longer interested in selling the land. Rule the case. A can no longer withdraw the offer because B has already accepted the same. (Art. 1324)

5.

On 1 June 2009, A offered to sell a parcel of land to B for P500k. B was given a period to accept the offer (up to 1 July 2009). On 2 June 2009, A wanted to withdraw the offer, but he was unable to communicate the withdrawal to B. B accepted the offer on 3 June 2009. Rule the case. The sale is perfected. Withdrawal of the offer, in order to be valid, must be communicated to the offeree.

6.

On 1 June 2009, A offered to sell a parcel of land to B for P500k. B was given a period to accept the offer (up to 1 July 2009). They further agreed that should B give P5k, A will not withdraw the offer prior to the expiration of the period given to B. On 2 June 2009, B offered to A the P5k consideration. A, however, said that he would not accept the P5k as he is willing to enter into an option contract with B even without the payment of P5k. Rule the case. (?)

7.

On 1 June 2009, A offered to sell a parcel of land to B for P500k. B was given a period to accept the offer (up to 1 July 2009). They further agreed that should B give P5k, A will not withdraw the offer prior to the expiration of the period given

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SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------to B. On 2 June 2009, B offered to A the P5k consideration. A, however, said that he is no longer willing to sell the land to B. Rule the case. Jurisprudential Doctrines: Southwestern Sugar and Molasses Co. vs Atlantic Gulf & Pacific Co. (1955) Atkins Kroll & Co. vs Cua Hien Tek (1958) Navarro vs Sugar Producers, Inc. (1961)

Sanchez vs Rigos (1972)

Rural Bank of Paranaque vs CA (1985) Natino vs IAC (1991)

Ang Yu Asuncion vs CA (1994)

When an option is not supported by a separate consideration, it is void and can be withdrawn notwithstanding the acceptance made previously by the offeree. Upon accepting the offer, a bilateral promise to sell and to buy ensues; the buyer assumes ipso facto the obligations of a purchaser, and not merely the right subsequently to buy or not to buy. The concurrence of both acts – the offer and the acceptance – generates a binding contract of sale. A consideration in an option to buy is essential for a perfection of a contract. In the case at bar, the sale lacks the most essential element- the manner of payment of the purchase price, therefore there was no complete meeting of the minds of the parties necessary for the perfection of a contract of sale. Consequently, defendant was justified in withdrawing its offer to sell the molasses in question. If acceptance is made before withdrawal, it constitutes a binding contract of sale although the option is given without consideration. Before acceptance, the offer may be withdrawn as a matter of right. Be that as it may, the offerer cannot revoke, before the period has expired, in an arbitrary manner the offer without being liable for damages which the offeree may suffer under Article 19 f the Civil Code. This view has the advantage of avoiding a conflict between Article 1324 and Article 1479, in line with the cardinal rule of statutory construction that, in construing different provisions of one and the same law or code, such interpretation should be favored as will reconcile or hamonize said provisions and avoid a conflict between the same. The decision in Soutwestern case considers Article 1479 as an exception to Article 1324, and exceptions are not favored unless the intention to the contrary is clear, and it is not so insofar as said two articles are concerned. (The doctrine laid down in the Atkins case is reaffirmed, and, insofar as inconsistent therewith, the view adhered to in Southwestern case should be deemed abandoned or modified.) The commitment by a bank to resell a property within a specified period, although accepted by the party in whose favor it was made, was considered an option not supported by a consideration. Lacking such consideration, the option was held void pursuant to Southwestern Sugar and Molasses Co. case. Citing Rural Bank of Paranaque, Inc. case, the Supreme Court held that the promise made by the President of a bank to allow the petitioners to buy (or to re-sell them) the foreclosed property (not redeemed since the offer took place after the expiration of the redemption period) at any time they have money is not binding on the bank because it was a promise unsupported by a consideration distinct from the re-purchase price. Rules where a period is given to the offeree within which to accept: 1. If the period itself is not founded upon or supported by a separate consideration, the offeror is still free and has the right to withdraw the offer before its acceptance, or if an acceptance has been made, before the offeror’s coming to know of such fact, by communicating that withdrawal to the offeree. (this is in accordance with Sanchez doctrine) 2. The right to withdraw, however, must not be exercised whimsically or arbitrarily; otherwise, it could give rise to a damage claim under Article 19 of the Civil Code. 3. If the period has a separate consideration, a contract of option is deemed perfected, and it would be a breach of that contract to withdraw the offer during the agreed period. 4. The option, however, is an independent contract by itself, and it is to be distinguished from the projected main agreement (subject matter of the option) which is obviously yet to be concluded. If, in fact, the optionerofferor withdraws the offer before its acceptance (exercise of option) by the optionee-offeree, the latter may not sue for specific performance on the proposed contract (object of the option) since it has failed to reach its own stage of perfection. The optioner-offeror, however, renders himself liable for damages for breach of the option.

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SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------5.

Nietes vs CA (1972)

In these cases, care should be taken of the real nature of the consideration given, for if in fact, it has been intended to be part of the consideration for the main contract with a right of withdrawal on the part of the optionee, the main contract could be deemed perfected; a similar instance would be an earnest money in contract of sale that can evidence its perfection. Notice of the exercise of the option need not be coupled with actual payment of the price, so long as this is delivered to the owner of the property upon performance of his part of the agreement.

* PERFECTION STAGE (OFFER AND ACCEPTANCE) A contract of sale is perfected by mere consent. (Art. 1475)

Consent = meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. (Art. 1319) ELEMENTS OF CONSENT: 5. 6. 7. 8.

Subjects / Contracting parties Concurrence of offer and acceptance (Arts. 1319 - 1326) Legal Capacity of the Contracting parties (Arts. 1327 – 1329) The consent must be intelligent, free and spontaneous (Arts. 1330 – 1336)

ELEMENTS OF OFFER: 1. 2. 3.

Complete Definite as to the certainty of price and identity of the object Intentional

Mirror Image theory – The person making the offer may fix time, place, and manner of acceptance, all of which must be complied with. (Art. 1321) Cognition theory – the offer is deemed accepted when the acceptance has come to the knowledge of the offeror. *Form of offer

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.

Article 1325: Unless it appears otherwise, business advertisements of things for sale are not definite offers, but mere invitation 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 bidders unless the contrary appears.

* Form of acceptance 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.

Article 1320: An acceptance may be express or implied. Article 1321: The person making the offer may fix the time, place, and manner of acceptance, all of which must be complied with.

Article 1322: An offer made through an agent is accepted from the time acceptance is communicated to him. * When offer becomes ineffective

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SALES AND LEASE REVIEWER by Diory Rabajante -------------------------------------------------------------------------------------------------------------------------------------------------------------

Article 1323: An offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of either party before acceptance is conveyed

Acceptance must be plain and unconditional. Any condition necessarily involves a new proposal, which must be accepted by the other party to give rise to a binding agreement. Acceptance must be in accordance with the terms and conditions of the offer to effectively bind the offeror. *The object need not be owned by the seller at the time of perfection. It is sufficient that the seller has the right to transfer the ownership of the object at the time of delivery. - LEGAL BASES: Art. 1459 (vendor must have the right to transfer the ownership of the thing at the time of delivery); and Art. 1434 (When a person who is not the owner of a thing sells or alienates and delivers it, and later the seller or grantor acquires title thereto, such title passes by operation of law to the buyer or grantee.) - EXCEPTION to this rule: CDB vs Lim and Nool vs CA Cavite Development Bank, et al vs Cyrus Lim, et al.

Conchita Nool vs CA

In the case at bar, a contract of sale was perfected. The sum of P30,000.00, although denominated in the offer to purchase as "option money," is actually in the nature of earnest money or down payment when considered with the other terms of the offer. Contracts are not defined by the parties thereto but by principles of law. In determining the nature of a contract, the courts are not bound by the name or title given to it by the contracting parties. - However, a legal obstacle has rendered it impossible in the case at bar, to perform its obligation. The sale to Lim of the property mortgaged by Rodolfo is deemed a nullity for CDB never acquired a valid title to the property because the foreclosure sale, in which CDB has been awarded the property is also a nullity since the mortgagor is not the real owner of the said property. Article 1505 of the Civil Code provides that "where goods are sold by a person who is not the owner thereof, and who does not sell them under authority or with 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." Here, there is no allegation at all that petitioners were authorized by DBP to sell the property to the private respondents. Jurisprudence, on the other hand, teaches us that "a person can sell only what he owns or is authorized to sell; the buyer can as a consequence acquire no more than what the seller can legally transfer." As petitioners "sold" nothing, it follows that they can also "repurchase" nothing. In this light, the contract of repurchase is also inoperative — and by the same analogy, void.

HYPOTHETICAL QUESTIONS: 1.

A offered to transfer the ownership of and deliver a piano to B for P5k. B accepted the offer. However, before delivery by A and payment by B, A sold the piano to C. Rule the case. There is a double sale. (See Double Sale)

2.

A offered to sell a bag of shabu to B for P500k. B accepted the offer. Is there a perfected contract of sale? Yes. There is a perfected, yet void, contract.

3.

A (a 15 year old boy) bought a kilo of rice from B for P35. Is the sale perfected? Yes, this is considered a sale of necessaries.

4.

A owns Lot 1. B, a stranger to A, sold Lot 1 to C. Is the sale between B and C perfected? Yes, the sale is perfected but the same is unenforceable as between A and B. [Art. 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 xxx]

5.

A wanted to sell his only car for P500k. He advertised this in a newspaper. B read the advertisement, and thereafter went to A to purchase the car. A, however, told B that he is no longer interested in selling the car. Can B compel A to sell the car? No. See Article 1325.

6.

B offered to sell a parcel of land to A, and told the latter that the acceptance should be made only on the 3rd day after the offer was communicated. Furthermore, B said that the acceptance of the offer should be sent through fax. A was very much interested to buy the land, so he sent B an e-mail message on the 3rd day after the offer was communicated, informing B that he is accepting the offer. Was there a perfected contract of sale?

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SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------No. See Article 1321. *CONSUMMATION STAGE

EXTINGUISHMENT OF OBLIGATIONS

Obligations are extinguished: 1. by payment or performance 2. by loss of the thing due 3. by condonation or remission 4. by 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. *For purposes of extinguishing an obligation, payment and performance of the obligation are the same. (Arts. 1232 and 1233) Art. 1232; Payment means not only the delivery of money but also the performance, in any other manner, of an obligation. (n) Art. 1233: A debt shall not be understood to have been paid unless the thing or service in which the obligation consists has been completely delivered or rendered, as the case may be.

* Question: In a contract of sale, is delivery of the property the only means to transfer ownership? No. See Article 1434 (Estoppel: the seller is not the owner of the thing) - construe Art. 1434 in relation to Art. 1403(1)

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

EFFECT OF ESTOPPEL

Hypothetical Question: A owns Lot 1. B, a stranger to A, sold Lot 1 to C. Thereafter, B was able to purchase Lot 1 from A. (1) Was the sale of between B and C prior to B’s purchase of the land perfected? Yes. The sale is perfected. However, it is unenforceable. (2) Who has the better right to Lot 1? (Stated differently, who owns Lot 1?) C is the owner. Title passes to C by operation of law.

* FORMATION OF CONTRACTS * Article 1483: Subject to the provisions of the Statute of Frauds and of any other applicable statute, a contract of sale may be made: 1. 2. 3. 4.

In writing Word of mouth Partly in writing and partly by word of mouth May be inferred from the conduct of parties

*Form of Contract: Art. 1356: Contracts shall be obligatory, in whatever form they may have been entered into, provided all the essential

requisites for their validity are present. However, when the law requires that a contract be in some form in order that it may be valid or enforceable, or that a contract be proved in a certain way, that requirement is absolute and indispensable. In such cases, the right of the parties stated in the following article cannot be exercised.

Art. 1357: If the law requires a document or other special form, as in the acts and contracts enumerated in the following article, the contracting parties may compel each other to observe that form, once the contract has been perfected. This right may be exercised simultaneously with the action upon the contract.

Art. 1358: The following must appear in a public document:

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SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------(1) Acts and contracts which have for their object the creation, transmission, modification or extinguishment of real rights over immovable property; sales of real property or of an interest therein are governed by Articles 1403, No. 2, and 1405; (2) The cession, repudiation or renunciation of hereditary rights or of those of the conjugal partnership of gains; (3) The power to administer property, or any other power which has for its object an act appearing or which should appear in a public document, or should prejudice a third person; (4) The cession of actions or rights proceeding from an act appearing in a public document. All other contracts where the amount involved exceeds five hundred pesos must appear in writing, even a private one. But sales of goods, chattels or things in action are governed by Articles, 1403, No. 2 and 1405. *If notary public is not authorized – deed of sale of land is still valid because public instrument is not even essential for the validity of the sale (Sorfano v Latono) *The only purpose of the Statute of Frauds is to prove the existence of contracts. It cannot be made to apply to contracts which are not executory. * Can there be a reformation of an oral contract of sale? An oral contract of sale cannot be reformed.

* Electronic Commerce Act Section 7, Republic Act No. 8792, Electronic Commerce Act: Legal Recognition of Electronic Documents. – Electronic documents shall have the legal effect, validity or enforceability as any other document or legal writing, and (a) Where the law requires a document to be in writing, that requirement is met by an electronic document if the said electronic document maintains its integrity and reliability and can be authenticated so as to be usable for subsequent reference, in that (i) The electronic document has remained complete and unaltered, apart from the addition of any endorsement and any authorized change, or any change which arises in the normal course of communication, storage and display; and (ii) The electronic document is reliable in the light of the purpose for which it was generated and in the light of all the relevant circumstances. (b) Paragraph (a) applies whether the requirement therein is in the form of an obligation or whether the law simply provides consequences for the document not being presented or retained in its original form. (c) Where the law requires that a document be presented or retained in its original form, that requirement is met by an electronic document if (i) There exists a reliable assurance as to the integrity of the document from the time when it was first generated in its final form; and (ii) That document is capable of being displayed to the person to whom it is to be presented: Provided, That no provision of this Act shall apply to vary any and all requirements of existing laws on formalities required in the execution of documents for their validity. For evidentiary purposes, an electronic document shall be the functional equivalent of a written document under existing laws. This Act does not modify any statutory rule relating to the admissibility of electronic data messages or electronic documents, except the rules relating to authentication and best evidence. Section 8, Republic Act No. 8792, Electronic Commerce Act Legal Recognition of Electronic Signatures. - An electronic signature on the electronic document shall be equivalent to the signature of a person on a written document if that signature is proved by showing that a prescribed procedure, not alterable by the parties interested in the electronic document, existed under which (a) A method is used to identify the party sought to be bound and to indicate said party’s access to the electronic document necessary for his consent or approval through the electronic signature; (b) Said method is reliable and appropriate for the purpose for which the electronic document was generated or communicated, in the light of all the circumstances, including any relevant agreement; (c) It is necessary for the party sought to be bound, in order to proceed further with the transaction, to have executed or provided the electronic signature; and (d) The other party is authorized and enabled to verify the electronic signature and to make the decision to proceed with the transaction authenticated by the same.

Section 11, Republic Act No. 8792, Electronic Commerce Act Authentication of Electronic Data Messages and Electronic Documents. - Until the Supreme Court by appropriate rules shall have so provided, electronic documents, electronic data messages and electronic signatures, shall be authenticated by demonstrating, substantiating and validating a claimed identity of a user, device, or another entity in an information or communication system, among other ways, as follows: (a) The electronic signature shall be authenticated by proof that a letter, character, number or other symbol in electronic form representing the persons named in and attached to or logically associated with an electronic data message, electronic document, or that the appropriate methodology or security procedures, when applicable, were employed or

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SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------adopted by a person and executed or adopted by such person, with the intention of authenticating or approving an electronic data message or electronic document; (b) The electronic data message and electronic document shall be authenticated by proof that an appropriate security procedure, when applicable was adopted and employed for the purpose of verifying the originator of an electronic data message and/or electronic document, or in detecting error or alteration in the communication, content or storage of an electronic document or electronic data message from a specific point, which, using algorithm or codes, identifying words or numbers, encryptions, answers back or acknowledgment procedures, or similar security devices. The Supreme Court may adopt such other authentication procedures, including the use of electronic notarization systems as necessary and advisable, as well as the certificate of authentication on printed or hard copies of the electronic document or electronic data messages by electronic notaries, service providers and other duly recognized or appointed certification authorities. The person seeking to introduce an electronic data message and electronic document in any legal proceeding has the burden of proving its authenticity by evidence capable of supporting a finding that the electronic data message and electronic document is what the person claims it to be. In the absence of evidence to the contrary, the integrity of the information and communication system in which an electronic data message or electronic document is recorded or stored may be established in any legal proceeding (a) By evidence that at all material times the information and communication system or other similar device was operating in a manner that did not affect the integrity of the electronic data message and/or electronic document, and there are no other reasonable grounds to doubt the integrity of the information and communication system; (b) By showing that the electronic data message and/or electronic document was recorded or stored by a party to the proceedings who is adverse in interest to the party using it; or (c) By showing that the electronic data message and/or electronic document was recorded or stored in the usual and ordinary course of business by a person who is not a party to the proceedings and who did not act under the control of the party using the record. HYPOTHETICAL QUESTIONS: 1.

A entered into a contract of sale with B where the former engages to sell a parcel of land for P500k. Is the contract valid? The contract is valid but unenforceable. See Art. 1403 (2)(d). 1.1 May the contracting parties compel each other to observe the form? Yes. See Arts. 1357 and 1406. [Art. 1357. If the law requires a document or other special form, as in the acts and contracts enumerated in the following article, the contracting parties may compel each other to observe that form, once the contract has been perfected. This right may be exercised simultaneously with the action upon the contract. Art. 1406. When a contract is enforceable under the Statute of Frauds, and a public document is necessary for its registration in the Registry of Deeds, the parties may avail themselves of the right under Article 1357.]

2.

A entered into a contract of sale with B where the former engages to sell a parcel of land for P500k. B already paid 500k but A refused to deliver the land arguing that the contract they entered into is unenforceable. A’s argument is untenable. The Statute of Frauds is applicable only to executory contracts.

3.

A owns a parcel of land. B is an agent of A. B sold A’s land to C. What is the status of the contract? The contract is void, absent any written document giving B the authority to sell A’s land. See Regina Dizon vs CA. Regina Dizon vs CA

4.

Article 1874 of the Civil Code is explicit that: "When a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void."

A owes B P500k. To defraud B, A sold his only property to C, who was in good faith. What are the remedies available to B? See Article 1177. Art. 1177: The creditors, after having pursued the property in possession of the debtor to satisfy their claims, may exercise all the rights and bring all the actions of the latter for the same purpose, save those which are inherent in his person; they may also impugn the acts which the debtor may have done to defraud them. (Hence, the remedies available to B are: a. To Exact fulfilment with right to damages b. To Exhaust the debtor’s properties still in his possession – writ of attachment (before judgment) or writ of execution (for final judgment not yet executed)

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SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------c. ACCION SUBROGATORIA – an action where the creditor whose claims had not been fully satisfied, may go after the debtors (3rd person) of the defendant debtor. d. ACCION PAULIANA – an action where the creditor files an action in court for the RESCISSION of acts or contracts entered into by the debtor designed to defraud the former.) 5.

A entered into a contract of sale with B where the former engages to sell a parcel of land for P500k. There is no written note or memorandum to prove the contract but the offer and acceptance were made through e-mail. Is the contract valid and enforceable? Yes. The Electronic Commerce Act (RA 8792) is applicable. 5.1. If the offer and acceptance were made through SMS, is the contract still valid and enforceable? I think so.

6.

A entered into a contract of sale with B where the former engages to sell a parcel of land for P500k. When the suit was brought to the court to assail the enforceability of the contract, one party (A), failed to object to the presentation of evidence aliunde made by B. Is the contract valid? Yes. See Article 1405. Art. 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.

7.

A entered into a contract of sale with B where the former engages to sell a parcel of land for $500k. B was mistaken to believe that the price is P500k. Is there a perfected contract? If in the affirmative, is the sale valid? Can the contract be reformed?

* LEGALITY OF SALE

Article 1409: the following contracts are inexistent and void from the beginning (1) (2) (3) (4) (5) (6) (7)

Whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy Those which are absolutely simulated or fictitious Those whose cause or object did not exist at the time of the transaction Those whose object is outside the commerce of men Those which contemplate an impossible service Those where the intention of the parties relative to the principal object of the contract cannot be ascertained Those whose expressly prohibited or declared void by the law These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived.

Article 1411: when the nullity proceeds from the illegality of the cause or object of the contract and the act constitutes a criminal offense, both parties being in pari delicto, they shall have no action against each other and both shall be prosecuted. Moreover, the provisions of the Penal Code relative to the disposal of effects or instruments of a crime shall be applicable to the things or the price of the contract. This rule shall be applicable when only one of the parties is guilty; but the innocent one may claim what he has given and shall not be bound to comply with his promise.

IN PARI DELICTO RULE (for illegal cause or object) 1. BOTH are in pari delicto

2.

   ONLY ONE is guilty  

No action against each other BOTH will be prosecuted RPC provision relative to the disposal of effects/instruments of a crime shall apply INNOCENT PARTY may claim what he has given INNOCENT PARTY not bound to comply with his promise

Article 1416: When the agreement is not illegal per se but is merely prohibited, and the prohibition is designed for the protection of the plaintiff, he may, if public policy is thereby enhanced, recover what he has paid or delivered.

Article XII, Section 2, 1987 Constitution: All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. With the exception of agricultural lands, all other natural resources shall not be alienated. The exploration, development, and utilization of natural resources shall be under the full control and supervision of the State. The State may directly undertake such activities, or it may enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or corporations or associations at least sixty per centum of whose capital is owned by such citizens. Such agreements may be for a period not exceeding twenty-five years, renewable for not more than twenty-five years, and under such terms and conditions as may be 22

SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------provided by law. In cases of water rights for irrigation, water supply fisheries, or industrial uses other than the development of water power, beneficial use may be the measure and limit of the grant. The State shall protect the nation's marine wealth in its archipelagic waters, territorial sea, and exclusive economic zone, and reserve its use and enjoyment exclusively to Filipino citizens. The Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens, as well as cooperative fish farming, with priority to subsistence fishermen and fish-workers in rivers, lakes, bays, and lagoons. The President may enter into agreements with foreign-owned corporations involving either technical or financial assistance for large-scale exploration, development, and utilization of minerals, petroleum, and other mineral oils according to the general terms and conditions provided by law, based on real contributions to the economic growth and general welfare of the country. In such agreements, the State shall promote the development and use of local scientific and technical resources. The President shall notify the Congress of every contract entered into in accordance with this provision, within thirty days from its execution.

Article XII, Section 3, 1987 Constitution: Lands of the public domain are classified into agricultural, forest or timber, mineral lands and national parks. Agricultural lands of the public domain may be further classified by law according to the uses to which they may be devoted. Alienable lands of the public domain shall be limited to agricultural lands. Private corporations or associations may not hold such alienable lands of the public domain except by lease, for a period not exceeding twenty-five years, renewable for not more than twenty-five years, and not to exceed one thousand hectares in area. Citizens of the Philippines may lease not more than five hundred hectares, or acquire not more than twelve hectares thereof, by purchase, homestead, or grant. Taking into account the requirements of conservation, ecology, and development, and subject to the requirements of agrarian reform, the Congress shall determine, by law, the size of lands of the public domain which may be acquired, developed, held, or leased and the conditions therefor.

Article XII, Section 7, 1987 Constitution : Save in cases of hereditary succession, no private lands shall be transferred or conveyed except to individuals, corporations, or associations qualified to acquire or hold lands of the public domain.

Article XII, Section 8, 1987 Constitution: Notwithstanding the provisions of Section 7 of this Article, a natural-born citizen of the Philippines who has lost his Philippine citizenship may be a transferee of private lands, subject to limitations provided by law.

* OBLIGATIONS OF A VENDOR [TDD-MTPAEN] 1. Transfer ownership (Arts. 1458 and 1495) - cannot be waived 2. Deliver the thing sold (Arts. 1458 and 1495) - cannot be waived 3. Deliver the fruits and accessories (Arts. 1164, 1166, and 1537) 4. Make Warranties (Arts. 1545 - 1581) - can be waived or modified; warranty is not an essential element of the contract of sale 5. Take care of the thing, pending delivery, with proper diligence (Art. 1163) 6. Pay for the expenses for the execution and registration of the sale, unless there is stipulation to the contrary (Art. 1487) 7. Accord the buyer the right to examine the goods (Art. 1584) 8. Enter into contract with the carrier on behalf of the buyer as may be reasonable under the circumstances (Art. 1523) 9. Notify the buyer regarding necessity to insure goods if it is usual to insure them (Art. 1523) *DELIVERY - the ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof. - See Arts. 1477, 1496, 1497

Art. 1477: The ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof. Art. 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. Art. 1497: The thing sold shall be understood as delivered, when it is placed in the control and possession of the vendee.

- The vendor must have the right to transfer the ownership of the thing at the time it is delivered (Art 1459)

Reason for this rule: NEMO DAT QUOD NON HABET (He who does not own the thing cannot dispose of the same) Philippine Suburban Development Corp. vs Auditor General

The Court held that in the absence of an express stipulation to the contrary, the payment of the purchase price of the goods is not a condition precedent to the transfer of title to the buyer, but title passes by the

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SALES AND LEASE REVIEWER by Diory Rabajante -------------------------------------------------------------------------------------------------------------------------------------------------------------

Balatbat vs CA

delivery. Devoid of any stipulation that "ownership in the thing shall not pass to the purchaser until he has fully paid the price", ownership in thing shall pass from the vendor to the vendee upon actual or constructive delivery of the thing sold even if the purchase price has not yet been fully paid. The failure of the buyer to make good the price does not, in law, cause the ownership to revest to the seller unless the bilateral contract of sale is first rescinded or resolved pursuant to Article 1191 of the New Civil Code. Non-payment only creates a right to demand the fulfillment of the obligation or to rescind the contract.

* REQUISITES OF DELIVERY (3 I’s) 1. 2.

Identity Integrity

Consing vs CA

SC recognized the right of a buyer in a subdivision land to compel the seller to complete the roads and other facilities of the subdivision, even when nothing to that effect is stipulated in the contract of sale. A seller’s duty is to deliver the thing

sold in a condition suitable for its enjoyment by the buyer for the purposes contemplated… and a proper access to a residence is essential to its enjoyment.

The seller cannot shift to the buyer the burden of providing for an access to and from the subdivision, and when the seller has so defaulted in such obligation, the buyer should be entitled to a proportionate reduction in her purchase price of the two lots. 3.

Intention Abuan vs Garcia Quijada vs CA

The critical factor in all different modes of effecting delivery, which gives legal effect to the act, is the actual intention of the seller to deliver, and its acceptance by the buyer. Without that intention, there is no tradition In all forms of delivery, it is necessary that the act of delivery, whether constructive or actual, should be coupled with the intention of delivering the thing. The act, without the intention, is insufficient. The critical factor in the

different modes of effecting delivery which gives legal effect to the act, is the actual intention of the vendor to deliver, and its acceptance by the vendee. Without that intention, there is no tradition.

The Supreme Court recognized that the sale of a land previously donated by the seller to a local government unit under a resolutory condition, was a valid sale even though at the time of sale, ownership in the property was still with the local government. However, when the resolutory condition did occur which effectively reverted ownership back to the seller, under Article 1434 the seller’s title passes by operation of law to the buyer. The Court expressly recognized that the rule under Article 1434 of the Civil Code applies not only to sale of goods, but also to other kinds of property, including real property. HYPOTHETICAL QUESTIONS: 1.

A and B entered into a contract of sale whereby A engages to sell his watch at P1k to B. Because B was so excited to have the watch, he stole the same from A. Three days later, he sold the same to C. Was there already a delivery of the watch to B? There was no delivery. Delivery must be intentional. There must be an actual intention on the part of the vendor to deliver. Consequently, the contract of sale between B and C is unenforceable [1403(1)].

2.

A and B are friends. They entered into an agreement whereby A would deliver and transfer the ownership of a gold bar to B in exchange of P500k. Instead of delivering a gold bar, A delivered a silver bar. Rule the case. A’s obligation to B as to the delivery of the gold bar still subsists as there was no delivery of the subject matter yet. In order to effect the delivery, the very object of the contract of sale (gold bar) must be delivered (this pertains to the identity).

* SALE OF GOODS BY DESCRIPTION OR BY SAMPLE Art. 1481: In the contract of sale of goods by description or by sample, the contract may be rescinded if the bulk of the

goods delivered do not correspond with the description or the sample, and if the contract be by sample as well as

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SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------description, it is not sufficient that the bulk of goods correspond with the sample if they do not also correspond with the description. The buyer shall have a reasonable opportunity of comparing the bulk with the description or the sample. By SAMPLE – sale where a small quantity of a commodity is exhibited by the seller as a fair specimen of the bulk, which is not present and as to which there is no opportunity to inspect or examine; goods must correspond with sample shown By DESCRIPTION – sale where a seller sells a thing as being of a certain kind, and the buyer merely relies on the seller’s representations or representations; goods must correspond with description Where the goods delivered do not correspond with the description or sample or, as in the case of sale by description and sample, the goods do not correspond with either the description or sample – the remedy is RESCISSION. * 2 KINDS OF DELIVERY 1. ACTUAL – when the thing sold is placed in the control and possession of the vendee 2. CONSTRUCTIVE a. Execution of public instrument (Article 1498, par. 1) Exceptions: i. when there is stipulation to contrary, execution does not produce effect of delivery ii. when at the time of execution of instrument, subject matter was not subject to control of the seller. ii.i subject matter should be within control of seller; he should have capacity to deliver at the time of execution of public instrument when he wants to effect actual delivery Addison vs Felix and Tioco The Code imposes upon the vendor the obligation to deliver the thing sold. The thing is considered to be delivered when it is placed ―in the hands and possession of the vendee.‖ (Civ. Code, art. 1462.) It is true that the same article declares that the execution of a public instrument is equivalent to the delivery of the thing which is the object of the contract, but, in order that this symbolic delivery may

produce the effect of tradition, it is necessary that the vendor shall have had such control over the thing sold that, at the moment of the sale, its material delivery could have been made. It is not enough to confer upon the purchaser the ownership and the right of possession. The thing sold must be placed in his control. When there is no impediment whatever to prevent the thing sold passing into the tenancy of the purchaser by the sole will of the vendor, symbolic delivery through the execution of a public instrument is sufficient. But if, notwithstanding the execution of the

instrument, the purchaser cannot have the enjoyment and material tenancy of the thing and make use of it himself or through another in his name, because such tenancy and enjoyment are opposed by the interposition of another will, then fiction yields to reality — the delivery has not been effected. ii.ii The control or ability to transfer physical possession and enjoyment does not subsist for a reasonable length of time after the execution of the instrument (reasonable time depends on circumstances of persons, places & things) Vda. De Sarmiento vs Lesaca

Although it is postulated that the execution of a public document is equivalent to delivery, this legal fiction only holds true when there is no impediment that may prevent the passing of the property from the hands of the vendor into those of the vendee.

Since tradition is an obligation on the part of the seller, then the burden must continue to lie with the seller to grant the buyer reasonable period to take possession of the subject matter. Effect when these 2 requisites (ii.i and ii.ii) do not concur: no constructive delivery; no compliance on part of SELLER to deliver

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SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------b.

Traditio constitutum possessorium – at the time of perfection, the seller held possession of the subject

c.

Traditio brevi manu – opposite of constitutum possessorium; Before contract of sale, the would-be buyer

d.

Traditio longa manu –Delivery of thing by mere agreement; when SELLER points to the property without

e.

Symbolic delivery – with regard to movable property, delivery may be effected by the delivery of the keys of the place or depository where it is stored or kept. (Art. 1498)

f.

Delivery through carrier (will be discussed later)

g.

Delivery by negotiable document of title (will be discussed later)

h.

Delivery of incorporeal property (will be discussed later)

matter in the concept of owner, and pursuant to the contract, the seller continues to hold physical possession thereof as lessee or other form of possession other than the concept of owner. (Art. 1500)

was already in possession of the would-be subject matter of sale (e.g. as lessee), and pursuant to sale, he would now hold possession in the concept of an owner. (Art. 1499) need of actually delivering (as when the thing sold cannot be transferred to the possession of the vendee at the time of sale). (Art. 1499)

HYPOTHETICAL QUESTIONS: 1.

A entered into a contract of pledge with B where A is about to give his car to B in exchange of P500k loan. The document is duly notarized. Is the delivery of the car to B equivalent to transfer of ownership? No. The transfer of ownership through delivery is applicable only to a contract of sale.

2.

A and B entered into a contract whereby A engages to deliver his car to B, and B to pay a price therefor in the amount of P50k. They executed a public instrument. Was there a delivery of the car? Yes. The rule is applicable to both immovable and movable properties.

3.

A sold B a parcel of land. They executed a public instrument. However, B lost his copy of the instrument. Was there a delivery of the land? Yes. Mere execution of the public instrument constitutes delivery.

4.

A sold B a parcel of land at P500k. The sale is not evidenced by a public instrument, but B took possession of the land after their agreement. When B died, his heir, C, took possession of the land. A contended that he is still the owner of the land as there was no delivery of the land to B, and that the contract was unenforceable pursuant to the statute of frauds. Rule the case. A’s contention is untenable. Being the heir of B, C is now the owner of the land. The statute of frauds is not applicable because this is not an executory contract. Likewise, there is no need to execute a public instrument to effect delivery as there was already an actual delivery of the land when B took possession of the land.

Presumption of Good Faith Tablante vs Aquino

The placing of the titles of ownership in the possession of the vendee or the use which he may make of his right with the consent of the vendor shall be considered as a delivery. Any person who is aware that there is in his title or in the manner of acquiring it any flaw invalidating the same shall be considered a possessor in good faith. Good

faith is always presumed, and any person alleging bad faith on the part of the possessor is obliged to prove it. Possession of the Thing / Physical Presence in the Property bought Gonzales vs Haberer

The execution of the public instrument, without actual delivery of the thing, transfers the ownership from the vendor to the vendee, who may thereafter exercise the rights of an owner over the same. In the instant case, vendor Roque delivered the owner's certificate of title to herein private respondent. It is not necessary that vendee be

physically present at every square inch of the land bought by him, possession of the public instrument of the land is sufficient to accord him the rights of ownership. Execution Sale and Notice of Sale in Mortgage Foreclosure Sale Flores vs Lim

A purchaser of real property at an ordinary execution sale is not entitled to possession at an ordinary execution rents and profits until after the period of redemption has expired and the legal title to the land had become vested in him.

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SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------Gonzales vs Calimbas

The effective conveyance of the land is accomplished by the deed which is issued only after the period of redemption has expired. - The certificate of sale issued to the purchaser at an auction sale is intended to be

a mere memorandum of the purchase. It does not transfer the property but merely identifies the purchaser and the property, states the price and the date when the right of redemption expires. The effective conveyance is made by the deed of absolute sale executed after the expiration of the period of redemption. Tambunting vs CA

failure to advertise a mortgage foreclosure sale in compliance with statutory requirements constitutes a jurisdictional defect invalidating the sale and that a substantial error or omission in a notice of sale will render the notice insufficient and vitiate the sale.

Non-payment of Purchase Price EDCA Publishing vs Santos

Non-payment of the purchase price by the impostor, although amounting to fraud, did not amount to unlawful deprivation under Article 559, but merely may be considered vitiation of consent as to make the contract voidable; but that so long as the contract has not been annulled, it remained valid, and the subsequent sale and delivery by the impostor of the books to Santos effectively transferred ownership to Santos.

Other cases Bean vs Cadwaller

Actual manual delivery of an article sold is not essential to the passing of the title thereto (art 1450, Civil Code) unless made so by the terms of the contract or by an understanding of the parties. The parties to the contract may agree when and on what conditions the property in the subject of the contract was passed to the prospective owner. In the present case the parties agreed that the delivery of the logs should be made alongside a vessel of the defendant. That was done by the plaintiff. The vessel of the defendant was sent to the point of delivery and the said defendant attempted to load on said vessel the logs delivered along its side by the plaintiff. It is a rule well established that a mere contract for the sale of goods, where nothing remains to be

done by the seller before making delivery, transfers the right of property, although the price has not been paid, nor the thing sold actually delivered to the purchaser. Sps. Pingol vs CA

Bucton vs Gabar

The distinction between a contract of sale and a contract to sell is important for in a contract of sale, the title passes to the vendee upon the delivery of the thing sold, whereas in a contract to sell, by agreement, ownership is reserved in the vendor and is not to pass until the full payment of the price. In a contract of sale, the vendor has lost and cannot recover ownership until and unless the contract is resolved or rescinded, whereas in a contract to sell, title is retained by the vendor until the full payment of the price, such payment being a positive suspensive condition, failure of which is not a breach but an event that prevented the obligation of the vendor to convey title from becoming effective. By the delivery of the possession of the land, the sale was consummated and title was transferred to the appellee, that the action is actually not for specific performance, since all it seeks is to quiet title, to remove the cloud cast upon appellee's ownership as a result of appellant's refusal to recognize the sale made by his predecessor, and that as plaintiff-appellee is in possession of the land, the action is imprescriptible.

DELIVERY THROUGH CARRIER

* Is there an instance where the goods are delivered to a third person and yet delivery to the buyer is effected? YES, in case of delivery to carrier. General Rule: When the seller is authorized or required to send goods to the buyer (in pursuance of a contract), delivery to carrier (whether named by the buyer or not) is delivery to buyer [Art. 1523]. Exceptions: 1. FAS (Free Along Side) -the seller pays all charges and is subject to risk until the goods are placed alongside the vessel. 2. FOB (Free on Board) - the seller shall bear all expenses until the goods are delivered according as to whether the goods are to be delivered ―F.O.B.‖ at the point of shipment or at the point of destination determines the time when property passes. 3. CIF (Cost, Insurance, Freight)

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SALES AND LEASE REVIEWER by Diory Rabajante -------------------------------------------------------------------------------------------------------------------------------------------------------------

4.

- under an arrangement ―C.I.F. Pacific Coast (destination), the vendor is to pay not only the cost of the goods, but also the freight and insurance expenses, and, as it was judicially interpreted, this is taken to indicate that the delivery is to be made at the port of destination. Article 1503, first, second and third paragraphs (where the ownership is retained by the seller) (a) Where goods are shipped and by the bill of lading the goods are deliverable to the seller or his agent, or to the order of seller or agent (b) Where goods are shipped and by the bill of lading the goods are deliverable to the order of the buyer or his agent but the possession of the bill of lading is retained by the seller or his agent (c) Where the seller of goods draws on the buyer for the price and transmits the bill of lading and bill of exchange to the buyer to secure acceptance or payment of the bill of exchange, and the buyer does not honor the bill of exchange [Here, the drawer is the seller and the drawee is the buyer. If the buyer does not honor the bill of exchange, he shall return the bill of lading. If he retains the same, he acquires no added right thereby.] * Without the bill of lading, or that the bill of lading is not deliverable to bearer or to the buyer or his order, the buyer does not acquire the direct obligation of the bailee to hold the goods for him.

DELIVERY THROUGH NEGOTIABLE DOCUMENTS OF TITLE Document of Title, defined

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 indorsement or by delivery, goods represented by such document. (Article 1636) Negotiable Document of Title, defined

A document of title in which it is stated that the goods referred to therein will be delivered to the bearer, or to the order of any person named in such document (Art. 1507) Siy Cong Bieng vs Hongkong & Shanghai bank

Warehouse receipt represents the goods, but the intrusting of the receipt is more than the mere delivery of the goods; it is a representation that the one to whom the possession of the receipt has been so entrusted has the title to the goods.

Bill of Lading – a document that serves as evidence of receipt of goods for shipment issued by a common carrier Warehouse Receipt – a document of title which is issued by a warehouseman Quedan – a warehouse receipt that covers sugar Dock warrant – a warrant given by dock-owners to the owner of merchandise imported and warehoused on the dock upon the faith of the bills of lading, as a recognition of his title to the goods

How Negotiated (Arts. 1508-1509) Art. 1508: A negotiable document of title may be negotiated by delivery:

(1) Where by the terms of the document the carrier, warehouseman or other bailee issuing the same undertakes to deliver the goods to the bearer; or (2) Where by the terms of the document the carrier, warehouseman or other bailee issuing the same undertakes to deliver the goods to the order of a specified person, and such person or a subsequent endorsee of the document has indorsed it in blank or to the bearer. Where by the terms of a negotiable document of title the goods are deliverable to bearer or where a negotiable document of title has been indorsed in blank or to bearer, any holder may indorse the same to himself or to any specified person, and in such case the document shall thereafter be negotiated only by the endorsement of such endorsee. (n)

Art. 1509: A negotiable document of title may be negotiated by the endorsement of the person to whose order the

goods are by the terms of the document deliverable. Such endorsement may be in blank, to bearer or to a specified person. If indorsed to a specified person, it may be again negotiated by the endorsement of such person in blank, to bearer or to another specified person. Subsequent negotiations may be made in like manner.

Who can Negotiate (Art. 1512) Art. 1512: A negotiable document of title may be negotiated:

(1) By the owner therefor; or (2) By any person to whom the possession or custody of the document has been entrusted by the owner, if, by the terms of the document the bailee issuing the document undertakes to deliver the goods to the order of the person to

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SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------whom the possession or custody of the document has been entrusted, or if at the time of such entrusting the document is in such form that it may be negotiated by delivery.

Effects of Negotiation (Art. 1513) Art. 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.

Unauthorized Negotiation (Art. 1518)

As between the owner of a negotiable document of title who indorsed it in blank and entrusted it to a friend, and the holder of such negotiable document of title to whom it was negotiated in good faith and for value, the latter is preferred, under the principle that as between two innocent persons, he who made the loss possible should bear the loss.

Art. 1518: The validity of the negotiation of a negotiable document of title is not impaired by the fact that the

negotiation was a breach of duty on the part of the person making the negotiation, or by the fact that the owner of the document was deprived of the possession of the same by loss, theft, fraud, accident, mistake, duress, or conversion, if the person to whom the document was negotiated or a person to whom the document was subsequently negotiated paid value therefor in good faith without notice of the breach of duty, or loss, theft, fraud, accident, mistake, duress or conversion.

Non-Negotiable Documents of Title How transferred or assigned (Art. 1514) Effects of transfer (Art. 1514) Art. 1514: A person to whom a document of title has been transferred, but not negotiated, acquires thereby, as

against the transferor, the title to the goods, subject to the terms of any agreement with the transferor. If the document is non-negotiable, such person also acquires the right to notify the bailee who issued the document of the transfer thereof, and thereby to acquire the direct obligation of such bailee to hold possession of the goods for him according to the terms of the document. Prior to the notification to such bailee by the transferor or transferee of a non-negotiable document of title, the title of the transferee to the goods and the right to acquire the obligation of such bailee may be defeated by the levy of an attachment of execution upon the goods by a creditor of the transferor, or by a notification to such bailee by the transferor or a subsequent purchaser from the transfer of a subsequent sale of the goods by the transferor.

Warranties on Negotiation or Assignment (Art. 1516)

- A person who negotiates or transfers a document of title warrants that: 1. The document is genuine; 2. He has a legal right to negotiate or transfer it; 3. He has knowledge of no fact which would impair the validity or worth of the document; 4. He has a right to transfer the title to the goods; and 5. The goods are merchantable or fit for a particular purpose

Negotiable Instrument vs Negotiable Document of Title NEGOTIABLE INSTRUMENT Operates as a substitute for money

Governed by the Negotiable Instruments Law A bearer instrument is always a bearer instrument even if a special indorsement is made

NEGOTIABLE DOCUMENT OF TITLE (to facilitate goods) - operates 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 indorsement or by delivery, goods represented by such document. Governed by the Civil Code, and in some cases, by the Warehouse Receipt Law and Code of Commerce The special indorsement of a bearer instrument has the effect of converting the bearer instrument into an order instrument If words ―non-negotiable‖ or the like are placed on the document, such document may nevertheless be negotiated by the holder

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SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------HYPOTHETICAL QUESTIONS: 1.

A executed and gave B a negotiable document of title payable to the order of B. B negotiated the same through indorsement and delivery to C. C, in turn, negotiated it to D, and D to E. Meanwhile, X, A’s creditor was able to obtain a favorable judgment allowing for the attachment of the document of title in question. May X attach the document of title to satisfy A’s indebtedness? No. See Article 1519.

2.

A executed and gave B a negotiable document of title. B forged the document and indorsed the same to C. Who has the title, A or C? See Article 1518.

RESERVATION OF OWNERSHIP DESPITE DELIVERY 1. When there is an express reservation (Art. 1478) 2. Sale on Acceptance / Sale on Trial (Art. 1502)

3.

- Ownership passes to the buyer only when: (a) He signifies his approval or acceptance to the seller or does any act adopting the transaction; or (b) he does not signify his approval or acceptance but retains the goods without giving notice of rejection, then if a time has been fixed for the return of the goods, on the expiration of such time, and, if no time has been fixed, on the expiration of a reasonable time. [In ―Sale or Return‖ ownership passes to the buyer on delivery but he may revest the ownership in the seller by returning the goods within the time fixed in the contract, or if there is no time fixed, within a reasonable time] Article 1503, first, second and third paragraphs (a) Where goods are shipped and by the bill of lading the goods are deliverable to the seller or his agent, or to the order of seller or agent (b) Where goods are shipped and by the bill of lading the goods are deliverable to the order of the buyer or his agent but the possession of the bill of lading is retained by the seller or his agent (c) Where the seller of goods draws on the buyer for the price and transmits the bill of lading and bill of exchange to the buyer to secure acceptance or payment of the bill of exchange, and the buyer does not honor the bill of exchange [Here, the drawer is the seller and the drawee is the buyer. If the buyer does not honor the bill of exchange, he shall return the bill of lading. If he retains the same, he acquires no added right thereby.]

COMPLETENESS OF DELIVERY * MOVABLES (Article 1522)

Where, in relation to what is contracted to sell, the quantity of goods delivered is – 

LESS - Buyer has 2 options: (a) Reject the goods (b) Accept them [When the acceptance is with knowledge that the seller is not going to perform the contract = buyer shall pay at contract rate; When knowledge is after the acceptance and consummation or disposal of the goods = buyer is not liable for more than the fair value to him of the goods delivered]



LARGER - Buyer has 3 options: (a) Accept per contract and reject the rest (b) Accept the whole and pay at contract rate (c) If indivisible, reject the whole or accept it entirely



MIXED WITH GOODS OF DIFFERENT DESCRIPTION - Buyer has 2 options: (a) Accept the goods which are in accordance with the contract and reject the rest (b) If indivisible, reject the goods entirely or accept them entirely

* IMMOVABLES (Article 1522) 

SOLD PER UNIT OR NUMBER (Art. 1539 - 1540) - With statement of area at the rate of a certain price for a unit or measure or number - If the vendee should demand, the vendor shall deliver ALL that may have been stated in the contract.

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SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------- If what is delivered is:  LESS IN AREA OR OF INFERIOR OR DIFFERENT QUALITY - Buyer may seek: (a) Rescission if lack in area is at least 1/10 of area agreed upon; (b) Rescission if the deficiency in quality specified in the contract exceeds 1/10 of the price agreed upon; (c) Rescission if the vendee would not have bought the immovable had he known of its smaller area or inferior quality; (d) Proportional reduction of price 

GREATER IN AREA (a) Accept per stipulation and reject the rest (b) Accept the whole and pay at contract rate [Articles 1539 and 1540 shall apply to judicial sales (Art. 1541)



SOLD FOR LUMP SUM (Art. 1542) - a cuerpo cierto / por precio alzado - Where price per unit is not indicated  GREATER / LESSER - No rescission or adjustment of price, UNLESS there is gross mistake

-- action shall prescribe in six months (Article 1543)

TIME AND PLACE OF DELIVERY (Art. 1521 in relation to Art. 1251) Art. 1251: Payment shall be made in the place designated in the obligation.

There being no express stipulation and if the undertaking is to deliver a determinate thing, the payment shall be made wherever the thing might be at the moment the obligation was constituted. In any other case the place of payment shall be the domicile of the debtor. If the debtor changes his domicile in bad faith or after he has incurred in delay, the additional expenses shall be borne by him. These provisions are without prejudice to venue under the Rules of Court. (1171a)

Art. 1521: Whether it is for the buyer to take possession of the goods or of the seller to send them to the buyer is

a question depending in each case on the contract, express or implied, between the parties. Apart from any such contract, express or implied, or usage of trade to the contrary, the place of delivery is the seller's place of business if he has one, and if not his residence; but in case of a contract of sale of specific goods, which to the knowledge of the parties when the contract or the sale was made were in some other place, then that place is the place of delivery. Where by a contract of sale the seller is bound to send the goods to the buyer, but no time for sending them is fixed, the seller is bound to send them within a reasonable time. Where the goods at the time of sale are in the possession of a third person, the seller has not fulfilled his obligation to deliver to the buyer unless and until such third person acknowledges to the buyer that he holds the goods on the buyer's behalf. Demand or tender of delivery may be treated as ineffectual unless made at a reasonable hour. What is a reasonable hour is a question of fact. Unless otherwise agreed, the expenses of and incidental to putting the goods into a deliverable state must be borne by the seller. TIME = at a reasonable hour (question of fact) PLACE 1. Stipulation of the parties; or 2. Seller’s place of business if he has one; or 3. Seller’s residence; or 4. In case of sale of specific goods, in the place where the thing is. [Q] Who bears the expenses of delivery? For execution and registration of sale = seller (Art. 1487) For delivery = Buyer (Arts. 1521 and 1251)

SALE BY NON-OWNER OF GOODS (Art. 1505 in relation to Art. 559)

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SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------- As aforementioned, the seller need not have the title to the goods at the time of perfection of the contract. However, he must have the title at the time of delivery.

Art. 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.

Art. 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.

- GENERAL RULE: In a sale by the non-owner, the buyer acquires no better title to the goods than the seller had (he merely steps into the shoes of the seller)

EXCEPTIONS (in which case the true owner cannot recover the thing): 1.

2.

3. 4.

Estoppel or when the owner is precluded, by his own conduct, from denying the seller’s authority to sell (apply Art. 1438 by analogy) – [Art. 1438: One who has allowed another to assume apparent ownership of personal property for the purpose of making any transfer of it, cannot, if he received the sum for which a pledge has been constituted, set up his own title to defeat the pledge of the property, made by the other to a pledgee who received the same in good faith and for value.] PD 1529 (Recording Laws; Torrens Title) - even when the sale is void, the general rule that the direct result of a previous void contract cannot be valid is inapplicable when it will directly contravene the Torrens system of registration. The Court cannot disregard such rights and order the cancellation of the certificate, since the effect of such outright cancellation will be to impair public confidence in the certificate of title. Statutory power of sale or under the order of a court of competent jurisdiction Sale in merchant’s store, or in fairs, or markets (Arts. 85 – 86, Code of Commerce) - to allow recovery would retard commerce

Application of Article 559

Art. 559 provides for the right of recovery of the real owner of the movable property - If the real/previous owner of a movable property has lost it or is unlawfully deprived of it, he may recover it from the person who possesses the same without reimbursement, notwithstanding the good faith of the latter. - If, however, the person who possesses the movable property has acquired the same in good faith at a public sale, the owner has to reimburse him in order to recover the property.

Public Sale is defined as one where there has been a public notice of sale in which anyone is allowed to bid for the object he desires to buy.

The exceptions to right to recover and exceptions to the rule that the buyer in a sale by non-owner does not acquire a better title to the property than the seller had are just the same.

Art. 1505 in relation to rules on Co-ownership a. co-owner sells whole property prior to partition – sale of property itself is void but valid as to his spiritual share b.

co-owner sells definite portion prior to partition – sale is void as to other co-owner but valid as to his spiritual share if the buyer would have still bought such spiritual share had he known that the definite portion sold would not be acquired by him. - Exceptions to (b):

i. Subject matter is indivisible ii. Sale of definite portion is with consent of other co-owners iii. co-owner sells 1 of 2 commonly-owned lands & does not turn over ½ of the proceeds, other co-owner, by law & equity, has exclusive claim over remaining land.

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SALES AND LEASE REVIEWER by Diory Rabajante -------------------------------------------------------------------------------------------------------------------------------------------------------------

SALE WITH A VOIDABLE TITLE

As aforementioned, the seller need not have the title to the goods at the time of perfection of the contract. However, he must have the title at the time of delivery.

Art. 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. If title has not been avoided, buyer acquires good title if he acquires them (a) in good faith; (b) for value; and (c) without notice of the seller’s defect of title HYPOTHETICAL QUESTIONS (1505 and 1506): 1.

A owns a Rolex watch. B stole A’s watch, and sold the same to C. C does not know that the watch was stolen and he bought the same from B for value. May A recover the watch from C? Yes. He may recover it without the need of reimbursing C. See Art. 559.

2.

A owns a Rolex watch. B stole A’s watch, and sold the same to C. C knows that the watch was stolen and he bought the same from B for value. May A recover the watch from C? Yes. The requirement that the possessor or the purchaser of the movable thing must be in good faith does not pertain to the right of the owner to recover the property but to the doctrine of irrevindicability (that the possession of movable property is equivalent to title). If A has the right to recover even if C is in good faith, it is but logical to give A the right to recover the property from a possessor in bad faith. Likewise, it may be said that B may be held criminally liable for violating the Anti-Fencing Law.

3.

Given the same facts in Question #2 only that B sold the watch at a public sale, where C, the highest bidder, was the one who was able to purchase the watch. C, however, knows that the watch was stolen. If A has the right to recover as stated in #2, should he reimburse C in recovering the watch? No. Art. 559 implies that a possessor in bad faith (in this case, C) has no right to be reimbursed. But A may still recover the property.

4.

A owns a Rolex watch. B stole A’s watch, and pawned the same to Villarica Pawnshop. For failure to pay the loan, Villarica Pawnshop sold the watch at a public auction. C was the one who bought the watch. Rule the case. A may recover the watch from C. He must, however, reimburse C as C obtained the watch from a public sale.

5.

A owns a Rolex watch. B stole A’s watch, and sold the same to C, a merchant’s store. D, who does not know that the watch was stolen, bought the same from C. May A recover the watch from D? No. In this case, Article 1505 is applicable. To allow A to recover would retard commerce.

6.

A owns a Rolex watch. B stole A’s watch, and sold the same to C, a merchant’s store. D, in bad faith, purchased the watch from C. May A recover the watch from D? No. Article 1505 does not require that the purchaser or buyer in a sale by non-owner must be in good faith.

7.

A owns a Rolex watch. B stole A’s watch, and sold the same to C, a seller of ―bagoong.‖ D saw the watch from the bagoong-seller while he was buying a ―bagoong.‖ Without knowing that the watch was stolen, he offered to buy the same from C. C accepted the offer. Thereafter, D bought the watch from C for P5k. May A recover the watch from D? Yes. The sale is not made in a merchant’s store, or in fairs, or markets.

8.

If D (referring to Question #6) purchased the same from a fish stall in a public market, may A still recover?

9.

A owns a Rolex watch. B stole A’s watch, and sold the same to C. C sold the same at ebay. D, in good faith, bought the watch. May A recover the watch from D? Yes. He must, however, reimburse D as a sale in ebay may be considered a public sale.

10. A entered into a contract of sale with B where A engages to deliver 100 sacks of corn for P100k. Before delivery, A

became insane. A delivered the sacks of corn to B while A is insane. May the guardian of A recover the goods delivered to B? No. The delivery was void pursuant to Article 1239, which provides that ―payment made by one who does not have the free disposal of the thing due and capacity to alienate it shall not be valid.‖ However, Article 1427 provides that in payment by incapacitated such as this one, there shall be no right to recover the goods from the obligee who has spent them or consumed them in good faith.

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SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------* LOSS OF THE THING DUE WHO BEARS RISK OF LOSS/DETERIORATION/FRUITS

Before perfection  Res perit domino 

Seller still owns the thing because there is no delivery or transfer of ownership yet; hence, seller bears the risk of loss

At Perfection  Res perit domino  

Contract is merely inefficacious because loss of the subject matter does not affect the validity of the sale Seller cannot anymore comply with obligation so buyer cannot anymore be compelled

After Perfection but before delivery a. Loss – confused state 2 views: Justices Paras & Vitug / Padilla (as well as Atty. Casino) : BUYER bears the risk of loss [Res perit creditori] - Art. 1504, which embodies res perit domino, only covers goods. [Art. 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 xxx] - The obligation of the obligor (seller, in a contract of sale) is extinguished in applying Art. 1262. [Art. 1262: An obligation which consists in the delivery of a determinate thing shall be extinguished if it should be lost or destroyed without the fault of the debtor, and before he has incurred in delay.] - the obligation to pay on the part of the buyer is not extinguished (as he is not the obligor) Tolentino / Jurado / Baviera / Villanueva : SELLER bears the risk of loss [Res perit domino] - in reciprocal obligations, the extinguishment of the obligation due to loss of the thing affects both debtor and creditor; the entire juridical relation is extinguished. b.

Deterioration, fruits, improvements - borne by buyer (Article 1189) Art. 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.

After delivery  Res perit domino 

The buyer is the owner; hence, buyer bears risk of loss JURISPRUDENTIAL DOCTRINES: Roman vs Grimalt Jose De Leon vs Asuncion Soriano

Union Motor Corp. vs CA

The facts clearly show that no contract of sale had been perfected between the parties, and therefore the loss of the vessel must be borne by its owner and not by a party who only intended to purchase it. Except as to quality and quantity, the first of which is itself generic, the contract sets no bounds or limits to the palay to be paid, nor was there even any stipulation that the cereal was to be the produce of any particular land. Any palay of the quality stipulated regardless of origin on however acquired (lawfully) would be obligatory on the part of the obligee to receive and would discharge the obligation. It seems therefore plain that the alleged failure of crops through alleged fortuitous cause did not excuse performance. The general rule is that after perfection but before delivery, the risk of loss is borne by the seller under the rule of res perit domino.

34

SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------Lawyer’s Cooperative Publishing Company vs Tabora Yu Tek Co vs Gonzales

Bunge Corp. vs Camenforte

The ownership of the books purchased on installment were retained by the seller, although they have already been delivered to the buyer, under the condition that ownership thereof will be transferred to the buyer upon his full payment of the purchase price, it was held that despite the loss of the books in a fire, the risk of loss would be borne by the buyer although he was not the owner yet, not only because such was agreed merely to secure the performance by the buyer of his obligation, but also because in the very contract itself, it was agreed that loss or damage to the books after delivery to the buyer shall be borne by the buyer. Gonzales (seller), who received payment, delivered no part of sugar promised. When a suit was brought against him for failure to deliver, he interposed the defense of force majeure (there was a storm). SC held that he was still liable because no specific lot of sugar was segregated and specifically designated to make the subject matter of the contract determinate or specific; sugar being generic, there was no risk of it being lost. It appearing that the obligation of appellants is to deliver copra in a generic sense, this obligation cannot be deemed extinguished by the destruction or disappearance of the copra they had already stored in Samar. Their obligation subsists as long as that commodity is available. A generic obligation is not extinguished by the loss of a thing belonging to a particular genus. Genus nunquam pereat.

* DOUBLE SALES

Art. 1544: If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may

have first taken possession thereof in good faith, if it should be movable property. Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property. Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith.

General Rule: FIRST IN TIME, PRIORITY IN RIGHT (PRIMUS TEMPORE, POTIOR JURE) Application of the general rule: when not all requisites embodied in Art. 1544 concur SPECIAL RULE: ART. 1544

* REQUISITES 1. 2. 3. 4.

exactly same subject matter exactly same immediate seller buyers represent conflicting interest both sales are valid

* RULES ACCORDING TO ART. 1544: 1. MOVABLE  the owner is the one who is first to posses in good faith 2. IMMOVABLE  First to register in good faith  No inscription, first to possess in good faith  No inscription & no possession in good faith – Person who presents oldest title in good faith GOOD FAITH - one who buys property without notice that another person has a right or interest in such property - one who has paid price before notice that another has claim or interest  lis pendens – notice that subject matter is in litigation  adverse claim – notice that somebody is claiming better right - he who asserts the status of a purchaser in good faith and for value has the burden of proving such assertion. (legal presumption of good faith cannot be invoked) POSSESSION  Both actual or constructive

35

SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------REGISTRATION - any entry made in the books in the registry, including both registration in its ordinary and strict sense, and cancellation, annotation, and even marginal notes. It is the entry made in the registry which records solemnly and permanently the right of ownership and other real rights.

1.

registered under Torrens system

2.

not registered under the Torrens system

3.

if sale 1 occurs when land is not yet registered & sale 2 is done when land is already registered – apply FIRST IN TIME,

  

Art. 1544 applies

Art. 1544 does not apply Under Act No. 3344, registration of documents affecting unregistered land is ―without prejudice to a third party with a better right.‖ The mere registration of a sale in one’s favor does not give him any right over the land if the vendor was not anymore the owner of the land, having previously sold the same to somebody else, even if the earlier sale was unrecorded.

PRIORITY IN RIGHT 4.

Registration by the first buyer under Act 3344 can have the effect of constructive notice to the second buyer that can defeat his right as such buyer.

HYPOTHETICAL QUESTIONS: 1.

A, the owner of Lot 1, applied for registration of his title to the said lot. During the pendency of the application, he sold Lot 1 to B. However, after the certificate of title was granted to him, he sold the lot to C, to whom a transfer certificate of title was issued. Who owns the land, B or C? C. To grant B the ownership over the said lot would directly contravene the Torrens system of registration. The Court cannot order the cancellation of the certificate, since the effect of such outright cancellation will be to impair public confidence in the certificate of title. Persons dealing with registered land have the legal right to rely on the fact of the Torrens certificate of title and to dispense with the need to inquire further except when the party concerned has actual knowledge of facts and circumstances that would impel a reasonable cautious man to make such inquiry. (Naawan Community Rural Bank vs CA)

2.

A sold 100 sacks of corn to B through the execution of a public instrument. A day after, A sold the same goods to C, in which case C was given the bill of lading to the goods. Who owns the sacks of corn? It would seem that B is the owner because the execution of a public instrument operates as a transfer of the ownership of the goods to him. However, C’s possession of the bill of lading gives him the right to the direct obligation of the bailee to hold the goods in trust for him and give the goods to him upon his presentment of the bill of lading. (?)

3.

A sold a parcel of land to B through an oral contract of sale. When A died, his heir, X (who does not know of the sale between A and B) sold the same land to C, who bought the land in good faith and for value. The sale of the land was through the execution of public instrument. Who owns the land, B or C? C. The requisite that there be one immediate seller has been complied with, notwithstanding that it is X who made the second sale, because as A’s heir, X merely steps into the shoes of A. The decedent and his heir have only 1 personality, as the heir’s ownership and possession of a property are merely continuation of the ownership and possession of the decedent. The public instrument executed by A and C gives C the oldest title to the property.

4.

A, the owner of Lot 1, applied for registration of his title to the said lot. During the pendency of the application, he sold Lot 1 to B, who immediately took possession of the land. However, after the certificate of title was granted to A, a levy was made upon the land in favor of C. Who owns the land, B or C? (Compare with #1) B. Section 35, Rule 39 (now Sec. 33, Rule 39) of the Rules of Court (on execution sale) shall govern. The judgment creditor merely steps into the shoes of the judgment debtor. Since the land was previously sold to the first buyer, the second buyer (judgment creditor) at the execution sale actually bought nothing since the judgment debtor no longer had rights to the property previously sold. (Dagupan Trading Co. vs Macam)

5.

A sold his unregistered land to B. Thereafter, he sold the same land to C where a public instrument was executed. The sale was duly registered. Who owns the land? B. Art. 1544 does not apply to sale of unregistered land. Under Act No. 3344 (now PD 1529), registration of documents affecting unregistered land is ―without prejudice to a third party with a better right.‖

* WARRANTIES

Condition vs Warranty

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SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------CONDITION Purports to existence of obligation Condition must be stipulated to form part of the obligation May attach itself to obligation of seller to deliver possession & transfer ownership

WARRANTY Purports to performance of obligation Need not be stipulated; may form part of obligation by provision of law Relates to the subject matter itself or to obligation of the seller as to the subject matter of the sale

Warranty vs Promise (See Art. 1545)

Art. 1545. Where the obligation of either party to a contract of sale is subject to any condition which is not performed, such party may refuse to proceed with the contract or he may waive performance of the condition. If the other party has promised that the condition should happen or be performed, such first mentioned party may also treat the nonperformance of the condition as a breach of warranty. Where the ownership in the thing has not passed, the buyer may treat the fulfilment by the seller of his obligation to deliver the same as described and as warranted expressly or by implication in the contract of sale as a condition of the obligation of the buyer to perform his promise to accept and pay for the thing.

Kinds of Warranty 1. Express (Art. 1546) Art. 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.

- Requisites: [AIR]

1. it must be an affirmation of fact or any promise by seller relating to the subject matter of sale 2. natural tendency of affirmation or promise is to induce buyer to purchase subject matter 3. buyer purchases the subject matter relying thereon  when breached, seller is liable for damages

Art. 1340: The usual exaggerations in trade, when the other party had an opportunity to know the facts, are not in themselves fraudulent.

Art. 1341: A mere expression of an opinion does not signify fraud, unless made by an expert and the other party has relied on the former's special knowledge.

Art. 1343: Misrepresentation made in good faith is not fraudulent but may constitute error. Art. 1338: There is fraud when, through insidious words or machinations of one of the contracting parties,

the other is induced to enter into a contract which, without them, he would not have agreed to. (CAUSAL FRAUD / DOLO CAUSANTE = FRAUD IN THE PERFECTION OF THE CONTRACT)

Art. 1344: In order that fraud may make a contract voidable, it should be serious and should not have been

employed by both contracting parties. Incidental fraud only obliges the person employing it to pay damages. (INCIDENTAL FRAUD / DOLO INCIDENTE)

Art. 1170: Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages. 2.

Implied (Art. 1547) Art. 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.

IMPLIED WARRANTIES

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SALES AND LEASE REVIEWER by Diory Rabajante -------------------------------------------------------------------------------------------------------------------------------------------------------------

* warranty that seller has a right to sell  

refers to consummation stage since in consummation stage, it is where ownership is transferred by tradition not applicable to sheriff, auctioneer, mortgagee, pledgee (the principle applicable to execution sales is caveat emptor)

* warranty against eviction  

implied, unless contrary provision appears in contract when ownership is transferred, buyer shall enjoy the legal and peaceful possession of the thing

[There are 2 general classifications of implied warranty: (1) warranty against eviction; and (2) warranty against hidden defects.] REQUISITES OF BREACH OF WARRANTY AGAINST EVICTION: [EFBS] 1. buyer is evicted in whole or in part from the subject matter of sale (Art. 1548) 2. there is a final judgement (Art. 1557) 3. basis of eviction is a right prior to sale or an act imputable to vendor (Art. 1548) 4. seller has been summoned in the suit for eviction at the instance of buyer; or made 3 rd party defendant through 3rd party complaint brought by buyer (Art. 1558)          

no appeal needed nor a need for buyer to resist eviction for right to accrue; it is enough that the aforementioned requisites are complied with [Art. 1549] warranty cannot be enforced until aforementioned requisites concur applies to judicial sale; judgment debtor responsible for eviction unless otherwise decreed in judgment [Art. 1552] vendor not liable for eviction if adverse possession had been commenced before sale but prescriptive period is completed after transfer [Art. 1550] If the property is sold for nonpayment of taxes due and not made known to the vendee before the sale , vendor is liable for eviction [Art. 1551] Rescission is not a remedy in case of eviction because rescission contemplates that the one demanding it is able to return whatever he has received under the contract. Since the vendee can no longer restore the subject-matter of the sale to the vendor, rescission cannot be carried out. [See Art. 1385] EXCEPTION: Partial Eviction. The suit for the breach can be directed only against the immediate seller, unless the sellers of the seller had promised to warrant in favor of later buyers or the immediate seller has expressly assigned to the buyer his own right to sue his own seller. The disturbance referred to in the case of eviction is a disturbance in law which requires that a person go to courts of justice claiming the thing sold, or part thereof and invoking reasons. Mere trespass in fact does not give rise to the application of the doctrine of eviction. Vendor’s liability is waivable but any stipulation exempting the vendor from the obligation to answer for eviction shall be void if he acted in bad faith. [Art. 1553] 

KINDS OF WAIVER: [Art. 1554] 1. CONSCIENTE – voluntarily made by the vendee without the knowledge and assumption of the risks of eviction (vendor shall only pay the value which the thing sold had at the time of the eviction) 2. INTENCIONADA – made by the vendee with knowledge of the risks of eviction and assumption of its consequences (vendor shall not be liable)

LIABILITY OF SELLER: (eviction w/c caused buyer to lose whole subject matter) [TISED] 1. value of thing at time of eviction ( be it greater/lesser than price of sale ) 2. value of income of fruits 3. costs of suit which caused the eviction 4. expenses of contract if buyer paid for them 5. damages & interests and ornamental expenses if sale was made in bad faith RIGHT OF BUYER WHEN DEPRIVED OF ONLY PART OF THE SUBJECT MATTER BUT WOULD NOT HAVE BOUGHT SUCH PART IF NOT IN RELATION TO THE WHOLE: 1. demand rescission but with the obligation to return the thing without other encumbrances than those which it has when the subject matter was acquired. 2. Enforce vendor’s liability for eviction (TISED) HYPOTHETICAL QUESTIONS: 1.

A found a ring which he sold to B, honestly believing and representing to B that it was a diamond ring. In truth, the ring was ordinary glass. Is there a breach of warranty?

38

SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------No breach of warranty. A merely expressed an opinion. (Arts. 1341 on mere expression of opinion; and Art. 1343 on misrepresentation made in good faith) 2.

Advertisement: ―the cigarette that will give you utmost smoking pleasure.‖ Is this a warranty? No. Consequently, breach of the same is not breach of warranty. (Arts. 1340 on usual exaggerations on trade)

3.

A sold to B a parcel of land which is claimed by C, who has been in possession of the property in the concept of owner publicly and continuously for 30 years. Rule the case. C is deemed to have acquired ownership over the land by prescription without need of title or good faith (apply Art. 1137). Hence, A shall be liable to be in case of eviction. (Art. 1550)

4.

Same facts as #3, only that C was in adverse possession of the land for only 25 years at the time of sale, and the prescriptive period is completed after the sale. S shall not be liable to B in case of eviction as B could have brought action against C during the remaining 5 year period to recover the property. (Art. 1550)

5.

B purchased land from A after having been informed of prior right of another to purchase the same based on prior occupancy. Is B entitled to the vendor’s warranty against eviction and damages under Art. 1555? No. He had knowledge of facts which should have put him upon such inquiry and investigation as might be necessary to acquaint him with the defects in the title of his vendor. (J.M Tuazon vs CA)

* WARRANTY AGAINST NON-APPARENT BURDEN OR SERVITUDES (ART. 1560) -REQUISITES: a. immovable sold is encumbered with non–apparent burden or servitude not mentioned in the agreement; and b. nature of non–apparent servitude or burden is such that it must be presumed that the buyer would not have acquired it had he been aware thereof 



When breach of warranty exist, buyer may ask for: (a) rescission; or (b) indemnity

warranty not applicable when: [ARAK] (a) servitude is apparent (b) non – apparent burden or servitude is recorded in the Registry of Property (EXCEPT when there is express warranty that the thing is free from all burdens & encumbrances) (c) the servitude is mentioned in the agreement (d) vendee had knowledge of servitude

* PRESCRIPTION (Rescission): 1 year - after 1 year, only action for damages may be brought (to be counted from the date on which the burden or servitude was discovered).

* WARRANTY AGAINST HIDDEN DEFECTS: (Art. 1561) - When liability attaches, REQUISITES: [Art. 1561] – [HIS-NRW]

(a) the defect is hidden HIDDEN – not known or could not have been known to the vendee; hidden to the eyes and cannot be discovered by ordinary careful inspection. (b) the defect is serious or important such that – (b.1) the hidden defect should render the subject matter UNFIT for the use for which it is intended; or (b.2) the hidden defect should DIMINISH the thing’s FITNESS such that the BUYER WOULD NOT HAVE ACQUIRED IT OR WOULD HAVE GIVEN A LOWER PRICE FOR IT HAD HE BEEN AWARE OF IT. (c) the defect must exist at the time of sale (d) vendee must give notice of the defect to the vendor within a reasonable time (e) the action must be brought within a reasonable period (f) there must be no waiver of warranty - Vendor is not liable for: (a) patent defects; or (b) those that are not visible but should have been known by an expert by reason of his profession.

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SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------- KNOWLEDGE OF VENDOR, NOT IMPORTANT (CAVEAT VENDITOR or SELLER BEWARE): [1566, NCC] Art. 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. GENERAL RULE: Seller or vendor is liable even though he is not aware of the hidden defect. [Art. 1566, par. 1] EXCEPTION: there is a stipulation to the contrary and the seller is not aware of it. [Art. 1566, par. 2] Rationale behind Caveat Venditor: a sound price warrants a sound article - OBLIGATION of seller for breach of warranty: * IF THERE WAS NO WAIVER OF WARRANTY: [Art. 1568] - the thing is lost in consequence of hidden defects. When vendor is AWARE of the hidden defects: [L-PED] (a) Bear the loss (b) Return the price (c) Refund the expenses of the contract (d) Pay damages When vendor is NOT AWARE of the hidden defects:[L-PIE] (a) Bear the loss (b) Return the price (c) Return the interest (d) Reimburse expenses of the contract * IF THERE WAS A WAIVER OF THE WARRANTY: [Art. 1566, par. 2] When vendor is AWARE of the hidden defects: - waiver is in bad faith; as a corollary, seller is still liable When vendor is NOT AWARE of the hidden defects: - not liable * IF THE DEFECTIVE THING IS LOST THROUGH FORTUITOUS EVENT OR FAULT OF VENDEE: [Art. 1569, par. 2] -the thing must be defective at the time of sale - BUYER may DEMAND for: Price paid minus value of the thing at the time it was lost -the aforesaid formula represents the damage suffered and the benefits incurred by the buyer - REMEDY OF BUYER in case of breach of warranty against hidden defect: [Art. 1567] - buyer may choose any of the following: (a) ACCION REDHIBITORIA (Redhibitory Action) - withdrawing from the contract - avoidance of the sale due to vice in the thing sold (b) ACCION QUANTI MINORIS - proportionate reduction of price - APPLICABILITY TO JUDICIAL SALES (Art. 1570) – however, judgment debtor is not liable for damages for the reason that he is merely compelled to sell his property. - PRESCRIPTIVE PERIOD: [Art. 1571] - SIX MONTHS from delivery COMPARATIVE TABLE OF PRESCRIPTIVE PERIODS RELATING TO WARRANTIES and OTHER ACTIONS in case of breach CONTRACT OF SALE with CONTRACT OF SALE with OTHER CONTRACT WARRANTY under RA EXPRESS WARRANTY IMPLIED WARRANTY (in case of breach of 7394 contract itself) (a) Follow (a) In case of stipulation in the Warranty against (a) In case of (a) with IMPLIED contract non-apparent RESCISSION, WARRANTY (b) If there is no burden: 1 year apply Art. 1389 AND EXPRESS stipulation, apply (Action for (general rule on WARRANTY: of other provisions of the Rescission) (Art. 1560) rescission): 4 years equal duration Civil Code, i.e. (b) In case of (b) In case of any Warranty against other action (b) with IMPLIED In case of hidden defect: 6 concerning the WARRANTY RESCISSION of months from delivery written contract only (no warranty

40

SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------contract, apply Art. 1389 (general rule on rescission): 4 years In case of any other action concerning the written contract of sale, apply Art. 1144 (general rule on prescription): 10 years

(Both Accion Redhibitoria and Accion Quanti Minoris) (Art. 1571) (c) In case of Warranty against redhibitory defect on animals: 40 days

of sale, apply Art. 1144 (general rule on prescription): 10 years

from delivery (Art.1577) – this action

card, etc.): not

less than 60 days nor more than 1 year following the sale of new consumer products

can only be recognized with respect to faults and defects which are determined by law or by local customs (d) In case the disease which caused the death of the animal existed at the time of contract: the animal

should die within 3 days after purchase – otherwise, vendor is not liable (Art. 1578)

* WARRANTY AGAINST REDHIBITORY DEFECTS ON ANIMALS: - When considered redhibitory defect; REQUISITES (Arts. 1576 and 1578) [EVA]

(a) expert knowledge is not sufficient to discover it [1576, 1st par., NCC]; or (b) The veterinarian failed to discover or disclose it through ignorance or bad faith [1576, 2nd par., NCC]; or (c) the animal dies within three days after its purchase and the disease which caused the death existed at the time of the contract: [Art. 1578]

- Instance where THERE IS NO WARRANTY: [Art. 1574] - here, caveat emptor governs. -sale of animals at public auction or fairs or of livestock as condemned (animals are not bought because of their quality or capacity for work) - Sale of 2 OR MORE ANIMALS: [Art. 1572] GENERAL RULE: the defect of one will only give rise to its redhibition EXCEPTION: when the buyer would not buy them if one is defective (or would not buy one without the other) *The exception is PRESUMED when what is bought is a TEAM, YOKE, PAIR or SET (even if separate price has been fixed for each one of the animals composing the same). - REMEDY in case of sale of animals with redhibitory defects: [Arts. 1580 and 1577] (a) Accion Redhibitoria (b) Accion Quanti Minoris - When SALE OF ANIMALS IS CONSIDERED VOID: [Art. 1575] (a) sale of animals with CONTAGIOUS DISEASES (b) Sale of UNFIT animals, i.e. the use or service for which the animals are acquired has been stated and they are found to be unfit therefor. - LIABILITY OF BUYER IN CASE SALE OF ANIMAL IS RESCINDED - animal shall be returned in the condition in which it was sold and delivered, the vendee being answerable for any injury due to his negligence, and not arising from the redhibitory fault or defect.

* IMPLIED WARRANTIES ON SALE OF GOODS / IMPLIED WARRANTY OF QUALITY: QUALITY – state or condition (as to promote high standard in business) - When implied warranty exists; REQUISITES: [Art. 1562, NCC]

41

SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------(a) Buyer makes known to the seller the particular purpose (expressly or by implication) for which goods are acquired and the buyer relied on seller’s skills or judgment. (pertains to WARRANTY FOR FITNESS FOR A PARTICULAR PURPOSE) (b) Sale by Description. (pertains to WARRANTY THAT THE THING IS OF MERCHANTABLE QUALITY) - warranty that goods are reasonably fit for general purpose - MERCHANTABLE QUALITY – requires identity with what is described or what is tendered (synonyms: saleable, average quality) * Art. 1481 provides for rescission in case where the bulk of the goods delivered does not correspond with the sample or description. QUESTION / INQUIRY: If the vendee does not inform seller of the purpose, is there still warranty? ANSWER: Yes, in the following cases: Long and continuous contract Numerous contract involving same parties and same subject matter entered into on a regular basis - Annexed by usage of trade (Art. 1564) - SALE OF SPECIFIED ARTICLE UNDER PATENT OR TRADE NAME (Art. 1563) - there is NO WARRANTY AS TO FITNESS FOR PARTICULAR PURPOSE (the buyer relied on his own judgment) - SALE OF GOODS BY SAMPLE: [Art. 1565, NCC]. - There is a WARRANTY THAT THE THING IS OF MERCHANTABLE QUALITY (the same with sale by description) - Buyer’s REMEDIES in Case of Breach of Warranties in Sale of Goods: [Art. 1599] – Remedies are alternative, at the election of the buyer (a) accept or keep the goods and set up breach of warranty by way of recoupment in diminution or extinction of price (reduce or extinguish) (b) accept or keep and set up action for damages (counterclaim for damages) (c) refuse to accept and set up action for damages (action) (d) rescind the contract (rescission)

* IMPLIED WARRANTIES FOR CONSUMER GOODS: (RA 7394) CONSUMER PRODUCTS – primarily for personal, family, household or agricultural purposes (e.g. food, drugs, cosmetics and devices) - Retailer is subsidiarily liable - DURATION of WARRANTY: - with IMPLIED WARRANTY AND EXPRESS WARRANTY: - of equal duration - with IMPLIED WARRANTY only (no warranty card, etc.): - not less than 60 days nor more than 1 year following the sale of new consumer products - REMEDY in case of breach: - in case of EXPRESS WARRANTY: (a) repair of goods (prescription: 30 days, but may be extended) (b) refund of purchase price - in case of IMPLIED WARRANTY: (a) retain the goods and recover damages (b) reject the goods, cancel the contract, and recover damages. JURISPRUDENTIAL DOCTRINES: Albert Bryan vs Thomas The evidence shows that where this kind of lumber is used and is thoroughly seasoned, with Handkins and J. Biaglowski proper care and treatment, the life of a boat will be from ten to twelve years, but where palosapis lumber used is green and is painted and covered with coal tar, its life is very short, and it is very apparent that the lumber used here was green and that even at the time of the sale the vessel had but little actual value. The defendants knew or should have known of the quality of the lumber used in the construction of the vessel. The

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SALES AND LEASE REVIEWER by Diory Rabajante -------------------------------------------------------------------------------------------------------------------------------------------------------------

Gochanco vs Dean

Mccullough vs Aenle

Chang Yong Tek vs Santos

Martinez vs CA

plaintiff did not, and its actual condition could not be determined without a physical inspection. In other words, the defects in the lumber and material used in the construction of the vessel were hidden and concealed and unknown to the plaintiff until the official inspection. It was not proven that the declaration made by the defendant in the contract of exchange was made fraudulently. It does not appear in the record that the defendant deliberately violated the truth in stating his belief that there were such a number of coconut trees on said lands. Furthermore, it was shown that the plaintiff viewed the lands and estimated that there were there more than six thousand coconut trees. There is no evidence to show that any representations as to the quality of the tobacco were made to the plaintiff by the defendant prior to the contract of August 27, nor that there was any agreement prior to that time as to an exhibition of samples nor that the plaintiff prior to that time made any examination or inquiry as to the quality of the tobacco. The fact is that the plaintiff in order to get the building had to buy the factory and everything that went with it. He saw himself obliged to take all the tobacco which the defendant had, no matter what its quality was. The plaintiff bound himself by the contract of August 27 to take all the tobacco which the defendant then had and pay therefor the prices that the company had paid. He could relieve himself from this obligation only by showing either that the tobacco in the inventory was not owned by the defendant on August 27 or that the prices stated therein were not the prices which the defendant paid for it. He undertook to do neither of these things, and his action must fail. The fact that an article is of one grade or quality instead of another does not constitute a hidden defect within the meaning of that article. Note that the sole purpose of the inventory was to ascertain what the total purchase price was. If it correctly gave the number of bales and the price paid therefor by the appellant, according to the invoices, it was a sufficient compliance with the contract. The fact that the tobacco was described as of one class instead of another would be unimportant. The appellee did not purchase by class or quality, but by quantity. In the case at bar, The ONLY defense presented by the defendant was that the tobacco delivered by the plaintiff was not of good quality. The defendant admits that she had sold the tobacco in question. The record does not disclose when the defendant sold the tobacco in question. In the absence of an express warranty, a vendor or merchandise only warrants: First. The legal and peaceable possession of the thing sold; and Second. That there are no hidden faults or defects therein. (Art. 1474, Old Civil Code.) It not being proven that the plaintiff made any warranty or any misrepresentations with reference to the quality of the tobacco in question, and it having been proven that the defendant had an opportunity to and did examine the tobacco in question at the time of purchase and not having made any objection whatever until after a lapse of more than three years and not then until after an action had been brought, and making no objection whatever as to the price agreed upon, nor as to the quantity of the tobacco delivered, in our opinion she should be held liable for the payment of the amount agreed upon. (defendant is therefore liable for the balance of the purchase price). There is no weight in the appellants' argument that, being a purchaser for value and in good faith of Lot No. 2, the nullification of its registration would be contrary to the law and to the applicable decisions of the Supreme Court as it would destroy the stability of the title which is the core of the system of registration. Appellants cannot be deemed purchasers for value and in good faith by virtue of the deed of absolute conveyance which they executed. Before purchasing a parcel of land, it cannot be contended that the appellants who were the vendees did not know exactly the condition of the land that they were buying and the obstacles or restrictions thereon that may be put up by the government in connection with their project of converting Lot No. 2 in question into a fishpond. Nevertheless, they willfully and voluntarily assumed the risks attendant to the sale of said lot. One who buys something with knowledge of defect or lack of title in his vendor cannot claim that he acquired it in good faith (Leung Lee v. Strong Machinery Co., et al., 37 Phil. 664).

Jerry Moles vs IAC

The ruling that a purchaser of a registered property cannot go beyond the record to make inquiries as to the legality of the title of the registered owner, but may rely on the registry to determine if there is no lien or encumbrances over the same, cannot be availed of as against the law and the accepted principle that rivers are parts of the public domain for public use and not capable of private appropriation or acquisition by prescription. When an article is sold as a secondhand item, a question arises as to whether there is an implied warranty of its quality or fitness. It is generally held that in the

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SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------sale of a designated and specific article sold as secondhand, there is no implied warranty as to its quality or fitness for the purpose intended, at least where it is subject to inspection at the time of the sale. On the other hand, there is also authority to the effect that in a sale of a secondhand articles there may be, under some circumstances, an implied warranty of fitness for the ordinary purpose of the article sold or for the particular purpose of the buyer. Article 1562 of our Civil Code: Art. 1562. In a sale of goods, there is an implied warranty or

condition as to the quality or fitness of the goods, as follows: (1) Where the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are acquired, and it appears that the buyer relies on the seller's skill or judgment (whether he be the grower or manufacturer or not), there is an implied warranty that the goods shall be reasonably fit for such purpose;

In the case at bar, a certification to the effect that the linotype machine bought by petitioner was in A-1 condition was issued by private respondent in favor of the former. This cannot but be considered as an express warranty. It must be remembered that the certification was a condition sine qua non for the

release of petitioner's loan which was to be used as payment for the purchase price of the machine. Private respondent failed to refute this material fact. Neither does

he explain why he made that express warranty on the condition of the machine if he had not intended to be bound by it. In fact, the respondent court, in declaring that petitioner should have availed of the remedy of requiring repairs as provided for in said certification, thereby considered the same as part and parcel of the verbal contract between the parties.

We disagree with respondent court that private respondent’s express warranty as to the A-1 condition of the machine was merely dealer's talk. Private

Engineering & Machinery Corp vs CA and Almeda

Carlos De Guzman vs Toyota Cubao

respondent was not a dealer of printing or linotype machines to whom could be ascribed the supposed resort to the usual exaggerations of trade in said items. His certification as to the condition of the machine was not made to induce petitioner to purchase it but to confirm in writing for purposes of the financing aspect of the transaction his representations thereon. Ordinarily, what does not appear on the face of the written instrument should be regarded as dealer's or trader's talk; conversely, what is specifically represented as true in said document, as in the instant case, cannot be considered as mere dealer's talk. The contract in question is one for a piece of work. It is not petitioner's line of business to manufacture air-conditioning systems to be sold "off-the-shelf." Its business and particular field of expertise is the fabrication and installation of such systems as ordered by customers and in accordance with the particular plans and specifications provided by the customers. Naturally, the price or compensation for the system manufactured and installed will depend greatly on the particular plans and specifications agreed upon with the customers. a close scrutiny of the complaint filed in the trial court reveals that the original action is not really for enforcement of the warranties against hidden defects, but one for breach of the contract itself. It alleged that the petitioner, "in the installation of the air conditioning system did not comply with the specifications provided" in the written agreement between the parties. Having concluded that the original complaint is one for damages arising from breach of a written contract - and not a suit to enforce warranties against hidden defects - we here with declare that the governing law is Article 1715. However, inasmuch as this provision does not contain a specific prescriptive period, the general law on prescription, which is Article 1144 of the Civil Code, will apply. Said provision states, inter alia, that actions "upon a written contract" prescribe in ten (10) years. Since the governing contract was executed on September 10, 1962 and the complaint was filed on May 8, 1971, it is clear that the action has not prescribed. Since no warranty card or agreement was attached to the complaint, the contract of sale of the subject pick-up carried an implied warranty that it was free from any hidden faults or defects, or any charge or encumbrance not declared or known to the buyer. The prescriptive period thereof is six (6) months under the Civil Code (Art. 1571). Under RA No. 7394, the provisions of the Civil Code on conditions and warranties shall govern all contracts of sale with condition and warranties (Art. 67). The duration of the implied warranty (not accompanied by an express warranty) shall endure not less than sixty days nor more than one (1) year following the sale of new consumer products (Art. 68, par. [e]). The two (2) year prescriptive period under Art. 169 cannot prevail over Art. 68 because the latter is the specific provision on the matter. Since petitioner filed the complaint on April 20, 1999, or more than nineteen months counted from November 29, 1997 (the date of the delivery of the motor vehicle), his cause of action had become time-barred. Consequently, even if the complaint is made to

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SALES AND LEASE REVIEWER by Diory Rabajante -------------------------------------------------------------------------------------------------------------------------------------------------------------

Jaime Ang vs CA and Soledad

Coca-Cola Bottlers, Inc. vs CA

Natividad Villostas vs CA, et al.

fall under the Republic Act No. 7394, the same should still be dismissed since the prescriptive period for implied warranty thereunder, which is one year, had likewise lapsed. (Relative to plaintiff’s argument that the claim for moral and exemplary damages and attorney’s fees is based on quasi-delict or breach of contract, such are merely ancillary to the main cause of action which is based on warranty against hidden defects. Without the latter, the former cannot stand alone.) Soledad gave an implied warranty of title in declaring that he owned and had clean title to the vehicle. In pledging that he "will defend the same from all claims or any claim whatsoever [and] will save the vendee from any suit by the government of the Republic of the Philippines," Soledad gave a warranty against eviction. Since what Soledad, as seller, gave was an implied warranty, the prescriptive period to file a breach thereof is six months after the delivery of the vehicle, following Art. 1571. But even if the date of filing of the action is reckoned from the date petitioner instituted his first complaint for damages on November 9, 1993, and not on July 15, 1996 when he filed the complaint subject of the present petition, the action just the same had prescribed, it having been filed 16 months after July 28, 1992, the date of delivery of the vehicle. The vendee's remedies against a vendor with respect to the warranties against hidden defects of or encumbrances upon the thing sold are not limited to those prescribed in Article 1567 of the Civil Code. The vendor could likewise be liable for quasi-delict under Article 2176 of the Civil Code, and an action based thereon may be brought by the vendee. While it may be true that the pre-existing contract between the parties may, as a general rule, bar the applicability of the law on quasi-delict, the liability may itself be deemed to arise from quasi-delict, i.e., the acts which breaks the contract may also be a quasi-delict. Otherwise put, liability for quasi-delict may still exist despite the presence of contractual relations. As regards the contention that the action for rescission is barred by prescription under Art. 1571 of the Civil Code, the same is bereft of merit. It must be pointed out that at the time the Electrolux Aqua Guard water purifier was delivered and installed at petitioner Villostas' residence a Warranty Certificate was issued by private respondent Electrolux. The foregoing is clearly an express warranty regarding the efficiency of the water purifier. On this regard the court said that while it is true that Article 1571 of the Civil Code provides for a prescriptive period of six months for a redhibitory action, a cursory reading of the ten preceding articles to which it refers will reveal that said rule may be applied only in case of implied warranties. The present case involves one with an express warranty. Consequently, the general rule on rescission of contract, which is four years (Article 1389, Civil Code) shall apply. Inasmuch as the instant case involves an express warranty, the filing of petitioner's amended answer on September 30, 1988 is well within the four-year prescriptive period for rescission of contract from September 13, 1986, which was the delivery date of the unit.

HYPOTHETICAL QUESTIONS: 1.

A mortgaged his unregistered parcel of land to X. Thereafter A sold the land to B, without informing the latter that the land was mortgaged. The mortgage was foreclosed. X was the one who was able to buy the land in question. By virtue of the same, B was evicted from the land. Is A liable for warranty against hidden defect? No. A is liable for warranty against eviction, i.e. warranty against non-apparent burden or servitude.

2.

A sold Brand X pork and beans to B. When B opened the can, he found out that the pork and beans does not have pork. Is there a violation of any warranty?

3.

On 11 June 2009, A and B entered into a contract of sale whereby A engages to deliver a particular car on or before 8 July 2009. The car incurred a hidden defect after the perfection of the contract but before delivery. When must the defect exist, 11 June 2009 or 8 July 2009? The defect must exist ―at the time of sale‖

4.

A sold a car with hidden defect to B, who does not have a knowledge of the defect. B sold the car to C. Does A have an implied warranty in favor of C? Yes. See Moles vs IAC.

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SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------* OBLIGATIONS OF THE VENDEE (Art. 1582) The vendee must: (a) Accept delivery (b) Pay the price - RULES ON ACCEPTANCE AND PAYMENT: (a) Both must be performed at the time and place stipulated (b) When there is no stipulation as to time and place of payment, payment must be made at the time and place of delivery. (c) Apply Article 1524 (in relation to Article 1169, last paragraph), where payment and delivery are simultaneous - apply Arts. 1251 and 1521 (Time and Place of Delivery) TIME = at a reasonable hour (question of fact) PLACE 1. Stipulation of the parties; or 2. Seller’s place of business if he has one; or 3. Seller’s residence; or 4. In case of sale of definite or specific goods, in the place where the thing is. HYPOTHETICAL QUESTIONS: 1.

A and B entered into a contract of sale where it is stipulated that B, the buyer, is bound to pay 15 days after the perfection of the contract. May B demand the delivery of the thing from A even before the arrival of the day he is bound to pay? Yes. A’s obligation, not being dependent on a condition or a period, is pure. His obligation is thus demandable at once, even at the time the contract is perfected (Art. 1179)

2.

A and B entered into a contract of sale of a parcel of land. A delivered the parcel of land to B upon perfection. B, on the other hand, is bound to pay on October 9. A became incapacitated on October 8. On October 9, B went to A to pay. Is payment of B to A valid? As a rule, payment to the incapacitated is void. However, if the incapacitated has kept the thing delivered or if payment has been beneficial to him, the payment is valid (Article 1241). *Article 1427 implies that the incapacitated who voluntarily pays the buyer does not have the right to recover the price from the seller who spent it in good faith.

3.

(?) A sold sacks of corn to B for P500k. They agreed that A will deliver on 1 June 2009, and B will pay on 31 July 2009. A lives in Davao, while B lives in Manila. On 1 June 2009, A delivered the sacks of corn. B, on the other hand, did not pay the price on 31 July 2009. A went to Manila and spent P6k for airfare and P5k for hotel accommodation in order to get the payment of the purchase price from B. B tendered P500k, but A refused to accept. A contends that B should also pay P11k which the former spent for airfare and hotel accommodation. Is A’s contention correct? Yes. It is the duty of the debtor to correct payment. Applying Art. 1582 in relation to Art. 1521, B is bound to pay at the place of delivery, in the absence of stipulation as to the place of payment. The place of delivery, when there is no stipulation as to where the same is to be made, is the seller’s place of business or residence. Hence, B is bound to go to Davao to pay A.

- COMPANY BOUGHT-OUT - if involves not considerable amount – mere continuance of business - if involves considerable amount such that the company is bought out to stop its operations – there is no assumption of obligations (Art. 1583): VENDOR IS NOT BOUND TO ACCEPT PARTIAL DELIVERY - relate Article 1233: There is no payment until the thing is completely delivered - relate Article 1248: One cannot be compelled to receive partial payment; one has no right to make partial payment * SEPARATE PRICE FOR EACH INSTALLMENT - BREACH AFFECTS THE WHOLE CONTRACT (Injured party may sue for breach of entire contract) - when seller makes defective or incomplete deliveries; or

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SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------- buyer wrongfully neglects or refuses to accept delivery; or - buyer fails to pay any installment - BREACH IS SEVERABLE - only claim for compensation for particular breach may be allowed (Art. 1584): BUYER’S RIGHT TO EXAMINE GOODS ACCEPTANCE – assent to become owner of the specific goods when delivery of them is offered to the buyer EXAMINATION – is a condition precedent to transfer ownership * Art. 1584 refers to ACTUAL DELIVERY * RULES: (a) Examination before delivery should be made by request. Vendor is not bound to offer the thing for examination before delivery without the request of the vendee. (b) When the thing is delivered, the thing is not considered accepted if the vendee has not examined it or has no reasonable opportunity to examine it… (c) In case of COD (collect on delivery) – buyer is not entitled to examine until payment is made, EXCEPT when there is an agreement or that the usage of trade permits the same * In COD, goods are not to be delivered by the carrier to the buyer unless the latter pays. (Art. 1585): MODES OF MANIFESTING ACCEPTANCE 1. EXPRESS ACCEPTANCE – the buyer intimates to the seller that he accepts the thing 2. IMPLIED ACCEPTANCE – may be either of the following: a. Buyer does an act inconsistent with the seller’s ownership; or b. Buyer’s retention of goods without intimating rejection after the lapse of reasonable time. *NOTE: Delivery and Acceptance are separate acts. Receipt and acceptance are not synonymous (Art. 1586): ACCEPTANCE IS NOT A BAR TO ACTION FOR DAMAGES. However, notice must be given to the seller within a reasonable time. (Art. 1587): WHERE BUYER’S REFUSAL TO ACCEPT IS JUSTIFIED Buyer is not bound to return the goods; but he must notify seller (It is the seller who is required to recover the goods from the buyer) The risk of loss is still with the seller Buyer is not liable as DEPOSITARY unless he voluntarily constitutes himself as such QUESTION / INQUIRY: Is the buyer bound to take care of the goods? (whether Art. 1163 is applicable in this case) (Art. 1588): REFUSAL OF THE BUYER WITHOUT JUST CAUSE Title passes to the buyer the moment it is placed at his disposal (Art. 1589): INTEREST (for the period between delivery and payment): Contemplates a situation where DELIVERY AND PAYMENT ARE NOT SIMULTANEOUS Vendee is bound to pay interest in any of the following instances: [IFV (Inday’s Funniest Videos)] (a) Interest is stipulated - may be oral - interest which must be in writing refers only to loan (Art. 1956) (b) Fruits or income are received by vendee from the thing sold -even if a term has been fixed for the payment of price (c) Vendee is guilty of Default (see Art. 1169) [Under Art. 1169, the debtor incurs in delay from the time of judicial or extra-judicial demand. However, demand is not necessary to constitute delay in the following cases: [LTD] 1. The law or obligation expressly so provides; 2. Time is of the essence; or 3. Demand would be useless as when the obligor has rendered it beyond his power to perform.] (Art. 1590): RIGHT OF VENDEE TO SUSPEND PAYMENT Contemplates a situation where the CONTRACT IS NOT YET CONSUMMATED GENERAL RULE: Applicable in 2 cases: (a) Where the vendee is disturbed in possession or ownership of the thing bought; or (b) Vendee has reasonable ground to fear that his possession or ownership would be disturbed (by a vindicatory action or a foreclosure of a mortgage)

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SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------* In both instances, the vendee may retain only the price that has not been paid to the vendor. He is not entitled to recover what has already been paid. -

EXCEPTIONS TO SUSPENSION OF PAYMENT (where vendee has no right to suspend payment): [SSCTP] (a) S: vendor gives security for the return of the price (b) S: stipulation that vendee must make payment notwithstanding such contingency (c) C: cessation of disturbance or danger (d) T: disturbance is a mere act of trespass (e) P: vendee has paid the price in full

-

When the disturbance is caused by non-apparent servitude, the remedy is rescission, not suspension of payment. HYPOTHETICAL QUESTIONS: 1. A sold a parcel of land to B. Thereafter, C filed a suit against A and B for quieting of title. During pendency, may B suspend payment? Yes. B has reasonable ground to fear that his possession or ownership would be disturbed by a vindicatory action. 2. (?) Same facts as #1 but C only claims for a part of the land. May there be suspension of payment? Yes, B may still suspend payment for the entire amount.

(Art. 1591): RIGHT OF VENDOR TO RESCIND SALE OF IMMOVABLE PROPERTY / ANTICIPATORY BREACH REQUISITES: (a) There is delivery of immovable property (b) Vendee has not paid the price (c) Vendor has reasonable ground to fear the: a. LOSS of PROPERTY; AND b. LOSS of PRICE -

When there is no such reasonable ground, Art. 1191 shall be observed (when the vendee does not comply with what is incumbent upon him).

(Art. 1592): WHERE AUTOMATIC RESCISSION OF SALE OF IMMOVABLE PROPERTY IS STIPULATED Art. 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. -

According to Villanueva and Pineda, the phrase ―even though‖ means that this provision is also applicable in a case where there is no stipulation in the contract as to automatic rescission. Atty. Casiňo does not agree with them (this time, he agrees with De Leon) Vendor is given an option to rescind UPON JUDICIAL OR NOTARIAL DEMAND However, when there is no judicial or notarial demand, vendee may still pay. Offer to pay is sufficient to defeat vendor’s prerogative. Vendor’s right to rescind is not absolute. o Art. 1191, par. 3 provides that the court may grant vendee a new term o However, if there is already a demand, the court may no longer fix a term. Breach must be substantial as to defeat the very object of parties. NOT APPLICABLE TO: o Sale on installment of real estate (Caridad Estates vs Santero) – governed by Maceda Law o Mere promise to sell real estate / Conditional sale – there can be no rescission in contract to sell o Cases under RA 6552 (RA 6552 recognizes the vendor’s right to cancel unqualifiedly in case of industrial lots, commercial buildings, etc. with a refund of certain percentages of payments made on account of cancelled contract). *In other words, the vendee in such cases may no longer pay the price after the expiration of the time agreed upon although no demand has yet been made upon him by suit or notarial act.

(Art. 1593): WHERE AUTOMATIC RESCISSION OF SALE OF MOVABLE PROPERTY IS STIPULATED Vendor can rescind the contract as a matter of right if the vendee does not: (a) Accept; or (b) Pay unless credit period for payment is stipulated Reason for the rule: Personal properties are not capable of maintaining stable price in the market. Hence, any delay is prejudicial to the vendor.

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SALES AND LEASE REVIEWER by Diory Rabajante -------------------------------------------------------------------------------------------------------------------------------------------------------------

Not applicable if the thing has already been delivered (reason: the vendor cannot take the law in his hands)

*REMEDIES OF PARTIES IN CASE OF BREACH OF CONTRACT OF SALE A. Sale of Personal Property 1. Sale of personal property on installments:

Requisites (Art. 1484)

(a) contract of sale (b) personal property (c) payable in installments (d) in case of 2nd and 3rd remedies, there has been a failure to pay two or more installments

Alternative remedies of the vendor: [Art. 1484, NCC]

(a) exact fulfillment of the obligation should the vendee fail to pay (b) cancel the sale should the vendee’s failure to pay cover two or more installments (c) 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.] Delta Motors Sales Corp. v. Niu Kim Duan, 213 SCRA259, 1992 Elisco Tool Manufacturing Corp. v. CA, 307 SCRA 731

What constitutes sale on installment: Levy Hermanos, Inc. v. Gervacio, 69 Phil. 52

The remedies under Art. 1484 have been recognized as alternative, not cumulative, in that the exercise of one would bar the exercise of the others. The Court has long been aware of the practice of vendors of personal property of denominating a contract of sale on installment as one of lease to prevent the ownership of the object of the sale from passing to the vendee until and unless the price is fully paid.

When there is only one payment to be paid in the future, there is no basis to apply the Recto law, since under the language of then Article 1454-A, the buyer needs to have defaulted in the payment of two or more installments to allow the seller to rescind or foreclose on the chattel mortgage.

Specific Performance: GENERAL RULE: when the seller has chosen specific performance, he can no longer seek for rescission or foreclosure of the chattel mortgage constituted on the thing sold. EXCEPTION [Art. 1191]: Even if the seller had chosen specific performance, if the same has become impossible, the seller may still choose rescission see Chieng v. Sps. Santos, G.R. No. 169647, Aug. 31, 2007

Rescission *When rescission is deemed chosen: When the seller has clearly indicated to end the contract such as when – [NPA] (a) he sends a notice of rescission, or (b) he takes possession of the subject matter of the sale, or (c) he files an action for rescission. *Forfeiture of installment or rentals paid: GENERAL RULE [Art. 1385]: Rescission creates the obligation to return the things which were the object of the contract, together with the fruits, and the price with interests. It can be carried out only when he who demands rescission can return whatever he may be obliged to restore. EXCEPTION [Art. 1486]: A stipulation that the installments or rents paid shall not be returned to the vendee or lessee shall be valid insofar as the same may not be unconscionable under the circumstances. * Effect of rescission: Nonato v. IAC

When the seller’s assignee, a financing company, is able to take back possession of the

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SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------motor vehicle with a condition that the vehicle could be redeemed by the buyers within 15 days, then such taking of possession is clearly with the intent to cancel the contract. A stipulation in a contract that the installments paid shall not be returned to the vendee is valid insofar as the same may not be unconscionable under the circumstances. The Court took pains to show that the treatment of the forfeited installments as rental is more than justified by the retention and use of the air-conditioning units by the buyer for 22 months.

Delta Motor Sales Corp. v. Niu Kim Duan,

Foreclosure of chattel mortgage When remedy is deemed chosen: At the time of actual sale of the subject property at public auction pursuant to the foreclosure proceedings commenced.

Rule: Manila Motor Co. vs Fernandez Vda de Quiambao vs Manila Motor Inc

Northern Motors vs Sapinoso Universal Motors vs Dy Hian Tat

The remedies under Article 1484 are alternative, not cumulative, in that the exercise of one would bar the exercise of the others. Only the taking back of the property coupled with an unequivocal desire on its part to rescind its contract or for the purpose of appropriating the same, would suffice to bar the seller form proceeding with specific performance. In this case, it was not the seller who demanded a return of the subject motor vehicle, but rather it was the buyer who voluntarily returned the same to postpone the satisfaction of the enforcement of the judgment debt obtained by the seller on the unpaid balance of the purchase price. If prior to the actual sale of the subject property at public auction, the seller had received further payments from the buyer, the seller is not obliged to refund said payments after foreclosure to the buyer. The filing by the seller of an action for the issuance of a writ of replevin, and the actual recovery of possession of the subject property, would not amount to foreclosure, even with the attachment of the mortgage contract itself, since no actual foreclosure pursuant to the relevant provisions of the Rules of Court have been pursued. The mere fact that the seller has secured possession of the truck in question does not necessarily mean that it will foreclose its mortgage. Indeed, there is no showing at all that the seller is causing the sale thereof at public auction or is even preparing to do so. It is quite possible that the seller wanted merely to be sure that the truck is not lost or rendered valueless, preparatory to having it levied upon under a writ of attachment.

Effect of foreclosure of the chattel mortgage:

No further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary is void. [Art. 1484(3)] [Note: unpaid balance here pertains to purchase price]

EXCEPTION:

Filipinas Investment & Finance Corp, v. Ridad

When a defaulting buyer-mortgagor refuses to surrender the chattel to the seller to allow the latter to be able to proceed with foreclosure, then the seller, even after foreclosure, should be allowed to recover expenses and attorney’s fees incurred in trying to obtain possession of the chattel.

Barring Effect on Other Securities Given for Payment of Price Cruz v. Filipinas Investment & Finance Corp

- The ―further action‖ being barred under Art. 1484 is not limited to judicial proceedings, but should include extrajudicial proceedings by virtue of which the seller may be enabled to exact recovery of the supposed unsatisfied balance of the purchase price from the purchaser or his privy. - A seller is precluded from having a recourse against the additional security put up by a third party insofar as the burden would ultimately fall on the buyer himself is concerned (e.g. the guarantor will later on proceed against the buyer). To rule otherwise would be a circumvention of Art. 1484.

Assignor-Assignee; Financing Transaction

When the seller assigns his credit to another person, the latter is likewise bound by the same law. (Borbon II vs Servicewide Specialists)

Assignment with recourse basis Filipinas Investment & Finance Corp. vs Vitug

Art. 1484 (3) does not bar one to whom the vendor has assigned on with a recourse basis his credit against the vendee from recovering from the vendor the assigned credit in full although the vendor may have no right of recovery against the vendee for the deficiency.

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SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------QUESTION/INQUIRY: What if it is the buyer who assigned or alienated the property to another person (whether the other person is bound by the same law)?

Applicability of Recto Law: [Art. 1485]: Art. 1484 applies also to contracts purporting to be leases of personal property with option to buy (when the lessor has deprived the lessee of the possession or enjoyment of the thing)

PCI Leasing and Finance, Inc. v. Giraffe-X Creative Imaging, Inc., G.R. No. 142618, July 12, 2007; BA Finance Corp. v. CA, 228 SCRA 530; Vda. de Jose v. Barrueco, 67 Phil. 191] HYPOTHETICAL QUESTIONS: 1. A lease of personalty with option to buy was entered into by A and B. For failure to pay rentals, the lessor (A) took possession of the thing sold. May A still collect the unpaid rentals? No. Lessor is estopped from further action to recover the unpaid rentals which are deemed waived. The remedies are alternative. The exercise of one would bar the exercise of the other. 2. The vendor elected to foreclose the chattel mortgage on the car sold. He filed an action for replevin. Before the vendee filed his answer, he paid two installments amounting to P1,250. May the vendor retain the amount paid to him? Yes. The said amount could be retained by the vendor since it was paid before the actual foreclosure of the chattel mortgage. See Northern Motors, Inc vs Sapinoso. 3. A and B entered into a contract of sale where A bound himself to deliver upon perfection a particular car. B, on the other hand, is bound to pay half of the price at the time of perfection and the other half 15 days thereafter. There was no payment made by B. (a) Is Art. 1484 applicable? No. This is a sale on straight term. See Levy Hermanos, Inc. v. Gervacio. (b) May A foreclose the chattel mortgage if one has been constituted? Yes, under the Chattel Mortgage Law. (c) May A cancel the contract? Yes, under Art. 1191. (d) May A recover the balance after foreclosing the chattel mortgage? Yes. There is no barring effect because Art. 1484 is not applicable. 4. A and B entered into a contract of sale where A bound himself to deliver upon perfection a particular car. B, on the other hand, bound to pay P100k on ten equal monthly installments. B failed to pay the 4th, 5th and 6th installments (on 4th, 5th, and 6th months). On the 7th month, B went to A and paid P10k. A accepted the payment and issued a receipt. May A avail of the remedies stated in Art. 1484? No. The receipt of a later installment of a debt without reservation as to prior installments shall raise the presumption that such installments have been paid. (Art. 1176, par. 2) 5. A and B entered into a contract of sale where A bound himself to deliver upon perfection a particular car. B, on the other hand, bound himself to pay P100k on ten equal monthly installments. B failed to pay the 4th, 5th and 6th installments (on 4th, 5th, and 6th months). May A rescind the contract? No. There is no demand. In order for Art. 1484 to apply, the vendee must be in default. Applying Art. 1169, vendee is not in default when there is no judicial or extra-judicial demand. 6. A and B entered into a contract of sale where A bound himself to deliver upon perfection a particular car. B, on the other hand, bound himself to pay P100k on ten equal monthly installments. B failed to pay 1 installment. May A rescind the contract? No. The non-payment must pertain to two or more installments. 7. [(?) ESCALATION CLAUSE] A and B entered into a contract of sale where A bound himself to deliver upon perfection a particular car. B, on the other hand, bound himself to pay P100k on ten equal monthly installments. There is a stipulation in the contract that failure to pay one of the installments shall automatically make all of the installments due and demandable. B failed to pay 1 installment. Assuming that there is a demand to pay on the part of A as to the unpaid installment, may A rescind the contract? 8. [(?) FACTS UNCLEAR] A and B entered into a contract of sale where A bound himself to deliver upon perfection a particular car. B, on the other hand, bound to pay P100k on ten equal monthly installments. A chattel mortgage was constituted to secure B’s payment of the price. Meanwhile, a real estate mortgage is also constituted on the property in favor of C. B failed to pay the 4th, 5th and 6th installments (on 4th, 5th, and 6th months). If A would choose foreclosure of the chattel mortgage, may he proceed against C as to the payment of the balance? 9. A and B entered into a contract of sale where A bound himself to deliver upon perfection a particular car. B, on the other hand, bound himself to pay P100k on ten equal monthly installments. C guaranteed B’s payment of the price. B failed to pay the 4th, 5th and 6th installments (on 4th, 5th, and 6th months). May A proceed against C, the guarantor, for the payment of the unpaid balance?

51

SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------No. Check Ridad case. A seller is precluded from having a recourse against the additional security put up by a third party insofar as the burden would ultimately fall on the buyer himself is concerned (e.g. the guarantor will later on proceed against the buyer). To rule otherwise would be a circumvention of Art. 1484 (Cruz v. Filipinas Investment & Finance Corp). Furthermore, a guarantor is only subsidiarily liable, unlike a surety who is primarily and solidarily liable with the principal. 10. Same facts as #9 only that A did not choose foreclosure. C, the guarantor, paid the price of the car in behalf of B. Rule the case. There is here a legal subrogation where even without the knowledge of B, the debtor, C, a person interested in the fulfillment of the obligation, pays (Art. 1302) 11. A and B entered into a contract of sale where A bound himself to deliver upon perfection a particular car. B, on the other hand, bound himself to pay P100k on ten equal monthly installments. B paid the 1st installment but before the 2nd installment was due, B became insolvent. May A avail of the remedies stated in Art. 1484 even without a demand? Yes. B lost his right to a period, he having become insolvent who gave no guaranty or security for the payment of the price (Art. 1198).

B. Sale of Immovable Property (1) Remedies of Vendor/Seller: 1. Anticipatory Breach: (Art. 1591): RIGHT OF VENDOR TO RESCIND SALE OF IMMOVABLE PROPERTY / ANTICIPATORY BREACH REQUISITES: (a) There is delivery of immovable property (b) Vendee has not yet paid the price (c) Vendor has reasonable ground to fear the: a. LOSS of PROPERTY; AND b. LOSS of PRICE When there is no such reasonable ground, Art. 1191 shall be observed (when the vendee does not comply with what is incumbent upon him). 2. AUTOMATIC RESCISSION: [1592, NCC; Laforteza vs. Machuca, 333 SCRA 643] (Art. 1592): WHERE AUTOMATIC RESCISSION OF SALE OF IMMOVABLE PROPERTY IS STIPULATED According to Villanueva and Pineda, the phrase ―even though‖ means that this provision is also applicable in a case where there is no stipulation in the contract as to automatic rescission. Atty. Casiňo does not agree with them (this time, he agrees with De Leon) Vendor is given an option to rescind UPON JUDICIAL OR NOTARIAL DEMAND However, when there is no judicial or notarial demand, vendee may still pay. Offer to pay is sufficient to defeat vendor’s prerogative. Vendor’s right to rescind is not absolute. o Art. 1191, par. 3 provides that the court may grant vendee a new term o However, if there is already a demand, the court may no longer fix a term. Breach must be substantial as would defeat the very object of parties. NOT APPLICABLE TO: o Sale on installment of real estate (Caridad Estates vs Santero) o Mere promise to sell real estate / Conditional sale o Cases under RA 6552 (RA 6552 recognizes the vendor’s right to cancel unqualifiedly in case of industrial lots, commercial buildings, etc. with a refund of certain percentages of payments made on account of cancelled contract. *In other words, the vendee in such cases may no longer pay the price after the expiration of the time agreed upon although no demand has yet been made upon him by suit or notarial act. *Article 1592, not applicable to Contract to Sell: [Pangilinan vs. CA, 279 SCRA 590 (1997); Alfonso vs. CA, 186 SCRA 400 (1990); Valarao vs. CA, 304 SCRA 155 (1999); People’s Industrial and Commercial Corp. vs. CA, 281 SCRA 206 (1997)]. (2) Remedies of Buyer 1. Right to Suspend Payment:

52

SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------(Art. 1590): RIGHT OF VENDEE TO SUSPEND PAYMENT Contemplates a situation where the CONTRACT IS NOT YET CONSUMMATED GENERAL RULE: Applicable in 2 cases: (c) Where the vendee is disturbed in possession or ownership of the thing bought; or (d) Vendee has reasonable fear ground to fear that his possession or ownership would be disturbed (by a vindicatory action or a foreclosure mortgage) * In both instances, the vendee may retain only the price that has not been paid to the vendor. He is not entitled to recover what has already been paid. -

EXCEPTIONS TO SUSPENSION OF PAYMENT (where vendee has no right to suspend payment): [SSCTP] (f) S: vendor gives security for the return of the price (g) S: stipulation that vendee must make payment notwithstanding such contingency (h) C: cessation of disturbance or danger (i) T: disturbance is a mere act of trespass (j) P: vendee has paid the price in full

-

When the disturbance is caused by non-apparent servitude, the remedy is rescission not suspension of payment.

*Rule applicable in cases not involving subdivision or condominium projects *Rule applicable in cases involving sale of subdivision lots or condominium units Ground for suspension of payment: No installment payments made by the buyer in a subdivision or condominium project for the lot or unit he contracts to buy shall be forfeited in favor of the owner or developer when the buyer, after due notice to the owner or developer desists from further payment due to the failure of the owner or developer to the develop the subdivision or condominium project according to the approved plans and within the time limit for complying with the same. [Sec. 23, PD 957] [1.2.2] Alternative remedies of the buyer: [Sec. 23, PD 957] Relucio v. Brillante-Garfin, 187 SCRA 405; Casa Filipina Realty Corp. v. Office of the Pres., 241 SCRA 165]. 2. Right to Grace Period: Bricktown Development Corp. v. Amor Tierra Development Corp.

When a grace period is provided for in the contract of sale, it should be construed as a right, not an obligation of the debtor, and when unconditionally conferred, the grace period is effective without further need of demand either calling for the payment of the obligation or for honoring the right.

C. The Maceda Law (RA 6552)

Purpose of law : Protect buyers in installments against oppressive conditions 1. Applicability:

Transactions Covered:

Transaction or contracts involving the sale of financing of real estate on installment payments, including residential condominium apartments. Covers: 1. contract of sale 2. contract to sell 3. financing transactions

Excluded:

1. industrial 2. commercial 3. sale to tenants under agrarian laws [Sec. 3, RA 6552].

Applicability:

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SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------[Sec. 2, RA 6552].

Applies even to contract to sell:

[Villanueva, Sales, 432; Rillo v. CA, 274 SCRA 461; Leano v. CA, 369 SCRA 674]. 2. Rights Granted to Buyer Under Maceda Law:

If the buyer has paid at least two years of installments:

(a) The buyer must pay, without additional interest, the unpaid installments due within the total grace period earned by him. There shall be 1 month grace period for every 1 year of installment payments made. [NOTE: This is to be exercised only once in every 5 years or the life of the contract and its extensions.] (b) Actual cancellation can only take place after 30 days from receipt by the buyer of the notice of cancellation or demand for rescission by a notarial act and upon full payment of the cash surrender value to buyer. [NOTE: The seller shall refund to the buyer the cash surrender value of the payments on the property equivalent to 50% of the total payments made, After 5 years of the installments, there shall be an additional 5% every year but not to exceed 90% of the total payments made.] (c) The buyer shall have the right to sell his rights or assign the same to another person or to reinstate the contract by updating the account during the grace period and before actual cancellation of the contract. (d) The buyer shall have the right to pay in advance any installment or the full unpaid balance of the purchase price any time without interest and to have such full payment of the purchase price annotated in the certificate of title covering the property.

If the buyer has paid less than two years of installments:

(a) the seller shall give the buyer a grace period of not less than 60 days from the date the installment became due. If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel the contract after 30 days from receipt by the buyer of the notice of cancellation or the demand for rescission of contract by notarial act. (b) c and d above [NOTE: downpayments, deposits or options on the contract shall be included in the computation of the total number of installment payments made.]

3. Requisites for valid cancellation of contract covered by Maceda Law:

Requisites:

Actual cancellation can only take place after 30 days from receipt by the buyer of the notice of cancellation or demand for rescission by a notarial act and upon full payment of the cash surrender value to buyer. [NOTE: The seller shall refund to the buyer the cash surrender value of the payments on the property equivalent to 50% of the total payments made, After 5 years of the installments, there shall be an additional 5% every year but not to exceed 90% of the total payments made. [Sec. 3, RA 6552; Siska Development Corp. vs. Office of the President of the Philippines, 231 SCRA 674 and Marina Properties Corp. vs. CA, 294 SCRA 272 (1998)]

Effect of failure to comply:

[Active Realty & Development Corp. vs. Daroya, 382 SCRA 152; Olympia Housing v. Panasiatic Travel Corp., G.R. No. 140468, Jan. 16, 2003; Layug vs. Court of Appeals, 369 SCRA 36]

Effect of contrary stipulation [Sec. 7, RA 6552].

HYPOTHETICAL QUESTIONS: 1.

(?) A and B entered into a contract of sale whereby A bound himself to deliver a parcel of land through a public document on 1 July 2010, and B bound himself to pay on 31 December 2010. On 31 July 2010, however, B became insolvent. Can A sue for rescission? Yes. B loses his right to a period because of his insolvency pursuant to Article 1198.

2.

(?) A and B entered into a contract of sale whereby A bound himself to deliver a parcel of land through a public document on 1 July 2010, and B bound himself to pay on 31 December 2010. On 31 July 2010, however, B absconded. Can A sue for rescission? Yes. B loses his right to a period pursuant to Article 1198

3.

A and B entered into a contract of sale whereby A bound himself to deliver a parcel of land through a public document on 1 July 2010, and B bound himself to pay on 31 December 2010. B did not pay A on 31 December 2010. What is/are the remedy/ies of A?

54

SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------A may choose between fulfillment and rescission of the obligation with payment of damages in either case on the ground that B does not comply with what is incumbent upon him (Article 1191). Should there be a reasonable ground to fear the loss of property sold and its price, A may immediately sue for rescission of the sale (Article 1591) 4.

(?) (Soria/Suria?) A and B entered into a contract of sale whereby A bound himself to deliver a parcel of land through a public document on 1 July 2010, and B bound himself to pay on 31 December 2010. A real estate mortgage was constituted on the property, having A as the mortgagee. B did not pay A on 31 December 2010. May A rescind the sale? No. Upon the constitution of Real estate mortgage, the contract has been changed into one of payment of a loan.

D. Sale of Goods

Remedies of Unpaid Seller: [Art. 1526] – Notwithstanding that the ownership of the goods may have passed to the buyer: (a) Possessory lien (b) Stoppage in transitu (c) Right of resale (can only be exercised when the two prior remedies have been exercised) (d) Rescission (can only be exercised when the two prior remedies have been exercised)

Who is considered an unpaid seller? [Art. 1525]

(a) when the whole of the price has not been paid or tendered to the seller; or (b) when a bill of exchange or other negotiable instrument has been received (as conditional payment), and the condition on which the instrument was received was broken by reason of the dishonor of the instrument, insolvency of buyer, or otherwise.

* Lien on goods or right of retention: When right of lien exists: [Art.1527] [WEI]

(a) goods have been sold without any stipulation as to credit (b) goods have been sold on credit, but the term of credit has expired (c) buyer becomes insolvent (as he had already lost his right to a period pursuant to Art. 1198)

When unpaid seller loses his lien: [Art.1529] [COW]

(a) he delivers to a carrier or other bailee -for the purpose of transmission to the buyer - without reserving the ownership in the goods or the right of possession thereof (b) buyer or his agent lawfully obtains possession of the goods (c) waiver

Part delivery of goods had been made [Art. 1528] – lien on the remainder

Effect of sale of goods by buyer: [Art.1535]

Seller’s right of lien or stoppage in transitu is not affected. EXCEPTION: (a) Seller assented thereto When a negotiable document of title has been issued for goods (reiteration of Art. 1532 and in consonance with Art. 1518)

* Stoppage In Transitu: When can it be invoked: [Arts. 1526, 1530 and 1532]

- seller has parted with the possession of the goods - REQUISITES: (a) unpaid seller (b) insolvent buyer (c) goods are in transit (d) The exercise of stoppage in transitu is either by: (i) obtaining actual possession of the goods (ii) giving notice of his claim to the carrier or other bailee in whose possession the goods are. (1532) Notice may be given either to the person in actual possession of the goods or to his principal.

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SALES AND LEASE REVIEWER by Diory Rabajante -------------------------------------------------------------------------------------------------------------------------------------------------------------

When notice is given to the carrier or other bailee in possession of the goods, he must redeliver the goods according to the directions of the seller [NOTE: Expenses must be borne by the seller] EXCEPTION: a negotiable document of title representing the goods has been issued (in which case the carrier or bailee is not obliged to redeliver the goods unless the seller surrendered the document for cancellation)

When the goods are considered ―in transit‖ (Art. 1531) 1. 2.

After delivery to a carrier or other bailee and before the buyer or his agent takes delivery of them; and Goods are rejected by the buyer and the carrier or other bailee continues to possess them (even if the seller refused to receive them back)

When the goods are considered no longer in transit (Art. 1531) 1. 2. 3. 4.

After delivery to buyer or his agent Buyer or his agent obtains delivery of the goods (before their arrival at the appointed destination) After the arrival at the appointed destination, the carrier or bailee acknowledges to the buyer or his agent that he is holding the goods in his behalf and continues in possession of them as bailee for buyer or his agent Carrier or bailee wrongfully refuses to deliver the goods to the buyer or his agent in that behalf

Effect of sale of goods by buyer: [Art.1535]

Seller’s right of lien or stoppage in transitu is not affected. EXCEPTION: (b) Seller assented thereto (c) When a negotiable document of title has been issued for goods (reiteration of Art. 1532 and in consonance with Art. 1518)

* Resale of the Goods REQUISITES: [Art. 1533] (1) first two remedies have been exercised - unpaid seller has right of lien or has stopped goods in transitu (2) under any of the following conditions: (a) goods are perishable (b) seller expressly reserves the right of resale in case buyer defaulted (c) buyer has been in default in payment for an unreasonable time

Seller is not liable to original buyer for profit made by virtue of resale Seller may recover from buyer damages for loss due to breach of contract of sale Buyer acquires good title as against original buyer

* Rescission of sale: [A] Special right to rescind [Art.1534] - seller has parted with possession of the goods - seller may recover from the buyer damages for any loss due to breach of contract - there must be NOTICE or some other OVERT ACT of intention to rescind [Overt act need not be communicated BUT the giving of notice is relevant in case of default for an unreasonable time. REQUISITES: (1) first two remedies have been exercised - unpaid seller has right of lien or has stopped goods in transitu (2) under any of the following conditions: (a) seller expressly reserves the right of rescind in case buyer defaulted (b) buyer has been in default in payment for an unreasonable time [B] Technical Rescission [Art. 1597] - There is no delivery of goods yet - seller may totally rescind by giving notice of his election to do so to the buyer (1) Buyer has repudiated the contract of sale; (2) Buyer has manifested his inability to perform obligations; or (3) Buyer committed a breach

56

SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------HYPOTHETICAL QUESTIONS: 1.

2.

A entered into a contract of sale with B whereby B bound himself to pay P500k for the 100 sack of corn, which is to be delivered by A. A gave B a bill of lading, deliverable to B or order. Subsequently, B became insolvent. May A exercise to right of stoppage in transitu? Yes. A and B entered into a contract of sale of 100 sacks of corn. A is bound to send the goods to B through his ship, which is being operated by C. Assuming that A became an unpaid seller, may he exercise the right of stoppage in transitu while the goods are in the possession of C? No. A is still in the possession of the goods. C’s possession is merely that of a holder, as he was acting as A’s employee. Because A has not yet parted with the possession of the goods, his remedy is to exercise his lien on the goods.

Actions in case of breach of contract of sale of goods [A] REMEDIES OF SELLER 1. Action for the price / Specific performance (Art. 1595) (a) when the ownership of the goods has passed to the buyer and he wrongfully neglects or refuses to pay for the goods according to the terms of the contract (b) when price is payable on certain day, irrespective of delivery or transfer of title, and the buyer wrongfully neglects or refuses to pay [BUT: it is a defense to such action that seller has manifested an inability or lack of interest to perform his obligation before judgment] (c) if goods cannot readily be resold for a reasonable price, although transfer of ownership has not passed – seller may offer to deliver the goods to the buyer; if buyer refuses to receive, seller may notify the buyer that he holds the goods as bailee for the buyer. Thereafter, the seller may treat the goods as buyer’s and may maintain an action for the price. 2. Action for Damages (Art. 1596) When buyer wrongfully neglects or refuses to ACCEPT and PAY for the goods MEASURE OF DAMAGES = estimated loss directly and naturally resulting in the ordinary course of events from the buyer’s breach MEASURE OF DAMAGES (WHEN THERE IS AVAILABLE MARKET) = difference between the contract price and the market or current price at the time the goods ought to have been accepted, or at the time of refusal to accept when there is no time fixed 3. Rescission (Art. 1597) - There is no delivery of goods yet - seller may totally rescind by giving notice of his election to do so to the buyer (1) Buyer has repudiated the contract of sale; (2) Buyer has manifested his inability to perform obligations; or (3) Buyer committed a breach [B] REMEDIES OF BUYER 1. 2.

-

Specific performance, without giving the seller the option of retaining the goods on payment of damages. [Judgment may be unconditional, or upon such terms and conditions as to damages, payment of the price and otherwise, as the court may deem just] (Art. 1598) In case of seller’s breach of warranty (Art. 1599) (a) Recoupment – accept the goods and set up the seller’s breach to reduce or extinguish the price (b) Accept the goods and maintain an action for damages for breach of warranty (c) Refuse to accept and maintain an action for damages for breach of warranty (d) Rescission – rescind the contract and refuse to receive the goods; or if goods have already been received, return them and recover what was paid or any part of it concurrently with return or immediately after it. These remedies are alternative, without prejudice to paragraph 2 of Art. 1191 (that a party may still seek rescission after choosing specific performance if the latter is impossible) Buyer cannot rescind if he knew of the breach and accepted the goods without protest, or fails within reasonable time to notify the seller of his election to rescind, or fails to return or offer to return the goods in substantially as good condition as it was If seller refuses to accept an offer to return the goods and the buyer elected rescission, buyer shall be deemed to hold the goods as bailee for the seller subject to lien to secure payment of any portion of the price which has been paid. LOSS (in case of breach of warranty of quality) = difference between value of the goods at the time of delivery and value they would have had if they had answered to the warranty

Provisions on Rescission 57

SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------1191 (Judicial Rescission based on substantial breach) – at the instance of aggrieved party 1381 (rescission based on lesion) - at the instance of aggrieved party 1591 (for Anticipatory breach - immovable) – at the instance of vendor 1592 (Automatic rescission when there is stipulation - immovable) - at the instance of vendor 1593 (Automatic rescission when there is stipulation – movable) - at the instance of vendor 1534 (Special right to rescind) - at the instance of vendor 1597 (Technical Rescission) - at the instance of vendor 1599(4) (where there is breach of warranty on the part of seller) – at the instance of vendee

Rescission in case of breach of a party or lesion RESCISSION (RESOLUTION) 1191 legal basis is substantial breach principal remedy, retaliatory vs. unjust party

RESCISSION – 1381 legal basis is lesion (rescissible contract) subsidiary remedy – cannot be instituted except when other remedies are exhausted mutual restitution

mutual restitution

Rescission at the instance of vendor - immovable 1591 Rescission based on Anticipatory breach (b) There is delivery of immovable property (c) Vendee has not paid the price (d) Vendor has reasonable ground to fear the: a. LOSS of PROPERTY; AND b. LOSS of PRICE

1592 Rescission based on stipulation regarding automatic rescission - Vendor is given an option to rescind UPON JUDICIAL OR NOTARIAL DEMAND - However, when there is no judicial or notarial demand, vendee may still pay. Offer to pay is sufficient to defeat vendor’s prerogative. - Vendor’s right to rescind is not absolute. o Art. 1191, par. 3 provides that the court may grant vendee a new term However, if there is already a demand, the court may no longer fix a term.

Principal/subsidiary (?)

Rescission at the instance of vendor – movable / goods 1534 Special right to rescind Seller has already parted with possession of the goods… (1) Seller expressly reserved the right to do so in case the buyer should make default; or (2) The buyer has been in default in the payment of the price for an unreasonable time. Principal/subsidiary (?)

1597 Technical Rescission There is no delivery of goods yet… (1) Buyer has repudiated the contract of sale; (2) Buyer has manifested his inability to perform obligations; or (3) Buyer committed a breach

Rescission at the instance of vendor - movable 1593 Movable Property Automatic rescission of sale of movable is stipulated Principal/subsidiary (?)

1534 / 1597 Movable Property / goods (See requisites)

Comparative Table of Remedies in case of breach REMEDIES VENDOR/SELLER 1191 1170 (IMMOVABLE) 1. Rescission under 1591 2. Rescission under 1592 3. Re provisions on Maceda Law (MOVABLE / GOODS)

VENDEE/BUYER 1191 1170 (IMMOVABLE) 1. Suspension of payment under 1591 2. Right to grace period under Maceda Law (MOVABLE / GOODS) 1. (1598)

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SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------1) 2) 3) 4)

Action for the price / Specific performance (1595) Action for Damages Rescission under 1597 Rescission under 1593 (there is stipulation)

2. 3.

In case of breach of warranty of seller (1599) Remedies of Unpaid Seller (1526)

* EXTINGUISHMENT OF SALE

Art. 1600: Sales are extinguished by the same causes as all other obligations, by those stated in the preceding articles of this Title, and by conventional or legal redemption. Sales are 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

extinguished by the same causes as all other obligations (Art. 1600), such as: Payment or performance of obligation Loss of the thing due Condonation or remission of debt Confusion or merger of rights Compensation Novation Rescission Annulment Fulfillment of a resolutory condition Prescription

Sales are also extinguished by CONVENTIONAL OR LEGAL REDEMPTION. *Conventional Redemption

Conventional redemption:   

seller reserved the right to repurchase thing sold coupled with obligation to return price of the sale, expenses of contract & other legitimate payments and the necessary & useful expenses made on the thing sold right is exercised only by seller in whom right is recognized in the contract or by any person to whom right was transferred

* A right of repurchase is an alienable right and within the commerce of man. It may be sold, attached and levied upon.

Equitable Mortgage (requisites): 1. 2.

the parties entered into a contract denominated as sale the intention was to secure an existing debt by way of mortgage

Rationale Behind Provision on Equitable Mortgage 1. 2.

To avoid circumvention of usury law To avoid circumvention of prohibition against pactum commissorium – creditor cannot appropriate the things given by way of pledge or mortgage; remedy here is foreclosure

Art. 1601: Conventional redemption shall take place when the vendor reserves the right to repurchase the thing sold, with the obligation to comply with the provisions of Article 1616 and other stipulations which may have been agreed upon.

Art. 1602: The contract shall be presumed to be an equitable mortgage, in any of the following cases: [IPERTOD]

(1) When the price of a sale with right to repurchase is unusually inadequate; (2) When the vendor remains in possession as lessee or otherwise; (3) When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed; (4) When the purchaser retains for himself a part of the purchase price; (5) When the vendor binds himself to pay the taxes on the thing sold; (6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation. In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall be considered as interest which shall be subject to the usury laws.

Art. 1603: In case of doubt, a contract purporting to be a sale with right to repurchase shall be construed as an equitable mortgage.

Art. 1604: The provisions of Article 1602 shall also apply to a contract purporting to be an absolute sale.

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SALES AND LEASE REVIEWER by Diory Rabajante -------------------------------------------------------------------------------------------------------------------------------------------------------------

Art. 1605: In the cases referred to in Articles 1602 and 1604, the apparent vendor may ask for the reformation of the instrument. (See Art. 1359) Art. 1606: The right referred to in Article 1601, in the absence of an express agreement, shall last four years from the date of the

contract. Should there be an agreement, the period cannot exceed ten years. However, the vendor may still exercise the right to repurchase within thirty days from the time final judgment was rendered in a civil action on the basis that the contract was a true sale with right to repurchase.

(This is not applicable to absolute sale. This is applicable only where the nature or character of the transaction, as to whether it is a pacto de retro sale or equitable mortgage, was put in issue before the court.) Art. 1607: In case of real property, the consolidation of ownership in the vendee by virtue of the failure of the vendor to comply

with the provisions of article 1616 shall not be recorded in the Registry of Property without a judicial order, after the vendor has been duly heard.

(pertains to the recording of the consolidation of ownership)

Art. 1608: The vendor may bring his action against every possessor whose right is derived from the vendee, even if in the second

contract no mention should have been made of the right to repurchase, without prejudice to the provisions of the Mortgage Law and the Land Registration Law with respect to third persons.

Art. 1609: The vendee is subrogated to the vendor's rights and actions. Art. 1610: The creditors of the vendor cannot make use of the right of redemption against the vendee, until after they have exhausted the property of the vendor.

(This is in consonance with Art. 1177)

Art. 1611: In a sale with a right to repurchase, the vendee of a part of an undivided immovable who acquires the whole thereof in the case of article 498, may compel the vendor to redeem the whole property, if the latter wishes to make use of the right of redemption.

Art. 1612: If several persons, jointly and in the same contract, should sell an undivided immovable with a right of repurchase, none

of them may exercise this right for more than his respective share. The same rule shall apply if the person who sold an immovable alone has left several heirs, in which case each of the latter may only redeem the part which he may have acquired.

Art. 1613: In the case of the preceding article, the vendee may demand of all the vendors or co-heirs that they come to an agreement upon the purchase of the whole thing sold; and should they fail to do so, the vendee cannot be compelled to consent to a partial redemption.

Art. 1614: Each one of the co-owners of an undivided immovable who may have sold his share separately, may independently exercise the right of repurchase as regards his own share, and the vendee cannot compel him to redeem the whole property.

Art. 1615: If the vendee should leave several heirs, the action for redemption cannot be brought against each of them except for

his own share, whether the thing be undivided, or it has been partitioned among them. But if the inheritance has been divided, and the thing sold has been awarded to one of the heirs, the action for redemption may be instituted against him for the whole.

Art. 1616: The vendor cannot avail himself of the right of repurchase without returning to the vendee the price of the sale, and in addition:

(1) The expenses of the contract, and any other legitimate payments made by reason of the sale; (2) The necessary and useful expenses made on the thing sold.

(construe with Art. 547 and Art. 547; enumeration is not exclusive; tender of payment is enough because other expenses are still subject to validation) Art. 1617: If at the time of the execution of the sale there should be on the land, visible or growing fruits, there shall be no

reimbursement for or prorating of those existing at the time of redemption, if no indemnity was paid by the purchaser when the sale was executed. Should there have been no fruits at the time of the sale and some exist at the time of redemption, they shall be prorated between the redemptioner and the vendee, giving the latter the part corresponding to the time he possessed the land in the last year, counted from the anniversary of the date of the sale.

Art. 1618: The vendor who recovers the thing sold shall receive it free from all charges or mortgages constituted by the vendee, but

he shall respect the leases which the latter may have executed in good faith, and in accordance with the custom of the place where the land is situated.

60

SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------HYPOTHETICAL QUESTIONS: 1. A land was sold in 1971 for P50k. Later, the vendor claims sale to be an equitable mortgage because of unusual inadequacy of the price. Is he correct? No. Price is not inadequate because of circumstance and time the thing was sold. In 1971, P50k is already a big amount. Inadequacy of price is determined at the time of sale. 2. (?) A third person acquires right of repurchase of vendor, which was attached and sold at a public auction where the former became the highest bidder. May vendor still exercise right of repurchase? 3. (?)(?)(?) A owes B P100k. B filed an action to collect; and judgment is rendered in his favor. The subject parcel of land was awarded to B. May A be compelled to immediately deliver the land? No, there is one year right of repurchase. 4. A and B entered into a contract of sale with right of repurchase. They agreed that the right of repurchase is fixed at P600k. Is the stipulation valid? Yes. Conventional redemption is subject to such ―other stipulations which may have been agreed upon.‖ (Art. 1601) (Solid Homes vs CA) 5. A and B entered into a pacto de retro sale. B, the vendee a retro, sold the subject property to C through an absolute sale. May A exercise the right of repurchase as against C? Yes. The vendor may bring his action against every possessor whose right is derived from the vendee, even if in the second contract, there is no mention as to the right to repurchase (Art. 1608) 6. A and B entered into a pacto de retro sale. B, the vendee a retro, leased the subject property to C. May A evict C? No. A is bound to respect the lease (Art. 1618) 7. B entered into a pacto de retro sale with C. A is a creditor of B. May A proceed directly against C (or levy upon the subject property which is in the possession of C) for the satisfaction of B’s debt? No. The creditors of the vendor cannot make use of the right of redemption against the vendee until after they have exhausted the property of the vendor. (Art. 1610 in connection with Art. 1177) [Noted: exceptions to this rule are: (a) a mortgage which is recorded prior to sale and (b) mortgage that was foreclosed] 8. A, B, and C are co-owners of an undivided immovable. A sold his share to D, which made D a new co-owner. Partition of the property took place. Subsequently, B and C sold their part of the property to D. Rule the case. A may be compelled to redeem the whole property if he wishes to redeem (Art. 1611) 9. A, B, and C are co-owners of an undivided immovable. They jointly entered into a contract of pacto de retro sale of the immovable property to D. Rule the case. None may exercise right to repurchase more than his share. (Art. 1612) 10. X owns a parcel of land. When he died, he left the said land to A, B and C. A, B, and C jointly entered into a contract of pacto de retro sale of the immovable property to D. Rule the case. None may exercise right to repurchase more than his share. (Art. 1612) 11. In #s 8, 9 and 10, May the vendee demand from vendors to agree to purchase the whole? Yes. If the vendors cannot agree, the vendee cannot be compelled to consent to partial redemption. ( Art. 1613) 12. A, B, and C are co-owners of an undivided immovable. They entered into separate contracts of pacto de retro sale of their shares in favor of one vendee, D. May D compel either of A, B and C to redeem the whole? No, they cannot be compelled, but each of them may independently exercise the right of repurchase as regards his share. (Art. 1614) 13. A entered into a pacto de retro sale of an undivided immovable with B. B, the vendee, died leaving C, D, and E as his heirs. May A compel one of the heirs to redeem the whole prop? If the property has already been partitioned, would the answer be the same? Whether the property is undivided or partitioned, the heirs cannot be compelled to redeem the whole property, except when after partition, the whole property has been awarded to one of the heirs, in which case, he may be compelled to redeem the whole. 14. Suria case (Art. 1616) 15. A entered into a pacto de retro sale of a parcel of land with B. The property is to be redeemed within 3 years from sale. The land was sold to B at P500k. B further paid P50k for the growing and visible fruits on the land. On the 3rd year after sale, A sought to redeem the property – (a) If A will exercise redemption, he must pay P550k as price for sale. (b) If B did not pay, he is not entitled to reimbursement for crops existing at the time of redemption. (c) If no crops at the time of sale and some exist at redemption, B is entitled to crops during the last year, i.e. 2nd year. (d) If there were crops at the time of sale and B paid them, B must receive reimbursement or is entitled to fruits for the last year because having paid them, the effect is the same as if there were no crops on the land when it was sold. (Art. 1617) 16. A entered into a pacto de retro sale with B. B, the vendee a retro, mortgaged the property to C. Should B redeem the mortgage prior to A’s exercise of his right of repurchase? Yes. The vendor who recovers the thing sold shall receive it free from all charges or mortgages constituted by the vendee. (Art. 1618) 17. A, the vendor a retro, before the expiration of the period of redemption, brought an action to declare that such sale is really a simple mortgage. Several years later, it was declared as pacto de retro. Can the vendor a retro still redeem the property? Yes. See Art. 1601, par. 3

61

SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------* Legal Redemption 

Legal redemption is not applicable to: (enumeration is not exclusive) (a) barter, (b) donation (c) transmission of things by hereditary title, (d) mortgage, (e) lease



Article 1492 provides that the prohibitions as laid down in Arts. 1490 and 1491 are also applicable to legal redemption.

Art. 1619: Legal redemption is the right to be subrogated, upon the same terms and conditions stipulated in the contract, in the

place of one who acquires a thing by purchase or dation in payment, or by any other transaction whereby ownership is transmitted by onerous title.

(purpose is to minimize co-ownership)

Art. 1303: Subrogation transfers to the persons subrogated the credit with all the rights thereto appertaining, either against the debtor or against third person, be they guarantors or possessors of mortgages, subject to stipulation in a conventional subrogation.

Art. 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.

Requisites: 1. Co-ownership 2. Alienation of all or any of the shares 3. Sale to a stranger 4. Before partition

Art. 1621: The owners of adjoining lands shall also have the right of redemption when a piece of rural land, the area of which does not exceed one hectare, is alienated, unless the grantee does not own any rural land. This right is not applicable to adjacent lands which are separated by brooks, drains, ravines, roads and other apparent servitudes for the benefit of other estates. If two or more adjoining owners desire to exercise the right of redemption at the same time, the owner of the adjoining land of smaller area shall be preferred; and should both lands have the same area, the one who first requested the redemption.

-Requisites: 1. both lands are rural 2. adjacent 3. there is an alienation 4. less than 1 hectare - purpose is to encourage maximum development and utilization of agricultural lands

Art. 1622: Whenever a piece of urban land which is so small and so situated that a major portion thereof cannot be used for any

practical purpose within a reasonable time, having been bought merely for speculation, is about to be re-sold, the owner of any adjoining land has a right of pre-emption at a reasonable price. (Right of Pre-emption) If the re-sale has been perfected, the owner of the adjoining land shall have a right of redemption, also at a reasonable price. When two or more owners of adjoining lands wish to exercise the right of pre-emption or redemption, the owner whose intended use of the land in question appears best justified shall be preferred. (Right

of redemption)

Art. 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.

HYPOTHETICAL QUESTIONS 1. A, B and C are co-owners of a parcel of land. A donated his share to X. May B or C exercise legal redemption as against X? No. The transmission of ownership is not by onerous title. See Article 1619. 2.

A, B and C are co-owners of a parcel of land. A, through a will, awarded his share to X. May B or C exercise legal redemption as against X? No. The transmission of ownership is not by onerous title. See Article 1619.

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SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------3.

A owns a land adjoining B’s, C’s, and D’s lands, all of which are of 10,000 sq. m. (1 hectare). Supposing B, C, and D separately sold their lands to X who owns a rural land, may A redeem all of the lands sold to X? Yes. All the requisites are satisfied.

4.

A owns a rural land adjoining B’s, C’s, and D’s rural lands, all of which are of 10,000 sq. m. (1 hectare). Supposing B, C, and D, in a single contract, sold their lands to X who owns a rural land, may A redeem all of the lands sold to X? Yes. All the requisites are satisfied. It is not necessary that the sales are made in separate contracts. There are still 4 parcels of land, each not exceeding 1 hectare.

5.

A owns a rural land adjoining B’s, C’s, and D’s rural lands, all of which are of 10,000 sq. m. (1 hectare). Supposing B sold his land to C, whose land is adjoining B’s and A’s land, may A exercise the right of redemption? No. Look into the purpose of the law.

6.

A owns a rural land adjoining B’s, C’s, and D’s rural lands. B sold his land to X for P500k but the property is only valued at P300k – (a) May A exercise the right of repurchase? Yes (b) How much should A pay? P500k. Art. 1620 (on grossly excessive price) applies only to co-owners (c) If A, B, C and D are co-owners, how much should A pay? P300k, for Art. 1620 would be the applicable provision. (d) What if B and X freely agreed that subject is to be sold for P500k, may A compel X to resell the land to him for P300k only? Yes.

7.

A, B, and C are brothers and co-owners of a parcel of land. C died, leaving X as his sole heir. B sold his share to X. May A redeem the share sold by B to X? NO. X is not a stranger to a contract. He is a co-owner.

8.

Same facts as # 7, only that X is C’s wife. May A redeem the share sold by B to X? NO. X is not a stranger to a contract. He is a co-owner.

* Assignment of Credit

Art. 1624: An assignment of creditors and other incorporeal rights shall be perfected in accordance with the provisions of Article 1475.

Art. 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.

Art. 1625: An assignment of a credit, right or action shall produce no effect as against third person, unless it appears in a public instrument, or the instrument is recorded in the Registry of Property in case the assignment involves real property.

General Rule: Assignment of credit is binding as to third persons Exceptions: 1. Art. 1625 2. Document of title (when assigned)

Art. 1626: The debtor who, before having knowledge of the assignment, pays his creditor shall be released from the obligation. Art. 1285: The debtor who has consented to the assignment of rights made by a creditor in favor of a third person, cannot set

up against the assignee the compensation which would pertain to him against the assignor, unless the assignor was notified by the debtor at the time he gave his consent, that he reserved his right to the compensation. If the creditor communicated the cession to him but the debtor did not consent thereto, the latter may set up the compensation of debts previous to the cession, but not of subsequent ones. If the assignment is made without the knowledge of the debtor, he may set up the compensation of all credits prior to the same and also later ones until he had knowledge of the assignment.

Art. 1627: The assignment of a credit includes all the accessory rights, such as a guaranty, mortgage, pledge or preference. -reiteration of Art. 1637 Art. 1537: The vendor is bound to deliver the thing sold and its accessions and accessories in the condition in which they were upon the perfection of the contract. All the fruits shall pertain to the vendee from the day on which the contract was perfected. (1468a)

Art. 1628: The vendor in good faith shall be responsible for the existence and legality of the credit at the time of the sale, unless it

should have been sold as doubtful; but not for the solvency of the debtor, unless it has been so expressly stipulated or unless the insolvency was prior to the sale and of common knowledge. Even in these cases he shall only be liable for the price received and for the expenses specified in No. 1 of Article 1616.

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SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------The vendor in bad faith shall always be answerable for the payment of all expenses, and for damages.

(WARRANTIES)

Art. 1629: In case the assignor in good faith should have made himself responsible for the solvency of the debtor, and the

contracting parties should not have agreed upon the duration of the liability, it shall last for one year only, from the time of the assignment if the period had already expired. If the credit should be payable within a term or period which has not yet expired, the liability shall cease one year after the maturity.

Art. 1630: One who sells an inheritance without enumerating the things of which it is composed, shall only be answerable for his character as an heir. (Sale of Hereditary Rights) Art. 1631: One who sells for a lump sum the whole of certain rights, rents, or products, shall comply by answering for the

legitimacy of the whole in general; but he shall not be obliged to warrant each of the various parts of which it may be composed, except in the case of eviction from the whole or the part of greater value.

Art. 1632: Should the vendor have profited by some of the fruits or received anything from the inheritance sold, he shall pay the vendee thereof, if the contrary has not been stipulated.

Art. 1633: The vendee shall, on his part, reimburse the vendor for all that the latter may have paid for the debts of and charges on the estate and satisfy the credits he may have against the same, unless there is an agreement to the contrary.

Art. 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 therefor, 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.

Art. 1635: From the provisions of the preceding article shall be excepted the assignments or sales made:

(1) To a co-heir or co-owner of the right assigned; (2) To a creditor in payment of his credit; (3) To the possessor of a tenement or piece of land which is subject to the right in litigation assigned.

Manila Banking Corp. vs. Anastacio Teodoro

Rodriguez vs. Ca, Lucman

The character of the transaction between the parties is not, however, determined by the language used in the document but by their intention. In case of doubt as to whether a transaction is a pledge or a dation in payment, the presumption is in favor of a pledge, the latter being the lesser transmission of rights and interests. The deed of assignment merely guarantees said obligations. In subrogation, the third party pays the obligation of the debtor to the creditor with the latter’s consent. As a consequence, the paying third party steps into the shoes of the original creditor as subrogee of the latter. An assignment of credit on the other hand is the process of transferring the right of the assignor to the assignee who would then have the right to proceed against the debtor. The assignment may be done either gratuitously or onerously in which case the assignment has an effect similar to that of a sale. Consent of the debtor is not essential in assignment. (Art. 1624 in relation to Art. 1475) His knowledge thereof affecting only the validity of the payment he might make (1626). Art. 1626 mandates that such payment of the existing obligation shall already be made to the new creditor from the time the debtor acquires knowledge of the assignment of the obligation. What the law requires in an assignment of credit is not the consent of the debtor but merely notice to him. A creditor may, therefore, validly assign his credit and its accessories without the debtor’s consent. The purpose of the notice is only to inform the debtor that from the date of the assignment, payment should be made to the assignee and not to the original creditor.

* Nature of contract of lease:

Art. 1842: The right to an account of his interest shall accrue to any partner, or his legal representative as against the winding up partners or the surviving partners or the person or partnership continuing the business, at the date of dissolution, in the absence of any agreement to the contrary.

64

SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------Employees Club vs. China Banking Corporation

Lim Si vs. Lim De Guzman vs. Fiel

A lease is a contract by which one of the parties agrees to give to the other for a fixed time and price the use or profit of a thing, or of his service. A lease is not a contract imposed by law. With the terms thereof also fixed by law… Without the agreement of both parties, no contract of lease can be said to have been created or established. Nobody can force another to let the latter lease his property if the owner refuses. So the owner may not be compelled by action to give his property for lease to another. A lease is a consensual, bilateral, onerous and commutative contract by virtue of which the owner temporarily grants the use of his property to another who undertakes to pay the rent therefor. A lease is a consensual, bilateral, onerous and commutative contract by which one person binds himself to grant temporarily the use of a thing or the rendering of some service to another who undertakes to pay some rent, compensation or price.

* Kinds of Leases: 1. Lease of things or properties whether immovable or movable property; 2. Lease of work which refers to contract for a piece of work such as the making of a suit by a tailor; 3. Lease of service such as the repair of a car by a mechanic or painting of one’s picture by a painter. [Art. 1642: The contract of lease may be of things, or of work and service.] * Lease of Personal Property; When it is a sale: A lease of personal property with option to buy, where title is transferred at the end of the contract provided rents have been fully paid, is a sale in installments and not a lease (Art. 1484; Heacock Co. vs. Buntal Mfg. Co.). * Lease vs. Sale SALE (Art. 1458) The delivery of the thing sold transfers ownership Price must be in money or its equivalent

LEASE (Art. 1642) No transfer of ownership results as the rights of the lessee are limited to the use and enjoyment of the thing leased Price may be money, fruits, or some other useful things or other prestation.

* Lease vs. Usufruct LEASE (Art. 1642) Ownership on the part of the lessor is not necessary to constitute a contract of lease It is a real right only by exception, that is, when it involves land, and it is for more than 1 year or is registered It is limited to the use specified in the contract Lessor places and maintains the lessee in the peaceful enjoyment of the thing Its term is generally for a definite period (If the period is not fixed and made dependent upon the lessee, the court may fix the period) It may be created by contract as a rule. Exceptions: Art. 1670 and Art. 448 * Lease vs. Commodatum LEASE (Art. 1642) Grantor cede the use of property to another person onerous

USUFRUCT (Art. 562) Ownership of the thing on the part of the grantor is necessary to constitute a usufruct It is always a real right It includes all possible uses and enjoyment of the thing Owner allows the usufructuary to use and enjoy the property Its term may be for an indefinite period

It may be created by law, contract, last will, or prescription (Art. 563)

COMMODATUM (Art. 1933) Grantor cede the use of property to another person Gratuitous

* Lease vs. Deposit LEASE (Art. 1642) Grantor cede the use of a property to another for a consideration Not a real but a consensual contract Object may be real or personal property Its purpose is the renting out of the thing for a consideration

DEPOSIT (Art. 1962) Grantor cede the use of a property to another for a consideration Real contract; delivery is required for perfection Only movable things can be the object of the contract Its purpose is for safekeeping

65

SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------Period may be definite or indefinite but in no case can it exceed more than 99 years

* Lease of Services vs. Contract for a Piece of Work LEASE OF SERVICES

(Locatio Operatum)

Period is generally definite, there being an obligation on the part of the depositary to return

CONTRACT FOR A PIECE OF WORK

(Locatio Operas)

The important object is the labor performed by the lessor

The important object is the work done

The result is generally not important, hence the laborer is entitled to be paid even if there is destruction of the work through fortuitous event

The result is generally important; generally, the price is not payable until the work is completed, and said price cannot be lawfully demanded if the work is destroyed before it is finished and accepted

* Lease of Services vs. Agency LEASE OF SERVICES It is based on employment – the lessor of services does not represent his employer nor does he execute juridical acts. Principal contract * Lease of Chattels vs. Employment LEASE OF CHATTELS Lessor and lessee Lessor loses control or management over the chattel leased Lessor has no control or supervision over the lessee

AGENCY It is based on representation – agent represents his principal and enters into juridical acts. Preparatory contract

EMPLOYMENT Employer and employee The employer retains control or management over his chattel The employer exercises control and supervision over the employee

Service as driver under boundary system Under the boundary system, the relation between the driver and the jeepney owner is that of employer and employee, not lessor and lessee. * Lease of Things vs. Lease of Services LEASE OF THINGS Object of contract is a thing Lessor has to deliver the thing leased In case of breach, there can be an action for specific performance

LEASE OF SERVICES Object is some work or service Lessor has to perform some work or service In case of breach, no action for specific performance

HYPOTHETICAL QUESTION: A parks his car in the parking area of B everyday upon payment of a fixed amount paid daily without special stipulations. Is the contract one of deposit or lease? If the owner of the lot has no obligation to take care of the car, it is a lease contract with an accessory obligation of securing the parking area. If the car is parked there for safe keeping purposes, it is a deposit.

* General Provisions

Art. 1643: In the lease of things, one of the parties binds himself to give to another the enjoyment or use of a thing for a price certain, and for a period which may be definite or indefinite. However, no lease for more than ninety-nine years shall be valid. - Only things which are within the commerce of man may be the subject of lease.

- The lease of a building includes the lease of the lot where the building stands. If the building is lost, the lease does not continue with the land in the absence of any contrary agreement. - The death of the party does not excuse the non-performance of the contract (lease with option to buy) which is a property right, by the heirs of the deceased. There is privity of interest between the heirs and their predecessor.

Art. 1644: In the lease of work or service, one of the parties binds himself to execute a piece of work or to render to the other some service for a price certain, but the relation of principal and agent does not exist between them. CONTRACT OF PIECE OF WORK (Locatio operis)

CONTRACT OF LEASE OF SERVICES (Locatio Operarum)

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SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------The object of contract is the result of the work without considering the labor that produced it. If the result promised is not accomplished, the lessor or promissor is not entitled to compensation

The object of contract is the service itself and not the result which it generates Even if the result intended is not attained, the services of the lessor must still be paid

Art. 1645: Consumable goods cannot be the subject matter of a contract of lease, except when they are merely to be exhibited or when they are accessory to an industrial establishment

- General Rule: Consumable goods cannot be the subject matter of a contract of lease of things. Reason: To use or enjoy them, they will have to be consumed. This cannot be done in lease since ownership over them is not transferred by the contract of lease. Exceptions: (a) If they are merely exhibited (b) If they are accessory to an industrial establishment

* LEASE OF RURAL AND URBAN LANDS Art. 1646. The persons disqualified to buy referred to in Articles 1490 and 1491, are also disqualified to become lessees of the things mentioned therein. (n) -See Arts. 110 and 145 of Family Code; Arts. 1403 and 1876 of Civil Code Art. 1647. If a lease is to be recorded in the Registry of Property, the following persons cannot constitute the same without proper authority: the husband with respect to the wife's paraphernal real estate, the father or guardian as to the property of the minor or ward, and the manager without special power. (1548a)

- If a lease is to be recorded, the following persons must have proper authority (power of attorney) to constitute the lease: 1. The husband with respect to the paraphernal real estate of the wife 2. The father or guardian with respect to the property of the minor or the ward 3. The manager (administrator) with respect to the property under his administration. Manager may be: a. The administrator of conjugal property (Rodriguez v. Borromeo, 43 Phil. 479, No. 17772, June 9, 1922); b. Administrator of co-ownership (Melencio v. Dy Tiao Lay, G.R. No. L-32047, November 1, 1930); and c. Administrator of state patrimonial property (Tipton v. Andueza, G. R. No. 2070, January 2, 1906).

Art. 1648. Every lease of real estate may be recorded in the Registry of Property. Unless a lease is recorded, it shall not be binding upon third persons. (1549a)

- Its purpose is to notify strangers to the transaction. General Rule: Lease of real property is personal right Exceptions: Lease partakes of the nature of real right if: 1. Lease of real property is more than 1 year 2. Lease of real property is registered regardless of duration Note: Lease of personal property cannot be registered. To be binding against third persons, the parties must execute a public instrument.

Art. 1649. The lessee cannot assign the lease without the consent of the lessor, unless there is a stipulation to the contrary. (n) - Reason: The objective of the law in prohibiting assignment of lease without the lessor’s consent is to protect the lessor or owner of the leased property. (Tamio vs. Ticson, G.R. No. 154895, Nov. 18, 2004). Assignment of this nature constitutes a novation (by substituting the person of the debtor) so the creditor-lessor must consent (Vda. De Hijos de Barretto v. Sevilla, Inc. G.R. No. L-41768, December 17, 1935). Art. 1650. When in the contract of lease of things there is no express prohibition, the lessee may sublet the thing leased, in whole or in part, without prejudice to his responsibility for the performance of the contract toward the lessor. (1550) SUBLEASE - A separate and distinct contract of lease wherein the original lessee becomes a sublessor to a

sublessee. (Art. 1650)

SUBLEASE There are two leases and two distinct juridical relationships although immediately connected and related to each other

ASSIGNMENT OF LEASE There is only one juridical relationship, that of the lessor and the assignee, who is converted into a lessee

The personality of the lessee does not disappear

The personality of the lessee disappears

The lessee does not transmit absolutely his rights and obligations to the sublessee

The lessee transmits absolutely his rights to the assignee

The sublessee, generally, does not have any direct

The assignee has a direct action against the

67

SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------action against the lessor

-

lessor

Unlike in assignment, a lessee may generally sublease the property in the absence of express prohibition.

Art. 1651. Without prejudice to his obligation toward the sublessor, the sublessee is bound to the lessor for all acts which refer to the use and preservation of the thing leased in the manner stipulated between the lessor and the lessee. (1551)

-GENERAL RULE: There is no juridical relationship between the lessor and the sublessee. The lessee is directly liable to the lessor and the sublessee. Exceptions: Arts. 1651 and 1652.

Art. 1652. The sublessee is subsidiarily liable to the lessor for any rent due from the lessee. However, the sublessee shall not be responsible beyond the amount of rent due from him, in accordance with the terms of the sublease, at the time of the extrajudicial demand by the lessor. Payments of rent in advance by the sublessee shall be deemed not to have been made, so far as the lessor's claim is concerned, unless said payments were effected in virtue of the custom of the place. (1552a)

-The purpose of the second paragraph is to prevent collusion between lessee and sublessee.

Art. 1653. The provisions governing warranty, contained in the Title on Sales, shall be applicable to the contract of lease. In the cases where the return of the price is required, reduction shall be made in proportion to the time during which the lessee enjoyed the thing. (1553) SECTION 2. - Rights and Obligations of the Lessor and the Lessee Art. 1654. The lessor is obliged: (1) To deliver the thing which is the object of the contract in such a condition as to render it fit for the use intended; (2) To make on the same during the lease all the necessary repairs in order to keep it suitable for the use to which it has been devoted, unless there is a stipulation to the contrary; (3) To maintain the lessee in the peaceful and adequate enjoyment of the lease for the entire duration of the contract. (1554a) -The lessor is also obliged not to alter the form in such a way as to impair the use to which the thing is devoted [See

Art. 1661]

Art. 1655. If the thing leased is totally destroyed by a fortuitous event, the lease is extinguished. If the destruction is partial, the lessee may choose between a proportional reduction of the rent and a rescission of the lease. (n) Art. 1656. The lessor of a business or industrial establishment may continue engaging in the same business or industry to which the lessee devotes the thing leased, unless there is a stipulation to the contrary. (n) Art. 1657. The lessee is obliged: (1) To pay the price of the lease according to the terms stipulated; (2) To use the thing leased as a diligent father of a family, devoting it to the use stipulated; and in the absence of stipulation, to that which may be inferred from the nature of the thing leased, according to the custom of the place; (3) To pay expenses for the deed of lease. (1555) -The lessee is also obliged to bring to the knowledge of the proprietor, within the shortest possible time, every

usurpation or untoward act which any third person may have committed or may be openly preparing to carry out upon the thing leased [See Art. 1663].

Art. 1658. The lessee may suspend the payment of the rent in case the lessor fails to make the necessary repairs or to maintain the lessee in peaceful and adequate enjoyment of the property leased. (n) Art. 1659. If the lessor or the lessee should not comply with the obligations set forth in Articles 1654 and 1657, the aggrieved party may ask for the rescission of the contract and indemnification for damages, or only the latter, allowing the contract to remain in force. (1556) Art. 1660. If a dwelling place or any other building intended for human habitation is in such a condition that its use brings imminent and serious danger to life or health, the lessee may terminate the lease at once by notifying the lessor, even if at the time the contract was perfected the former knew of the dangerous condition or waived the right to rescind the lease on account of this condition. (n) Art. 1661. The lessor cannot alter the form of the thing leased in such a way as to impair the use to which the thing is devoted under the terms of the lease. (1557a) Lessor can alter provided there is no impairment of the use to which the thing is devoted under the terms of the -

lease (Art. 1661) Lessee can alter so long as the value of the property is not substantially impaired

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SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------Art. 1662. If during the lease it should become necessary to make some urgent repairs upon the thing leased, which cannot be deferred until the termination of the lease, the lessee is obliged to tolerate the work, although it may be very annoying to him, and although during the same, he may be deprived of a part of the premises. If the repairs last more than forty days the rent shall be reduced in proportion to the time - including the first forty days - and the part of the property of which the lessee has been deprived. When the work is of such a nature that the portion which the lessee and his family need for their dwelling becomes uninhabitable, he may rescind the contract if the main purpose of the lease is to provide a dwelling place for the lessee. (1558a) o The lessee is obliged to tolerate the work although it may be very annoying to him and although during the same

time he may be deprived of a part of the premises, if repairs last for not more than 40 days. If 40 days or more, lessee can ask for reduction of the rent in proportion to the time – including the 1st 40 days – and the part of the property of which he is deprived. o If less than 40 days, the lessee cannot ask for reduction of the price or for rescission Note: In either case, rescission may be availed of if the main purpose of the lease is to provide a dwelling place and the property becomes uninhabitable. o

-

Art. 1663. The lessee is obliged to bring to the knowledge of the proprietor, within the shortest possible time, every usurpation or untoward act which any third person may have committed or may be openly preparing to carry out upon the thing leased. He is also obliged to advise the owner, with the same urgency, of the need of all repairs included in No. 2 of Article 1654. In both cases the lessee shall be liable for the damages which, through his negligence, may be suffered by the proprietor. If the lessor fails to make urgent repairs, the lessee, in order to avoid an imminent danger, may order the repairs at the lessor's cost. (1559a)

Effects If Lessor Fails to Make Urgent Repairs (Art. 1663) The lessee may: [OSSA] 1. Order, in order to avoid imminent danger, repairs at the lessor’s cost 2. Sue for damages 3. Suspend the payment of the rent 4. Ask for rescission, in case of substantial damage to him

Art. 1664. The lessor is not obliged to answer for a mere act of trespass which a third person may cause on the use of the thing leased; but the lessee shall have a direct action against the intruder. There is a mere act of trespass when the third person claims no right whatever. (1560a) TRESPASS IN LEASE:

1. Trespass in fact (perturbacion de mero hecho):

 

There is a mere physical disturbance on the property leased such as an intrusion of an intruder without any legal claim to justify his entry into the property. Lessor will not be held liable. Reason: The duty to maintain the lessee in the peaceful enjoyment of the lease is a warranty that the lessee shall not be disturbed in his legal, and not physical, possession (Bercero vs. Capitol Dev’t. Corp., G.R. No. 154765, Mar. 29, 2007).

 Lessee is authorized by law to pursue a direct action like forcible entry against the intruder. 2. Trespass in law (perturbacion de derecho):  

A third person claims legal right to enjoy the premises Lessor will be held liable

Note: In the Goldstein case, trespass in fact is distinguished from legal transfer; if the trespass is not accompanied or preceded by anything which reveals a juridical intention on the part of the trespasser, in such wise that the lessee can only distinguish the material fact, stripped of all legal forms or reasons, it is only trespass in fact (de mero hecho) (Goldstein v. Roces, G.R. No. L-869, March 30, 1916). While the Japanese Occupation was a fortuitous event, the lessor is still not excused from his obligation to warrant peaceful legal possession. Lease is a contract that calls for prestations both reciprocal and repetitive; the obligations of either party are not discharged at any given moment, but must be fulfilled all throughout the term of the contract (Villaruel v. Manila Motor Co., G.R. No. 10394, December 13, 1958).

Art. 1665. The lessee shall return the thing leased, upon the termination of the lease, as he received it, save what has been lost or impaired by the lapse of time, or by ordinary wear and tear, or from an inevitable cause. (1561a) Art. 1666. In the absence of a statement concerning the condition of the thing at the time the lease was constituted, the law presumes that the lessee received it in good condition, unless there is proof to the contrary. (1562)

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SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------Art. 1667. The lessee is responsible for the deterioration or loss of the thing leased, unless he proves that it took place without his fault. This burden of proof on the lessee does not apply when the destruction is due to earthquake, flood, storm or other natural calamity. (1563a)

See Art. 1265

Art. 1668. The lessee is liable for any deterioration caused by members of his household and by guests and visitors. (1564a) Art. 1669. If the lease was made for a determinate time, it ceases upon the day fixed, without the need of a demand. (1565) Art. 1670. If at the end of the contract the lessee should continue enjoying the thing leased for fifteen days with the acquiescence of the lessor, and unless a notice to the contrary by either party has previously been given, it is understood that there is an implied new lease, not for the period of the original contract, but for the time established in Articles 1682 and 1687. The other terms of the original contract shall be revived. (1566a)

IMPLIED NEW LEASE (Tacita Reconducion) Lease which arises if at the end of the contract the lessee should continue enjoying the thing leased for 15 days with the acquiescence of the lessor, unless a notice to the contrary had previously been given by either party. Requisites: 1. The term of the original contract has expired; 2. The lessor has not given the lessee a notice to vacate; and 3. The lessee continued enjoying the thing leased for at least 15 days with the acquiescence of the lessor. When there is no implied new lease: 1. When before or after the expiration of the term, there is a notice to vacate given by either party. 2. When there is no definite fixed period in the original lease contract as in the case of successive renewals. Effects: 1. The period of the new lease is not that stated in the original contract but the time in Articles 1682 and 1687. 2. Accessory obligations contracted by a third person are extinguished (Art. 1672) 3. Other terms of the original contract are revived. Note: Terms that are revived are only those which are germane to the enjoyment of possession, but not those with respect to special agreements which are by nature foreign to the right of occupancy or enjoyment inherent in a contract of lease – such as an option to purchase the leased premises (Dizon v. Magsaysay. GR No. 23399, May 31, 1974).

Art. 1671. If the lessee continues enjoying the thing after the expiration of the contract, over the lessor's objection, the former shall be subject to the responsibilities of a possessor in bad faith. (n) Art. 1672. In case of an implied new lease, the obligations contracted by a third person for the security of the principal contract shall cease with respect to the new lease. (1567) Art. 1673. The lessor may judicially eject the lessee for any of the following causes: (1) When the period agreed upon, or that which is fixed for the duration of leases under Articles 1682 and 1687, has expired; (2) Lack of payment of the price stipulated; (3) Violation of any of the conditions agreed upon in the contract; (4) When the lessee devotes the thing leased to any use or service not stipulated which causes the deterioration thereof; or if he does not observe the requirement in No. 2 of Article 1657, as regards the use thereof.

-The demand of payment must be coupled with demand to vacate the premises. Otherwise, the Unlawful Detainer case will not prosper

The ejectment of tenants of agricultural lands is governed by special laws. (1569a) -

-

Grounds For Judicial Ejectment Under Art. 1673: [ELVU] 1. Expiration of the period agreed upon or the period under Arts. 1682 and 1687; Note: If and when the term expires and the lessee is still in possession, the contract is NOT deemed terminated. The lessor must notify the lessee that he has no intention to extend the lease in order for the implied new lease not to apply. 2. Lack of payment of the price stipulated; 3. Violation of any of the conditions agreed upon in the contract; and 4. Unauthorized use or service by the lessee of the thing leased. Note: In all cases except number 1, for the case of unlawful detainer to prosper, a demand to pay and vacate should be given to the lessee. A notice or demand to vacate does not have to expressly use the word ―vacate‖ as it suffices that the demand letter puts the lessee or occupant on notice that if he does not pay the rentals or comply with the terms of the lease contract, it should move out of the leased premises (Irao v. By the Bay, Inc., G.R. No. 177120, July 14, 2008).

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SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------Art. 1674. In ejectment cases where an appeal is taken the remedy granted in Article 539, second paragraph, shall also apply, if the higher court is satisfied that the lessee's appeal is frivolous or dilatory, or that the lessor's appeal is prima facie meritorious. The period of ten days referred to in said article shall be counted from the time the appeal is perfected. (n) - Preliminary Mandatory Injunction To Restore Possession

In ejectment cases where an appeal is taken, the lessor is entitled to a writ of preliminary injunction to restore him in his possession in case the higher court is satisfied that the lessee’s appeal is frivolous or dilatory (i.e. without merit) or the lessor’s appeal is prima facie meritorious.

Art. 1675. Except in cases stated in Article 1673, the lessee shall have a right to make use of the periods established in Articles 1682 and 1687. (1570) Art. 1676. The purchaser of a piece of land which is under a lease that is not recorded in the Registry of Property may terminate the lease, save when there is a stipulation to the contrary in the contract of sale, or when the purchaser knows of the existence of the lease. If the buyer makes use of this right, the lessee may demand that he be allowed to gather the fruits of the harvest which corresponds to the current agricultural year and that the vendor indemnify him for damages suffered. If the sale is fictitious, for the purpose of extinguishing the lease, the supposed vendee cannot make use of the right granted in the first paragraph of this article. The sale is presumed to be fictitious if at the time the supposed vendee demands the termination of the lease, the sale is not recorded in the Registry of Property. (1571a) General Rule: Purchaser of thing leased can terminate lease. Exceptions:

1. 2. 3. 4. 5.

Lease is recorded in Registry of Property There is stipulation in the contract of sale that purchaser shall respect the lease Purchaser knows, whether actual or constructive, the existence of the lease Sale is fictitious; there is a disputable presumption that it is fictitious if the sale is not registered Sale is made with right of repurchase (Art. 1677)

Art. 1677. The purchaser in a sale with the right of redemption cannot make use of the power to eject the lessee until the end of the period for the redemption. (1572) Art. 1678. If the lessee makes, in good faith, useful improvements which are suitable to the use for which the lease is intended, without altering the form or substance of the property leased, the lessor upon the termination of the lease shall pay the lessee onehalf of the value of the improvements at that time. Should the lessor refuse to reimburse said amount, the lessee may remove the improvements, even though the principal thing may suffer damage thereby. He shall not, however, cause any more impairment upon the property leased than is necessary. With regard to ornamental expenses, the lessee shall not be entitled to any reimbursement, but he may remove the ornamental objects, provided no damage is caused to the principal thing, and the lessor does not choose to retain them by paying their value at the time the lease is extinguished. (n) Art. 1679. If nothing has been stipulated concerning the place and the time for the payment of the lease, the provisions or Article 1251 shall be observed as regards the place; and with respect to the time, the custom of the place shall be followed. (1574) SECTION 3. - Special Provisions for Leases of Rural Lands Art. 1680. The lessee shall have no right to a reduction of the rent on account of the sterility of the land leased, or by reason of the loss of fruits due to ordinary fortuitous events; but he shall have such right in case of the loss of more than one-half of the fruits through extraordinary and unforeseen fortuitous events, save always when there is a specific stipulation to the contrary. Extraordinary fortuitous events are understood to be: fire, war, pestilence, unusual flood, locusts, earthquake, or others which are uncommon, and which the contracting parties could not have reasonably foreseen. (1575) Art. 1681. Neither does the lessee have any right to a reduction of the rent if the fruits are lost after they have been separated from their stalk, root or trunk. (1576) Art. 1682. The lease of a piece of rural land, when its duration has not been fixed, is understood to have been for all the time necessary for the gathering of the fruits which the whole estate leased may yield in one year, or which it may yield once, although two or more years have to elapse for the purpose. (1577a) Art. 1683. The outgoing lessee shall allow the incoming lessee or the lessor the use of the premises and other means necessary for the preparatory labor for the following year; and, reciprocally, the incoming lessee or the lessor is under obligation to permit the outgoing lessee to do whatever may be necessary for the gathering or harvesting and utilization of the fruits, all in accordance with the custom of the place. (1578a) Art. 1684. Land tenancy on shares shall be governed by special laws, the stipulations of the parties, the provisions on partnership and by the customs of the place. (1579a)

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SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------Art. 1685. The tenant on shares cannot be ejected except in cases specified by law. (n) SECTION 4. - Special Provisions of the Lease of Urban Lands Art. 1686. In default of a special stipulation, the custom of the place shall be observed with regard to the kind of repairs on urban property for which the lessor shall be liable. In case of doubt it is understood that the repairs are chargeable against him. (1580a) Art. 1687. If the period for the lease has not been fixed, it is understood to be from year to year, if the rent agreed upon is annual; from month to month, if it is monthly; from week to week, if the rent is weekly; and from day to day, if the rent is to be paid daily. However, even though a monthly rent is paid, and no period for the lease has been set, the courts may fix a longer term for the lease after the lessee has occupied the premises for over one year. If the rent is weekly, the courts may likewise determine a longer period after the lessee has been in possession for over six months. In case of daily rent, the courts may also fix a longer period after the lessee has stayed in the place for over one month. (1581a) Art. 1688. When the lessor of a house, or part thereof, used as a dwelling for a family, or when the lessor of a store, or industrial establishment, also leases the furniture, the lease of the latter shall be deemed to be for the duration of the lease of the premises. (1582) HYPOTHETICAL QUESTIONS: 1. A leased a dwelling place to B for P4,500. After a year, A asked for an increase in the rent equivalent to 5%. Is this valid? 2. A leased to B a parcel of land for 15 years. B obliged himself to construct a building on A’s land. Is this a contract of lease? 3. B, the guardian of A, lease a land on behalf of A to C for 3 years to be recorded in the Registry of Property. What is the nature of the contract entered into? 4. A leased to B a commercial land for 50k per month. B assigned his rights to C. Assignment was made without the consent of A. is this valid? 5. Can a foreigner be a sublessor of a real property? Yes. In a contract of lease, lessor need not be the owner of the property leased. 6. Can foreigners be lessees of property in the Philippines? Yes 7. Demand was made but lessee refused to pay rent. May lessor immediately sue sublessee for the unpaid rentals? No. Sublessee’s obligation is only subsidiary, hence, lessor must exhaust the property of lessee first. Moreover, mere refusal to pay does not mean inability to pay. 8. Jude owned a building which he had leased to several tenants. Without informing his tenants, Jude sold the building to Ildefonso. Thereafter, the latter notified all the tenants that he is the new owner of the building. Ildefonso ordered the tenants to vacate the premises within 30 days from notice because he had other plans for the building. The tenants refused to vacate, insisting that they will only do so when the term of their lease shall have expired. Is Ildefonso bound to respect the lease contracts between Jude and his tenants? (Bar question, 2009) R.A. 9653 (RENT CONTROL ACT OF 2009)

- APPROVED: July 14, 2009

COVERAGE (Sec. 5): 1. All residential units in the National Capital Region and other highly urbanized cities the total monthly rent for each of which ranges from one peso (P1.00) to ten thousand pesos (P10,000.00). 2. All residential units in all other areas the total monthly rent for each of which ranges from one peso (P1.00) to five thousand pesos (5,000.00). Except: Already existing contracts. Exception: Rent to own scheme (Sec. 11)  At the option of the lessor, he or she may engage the lessee in a written rent-to-own agreement that will result in the transfer  of ownership of the particular dwelling in favor of the latter. Such an agreement shall be exempt from the coverage of Section 5 of this Act. LIMIT ON INCREASE IN RENT (Sec. 4) For a period of one year from effectivity, no increase shall be imposed on the rent of any residential unit covered by this Act.  After such period until December 31, 2013, the rent shall not be increased by more than 7% annually as long as the unit is occupied by the same lessee.  When the residential unit becomes vacant, the lessor may set the initial rent for the next lessee.  In case of boarding houses, dormitories, rooms and bedspaces offered to students, no increase in rental more than once per year shall be allowed. DEFINITION OF TERMS

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SALES AND LEASE REVIEWER by Diory Rabajante ------------------------------------------------------------------------------------------------------------------------------------------------------------Rent – the amount paid for the use or occupancy of a residential unit whether payment is made on a monthly or other basis Residential unit – shall refer to an apartment, house and/or land on which another’s dwelling is located and used for residential purposes and shall include not only buildings, part or units thereof used solely as dwelling places, boarding houses, dormitories, rooms and bed spaces offered for rent by their owners, except motels, motel rooms, hotels, hotel rooms but also those used for home industries, retail stores or other business purposes if the owner thereof and his or her family actually live therein and use it principally for dwelling purposes. Immediate members of family of the lessee or lessor (for purposes of repossessing the leased premises) – limited to his or her spouse, direct descendants or ascendants, by consanguinity or affinity. Lessee – the person renting a residential unit Owner/lessor – includes the owner or administrator or agent of the owner of the residential unit Sublessor – the person who leases or rents out a residential unit leased to him by an owner. Sublessee - the person who leases or rents out a residential unit from a sublessor RENT AND REQUIREMENT OF BANK DEPOSIT (Sec. 7) - Rent shall be paid in advance within the first five (5) days of every current month or the beginning of the lease agreement unless the contract provides for a later date of payment. - Lessor cannot demand more than one (1) month advance rent. Neither can he demand more than two (2) months deposit which shall be kept in a bank under the lessor’s account name during the entire duration of the lease agreement - Any and all interest that shall accrue shall be returned to the lessee at the expiration of the lease contract. - In the event, however, that the lessee fails to settle rent, electric, telephone, water or such other utility bills or destroys any house components or accessories, the deposits and interests therein shall be forfeited in favor of the latter in the amount commensurate to the pecuniary damage done by the former. ASSIGNMENT OF LEASE OR SUBLEASING (Sec. 8) Assignment of lease or subleasing of the whole or any portion of the residential unit, including the acceptance of boarders or bedspacers, without the written consent of the owner / lessor is PROHIBITED. GROUNDS FOR JUDICIAL EJECTMENT (Sec. 9) [A-AURE] 1.

Assignment of lease or subleasing of residential units in whole or in part, including the acceptance of boarders or bedspacers, without the written consent of the owner/lessor;

2.

Arrears in payment of rent for a total of three (3) months In case of refusal by the lessor to accept payment of the rent agreed upon, the lessee may either deposit, by way of consignation, the amount in court or with the city or municipal treasurer, as the case may be, or barangay chairman, or in a bank in the name of and with notice to the lessor, within one month after the refusal of the lessor to accept payment Lessee shall thereafter deposit the rent within ten (10) days of every current month. Failure to deposit the rent for three months shall constitute a ground for ejectment. The lessor, upon authority of the court in case of consignation or upon joint affidavit by him and the lessee to be submitted to the city or municipal treasurer or barangay chairman and to the bank where deposit was made, shall be allowed to withdraw the deposits;

3.

Legitimate need of the owner / lessor to repossess his share or her property for his or her own use or for the use of any immediate member of his family as a residential unit

Conditions:    4.

The lease for a definite period has expired The lessor has given the lessee formal notice three (3) months in advance of the lessor’s intention to repossess the property The owner/lessor is prohibited from leasing the residential unit or allowing its use by a third party for a period of at least one (1) year from the time of repossession

Need of the lessor to make necessary repairs of the leased premises which is the subject of an existing order of condemnation by appropriate authorities concerned in order to make the said premises safe and habitable

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SALES AND LEASE REVIEWER by Diory Rabajante -------------------------------------------------------------------------------------------------------------------------------------------------------------

Conditions:    5.

After said repair, the lessee ejected shall have the first preference to lease the same premises; The new rent shall be reasonably commensurate with the expenses incurred for the repair of the said residential unit That if the residential unit is condemned or completely demolished, the lease of the new building will no longer be subject to the aforementioned first preference rule

Expiration of the period of the lease contract

PROHIBITION AGAINST EJECTMENT BY REASON OF SALE OR MORTGAGE (Sec. 10) No lessor or his successor in interest shall be entitled to eject the lessee upon the ground that the leased premises have been sold or mortgaged to a third person regardless of whether the lease or mortgage is registered or not. APPLICATION OF THE CIVIL CODE AND RULES OF COURT (Sec. 12) Except when the lease is for a definite period, the provision of paragraph (1) of Article 1673 of the Civil Code of the Philippines, insofar as they refer to residential units covered by this Act, shall be suspended during the effectivity of this Act, but other provisions of the Civil Code and the Rules of Court on lease contracts, insofar as they are not in conflict with the provisions of this Act shall apply.

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