Sales Reviewer

ARTICLE. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent CONCEPT OF CONTRACT OF SALE • Agreement whereby one of the parties (called the seller or vendor) obligates himself to deliver something to the other (called the buyer or purchaser or vendee) who, on his part, binds himself to pay therefore a sum of money or its equivalent

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BILATERAL ONEROUS COMMUTATIVE

NOMINATE PRINCIPAL

Perfected the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price (Art. 1475) Both the contracting parties are bound to fulfill correlative obligations towards each other The thing sold is conveyed in consideration of the price and vice versa The thing sold is considered the equivalent of the price paid and vice versa However, the contract may be aleatory as in the case of the sale of a hope Special name or designation in the Civil Code namely, “sale” It does not depend for its existence and validity upon another contract

ESSENTIAL REQUISITES OF A CONTRACT OF SALE 1.

CONSENT OR MEETING OF THE MINDS •

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General Contract: Consent is the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract (Art. 1319) Contract of Sale: Consent on the part of the seller or vendor to transfer ownership of, and deliver, a determinate thing, and the consent on the part of the buyer or vendee to pay the price certain (Art. 1475) The contract to sell is a bilateral contract A person is not incompetent to contract merely because of advanced years or by reason of physical infirmities

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OBJECT OR SUBJECT MATTER • • • • • •

6 CHARACTERTISTIC OF CONTACT OF SALE CONSENSUAL

E: When such age or infirmities have impaired the mental faculties so as to prevent a person from intelligibly protecting his property rights, then such person is undeniably incapacitated There may however be a sale against the will of the owner in case of expropriation, ordinary execution sale, judicial foreclosure sale and extrajudicial foreclosure sale o

CHAPTER 1 NATURE AND FORM OF CONTRACT

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Refers to the determinate thing which is the object of the contract May be personal or real property Subject matter may be present or future Subject matter must be licit and must be within the commerce of men An impossible thing cannot be the object of a contract = void The civil code allows: o Sale of credit o Sale of the whole of certain rights, rents or products o Sale if inheritance already acquired (but not future inheritance) o Sale of possession It prohibits: o Sale of easements independent of the estate to which they belong o Sale of contagious animals

CAUSE OR CONSIDERATION • • •

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This refers to the “price certain in money or its equivalent” In onerous contract = the cause is the prestation or promise of a thing or service by the other (Art. 1350) Contract of Sale = the cause as far as the vendor is concerned is the acquisition of the price certain in money or its equivalent, and the cause as far as the vendee is concerned, is the acquisition of the thing which is the object of the contract Price: The cost at which something is obtained, or something which one ordinarily accepts voluntarily in exchange for something else, or the consideration given for the purchase of a thing Price must be certain, real and pecuniary Tantum valet res quantum vendi potest – a thing is worth only what someone else will pay for it Gross inadequacy of the price does not affect a contract of sale “It’s equivalent” – payment need not be in money, so that there can be a sale where the thing given as token of payment has been “assessed and evaluated and its price equivalent in terms of money has been determine” Conveyances by virtue of forged signature are void ab initio and inexistent for absence of consent and cause or consideration Presumption is that a contract has sufficient consideration Absence of any of the 3 essential elements negates the existence of a perfected contract of sale 1         © Michelle Duguil,

• Burden of proof is upon the person who alleges existence of sale NATURAL AND ACCIDENTAL ELEMENTS NATURAL Deemed to exist in certain contracts, in the absence of any contrary stipulation Warranty against eviction (1548) Hidden defects (1561)

ACCIDENTAL Those which may be present or absent depending on the stipulations of the parties Conditions, Interest, Penalty Time or place of payment, etc.

Contract of sale has correlative duty: • Of the seller to deliver the property • Obligation of the buyer to pay the agreed price 1.

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STAGES OF CONTRACT OF SALE 1.

NEGOTIATION • Covering the period from the time the prospective contracting parties indicate interest in the contact to the time the contract is perfected

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PERFECTION • Takes place upon the concurrence of the essential elements of the sale which are the meeting of the minds of the parties as to the object of the contract and upon the price; and

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CONSUMMATION • Begins when the parties perform their respective undertakings under the contract of sale, culminating in the extinguishment thereof

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The transfer of title to property or agreement to transfer title for a price actually paid, NOT mere physical transfer of the property = essence of sale GR: Being consensual, it is perfected by mere consent o E: Impossible service – delivery of ownership is no longer possible Payment of purchase price is NOT essential to the transfer of ownership as long as the property sold has been delivered

WHERE TRANSFER OF OWNERSHIP NOT INTENDED BY THE PARTIES •

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A contract for the sale or purchase of goods/commodity to be delivered at a future time, entered into without the intention of having any goods/commodity pass from one party to another, but with the understanding that at the appointed time, the purchaser is merely to receive or pay the difference between the contract and the market prices = illegal “Futures” – Parties merely gamble on the rise or fall of prices = null and void ! the loser may recover what he paid (2018)

KINDS OF CONTRACT OF SALE Presence or absence of Condition

ABSENCE OF PRICE/NON-PAYMENT OF PRICE 1.

OBLIGATION TO DELIVER AND PAY

Absolute

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SALE INEXISTENT AND VOID • A contract of sale is void and produces no effect where the same is without cause or consideration in that the purchase price, which appears thereon as paid, has, in fact, never been paid by the buyer to the seller • X mere estimates

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SALE SUBJECT TO RESCISSION OR SPECIFIC PERFORMANCE • Non-payment of the purchase price = resolutory condition ! judicial rescission or specific performance (1191) • Failure to pay within a fixed period, in the absence of any express agreement that payment on time is essential, does not dissolve the contract of sale ! results at most in DEFAULT which the vendor may exercise his legal remedies • A stipulation in a contract providing for automatic rescission upon nonpayment within the stipulated period = valid • A notarized document is evidence of high character for proving payment of purchase price by the vendee

Conditional

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TRANSFER OF TITLE TO PROPERTY FOR A PRICE, ESSENCE OF SALE •

 

DE LEON SALES REVIEWER

 

 

 

 

 

Not subject to any condition Title to the property passes to the purchaser upon delivery of the thing sold Ownership of the property sold passes upon actual or constructive delivery thereof Sale contemplates a contingency Where the contract us subject to certain conditions Usually in the case of the vendee, the full payment of the agreed purchase price In the case of the © Michelle Duguil,

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vendor, the fulfillment of certain warranties Other kinds

Nature of the subject matter Manner of payment of the price Validity

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Real or Personal Tangible or Intangible Cash Installment Valid Rescissible Unenforceable Void

CONTRACT OF SALE VS. CONTRACT TO SELL WITH RESERVED TITLE CONTRACT TO SELL • Commonly entered into so as to protect the seller against a buyer who intends to buy a property in installments by withholding ownership over the property until the buyer effects full payment therefor

CONTRACT TO SELL Title is reserved • Ownership X automatic transfer • Must execute another instrument – contract of absolute sale rd 3 person X deemed in BF and prospective buyer cannot seek relief or conveyance of property • X double sale • ✓Sue for damages seller

CONDITIONAL SALE If suspensive condition is fulfilled = contract is perfect • Automatic transfer by operation of law rd 3 person who had actual or constructive knowledge of first sale = BF = X defeat first buyer’s title = ✓seek reconveyance

ART. 1459. The thing must be licit and the vendor must have a right to transfer ownership thereof at the time of delivery REQUISITES CONCERNING OBJECT

TRANSFER OF TITLE

OWNERSHIP VENDOR

OF

TYPE OF CONDITIONS

RESCISSION OF THE CONTRACT SPECIFIC PERFORMANCE EXECUTION OF SALE DOCUMENT

 

CONTRACT OF SALE Title passes to the buyer upon delivery of the thing sold

CONTRACT TO SELL Ownership is reserved in the seller and is not to pass until the fulfillment of certain conditions, such as full payment of the purchase price

The vendor has lost and cannot recover the ownership of the thing sold and delivered, actually or constructively, until and unless the contract of sale itself is resolved and set aside Negative resolutory condition -Remedy: exact fulfillment or rescind contract

Title remains in the vendor and if the vendee does not comply with the condition precedent of making payment at the time specified in the contract

✓Rescission

Positive suspensive condition -failure X breach -Prevents obligation of vendor to convey title X rescission

✓ Specific performance

X specific performance

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✓Need to execute another document

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THING 1. Determinate 2. Licit • If illicit = void 3. Not impossible 4. Within the commerce of men RIGHTS • Must not be intransmissible o Example: 1. Right of usufruct 2. Right of Conventional Redemption NOTE: • •

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Intransmissible – right to vote, right to public office, marital and parental rights Personal – Right to be partner in parternship, right to act as agent of another, right of the baliee to use the thing loaned in a contract of commodatum Service = X object of contract of sale

KINDS OF ILLICIT THINGS 1. Illicit per se (of its nature) • Decayed food unfit for consumption 2. Illicit per accidens (because of some provision of law declaring it illegal) • Sale of animal suffering from contagious disease • Future inheritance

 

 

 

 

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Public land act – sale of homestead patent within 5 years prohibitory period

RIGHT OF VENDOR TO TRANSFER OWNERSHIP 1. Seller must be owner or authorized by owner of thing sold • Nemo dat quod non habet – one cannot transmit or dispose of that which does not belong to him • Paraphernal property of deceased wife • Only share of co-owner can be validly acquired by the vendee even if he acted in GF • Fictitious sale as there was no consideration 2. Right must exist at the time of delivery • X require that vendor must have right to transfer ownership at the time of the perfection of the contract • Sufficient that seller has the right to transfer ownership at the time it is delivered • Ex. Sale of future good 3. Where the property sold registered in the name of seller who employed fraud in securing title • GR: Forged deed = void • E: Where the certificate of title has been transferred to the name of the true owner to the forger and sold to innocent purchaser for value 4. Where property sold in violation of a right of first refusal • GR: Valid BUT rescissible • E: If there is no BF = X rescissble ! remedy: action for damages against vendor 5. Where real property, subject of unrecorded sale, subsequently mortgaged by seller which mortgage was registered • Buyer’s unregistered right OVER mortgagee’s registered right

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General Contract of law: object of contract must exist at the time of the transaction Contract of sale: The object of contract need not be existing at the time the contract is entered into

SALE OF THING HAVING POTENTIAL EXISTENCE • A future thing may work in 2 different ways: 1. Its coming into existence is a condition for the effectivity of the contract 2. The contract is effective and the buyer has to pay the purchase price w/n the thing comes into existence • Sale is subject to the condition that thing will come into existence SALE OF THING EXPECTED (EMPTIO REI SPERETAE) • Sale of a thing not yet in existence subject to the condition that the thing will exist • If X come into existence = contract X effective = buyer X obliged to pay • Ex. Wine a vine is expected to produce, grain a field may grow in a given time SALE OF MERE HOPE OR EXPECTANCY (EMPTIO REI SPEI) • Sale of HOPE ITSELF that the thing will come into existence where it is agreed that the buyer will pay the price even if the thing does not eventually exist • Ex. Sale of the catch of fishermen, fish or no fish • Condition that thing contemplated or expected will come into existence • Sale of vain hope or expectancy = void • Sale of mere hope or expectancy = valid = even if the thing hoped or expected does not come into existence o E: VAIN HOPE OR EXPECTENCY= VOID

1460. SUBJECT MATTER MUST BE DETERMINATE WHEN THING DETERMINATE • Particularly designated or physically segregated from all others of the same kind • A thing is determinate if its identified by its individuality

SALE OF THING EXPECTED Subject to the condition that thing will come into existence Sale of future thing IF X exist = X contract of sale because of absence of essential requisite

SALE OF HOPE X certain that the thing itself will exist Sale of hope or expectancy ✓ Exist even though the thing does not come into existence because the object of the contract is hope itself E: Vain hope or expectance (ex. Sale of falsified sweepstake ticket which can never win)

SUFFICIENT IF SUBJECT MATTER CAPABLE OF BEING MADE DETERMINATE • X necessary that the thing sold must be in sight at the time contract is entered into • Sufficient that thing is determinable or capable of being made determinate without the necessity of a new or further agreement between the parties to ascertain its identity, quantity or quality

PRESUMPTION IN CASE OF DOUBT • Presumption in favor of SALE OF THING EXPECTED • More in keeping with the COMMUTATIVE character of the contract

1461.

1462.

REQUIREMENT THAT THING MUST EXIST

 

DE LEON SALES REVIEWER

 

GOODS WHICH MAY BE THE OBJECT OF SALE

 

 

 

 

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1. 2.

EXISTING GOODS – Goods owned or possessed by the seller FUTURE GOODS – Goods to be manufactured, raised, acquired

SALE OF FUTURE GOODS 1. VALID AS AN EXECUTORY CONTRACT TO BE FULFILLED • Valid as an executor contract to be fulfilled by acquiring and delivering the goods specified in the contract, even though the acquisition of good by the seller depends upon a contingency that may or may not happen 2. SALE CONTEMPLATED BY ART 1462 • Contract of sale of specific goods • Requires that there be delivery of goods, actual or constructive, to be applicable • Paragraph X apply if contract is one for a piece of work = if goods are to be manufactured especially for the buyer and not readily saleable to other in the manufacturer’s regular course of business ART. 1463. The sole owner of a thing may sell an undivided interest therein SALE OF UNDIVIDED INTEREST IN A THING 1. BY SOLE OWNER • Sole owner of a thing may sell the ENTIRE thing; or only a SPECIFIC PORTION thereof; or an UNDIVIDED INTEREST THEREIN and such interest may be designated as an aliquot part of the whole • Legal effect of sale of undivided interest: o The buyer is made the co-owner of the thing sold o As co-owner, he acquires full ownership of his part and may sell it o Limited to the portion which may be allotted to him in the division of the thing upon the termination of co-ownership o Operates similarly to ownership of fungible goods 2. BY A CO-OWNER • Co-owners can dispose of their share even without the consent of the other co-owners • Effect of alienation is limited to the portion allotted to the vendor in the division of the property upon the termination of the co-ownership ART. 1464 SALE OF UNDIVIDED SHARE OF A SPECIFIC MASS 1. MEANING OF FUNGIBLE GOODS • Goods of which any unit is, from its nature or by mercantile usage, treated as the equivalent of any other unit • Those which cannot be used without being consumed • Ex. Grain, old, wine, gasoline 2. EFFECT OF SALE • Owner may sell only an undivided share thereof, provided that the mass is specific or cable of being made determinate

 

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Buyer becomes co-owner with the seller of the whole mass in proportion in which the definite share bought bears to the mass • Aliquot share of each owner can be determined only by the measurement of the entire mass o If mass of FG contains less than what was sold ! buyer comes owner of the whole mass ! seller shall supply whatever is lacking from the goods of same kind and quality, subject to any stipulation to the contrary RISK OF LOSS • Whole mass is at the risk of all the parties interested in it since buyer becomes co-owner • In proportion to their various holdings •

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SUBJECT MATTER • Subject matter is an incorporeal right • Ownership passed to the buyer by the intention of the parties APPLICABILITY OF ART 1464 TO NON-FUNGIBLE GOODS • It may also apply to goods not strictly fungible in nature • Ex: Barrels of flour, goods in barrels, bales of cotton, cattle, sheep

ART. 1465. Things subject to a resolutory condition may be the object of the contract of sale SALE OF THING SUBJECT TO RESOLUTORY CONDITION • Resolutory condition – an uncertain even upon the happening of which the obligation (or right) subject to it is extinguished. Hence, right acquired by virtue of the obligation is also extinguished • If the resolutory condition attaching to the object of the contract should happen ! vendor X transfer the ownership of what he sold since there is no object ART. 1466. In construing a contract containing provisions characteristic of both the contract of sale and of the contract of agency to sell, the essential clauses of the whole instrument shall be considered 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 • A contract is what the law defined it to be and not what it is called by the contracting parties CONTRACT OF SALE Buyer receives the goods a OWNER

 

 

 

CONTRACT OF AGENCY Agent receives the goods of the principal who RETAINS HIS OWNERSHIP OVER THEM • Owner has the right to fix the price and the terms of the sale

 

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Received the proceeds less the agent’s commission Agent simply ACCOUNTS for the proceeds of the sale he may make on behalf of the principal Agent can return the object in case he is rd unable to sell the same to 3 person Agent makes no warranty for which he assumes personal liability as long as he acts within his authority and in the name of the seller Agent must act and is bound according to the instruction of his principal •

Buyer has to PAY the price GR: Buyer cannot return the object sold Seller warrants the thing sold

Buyer can deal with thing as he pleases being the owner

CASE: QUIROGA VS. PARSONS HARDWARE CONTRACT CREATING BOTH A SALE AND AN AGENCY RELATIONSHIP 1. ESSENCE OF SALE/AGENCY • Essence of sale – Transfer of title or agreement to transfer it for a price paid or promised. If such transfer puts the transferee in the position of an owner and makes him liable for the agreed price, the transaction is sale • Essence of agency – 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 the sale, fix the price and terms, demand and receive the proceeds less the agent’s commission upon sales made 2. EXISTENCE OF BOTH SALE AND AGENCY • Example: o Automoble dealer receives title to the cars he orders from the manufacturer = sale o BUT he is an agent ! to the extent that he is authorized to pass on to the ultimate purchaser the limited warranty of the manufacturer o The courts must look at the entire transaction to determine if it’s a principal-agent relationship or a buyer-seller relationship ART. 1467. A contract for the delivery at a certain price of an article which the vendor in ordinary course of his business manufactures or procures for the general market, whether the same is on hand at the time or not, is a contract of sale, but if the goods are to be manufacture specially for the customer upon his special order, and not for the general marker, it is a contract for a piece of work CONTRACT FOR 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 his labor or skill, or also furnish the material

 

DE LEON SALES REVIEWER

 

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CONTRACT FOR PIECE OF WORK- 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 SALE - or a thing which would have existed and been the subject of sale to some other person even if the order had not been given

CONTRACT FOR PIECE OF WORK Thing transferred is one not in existence and which never would have existed but for the order of the party desiring to acquire it

CONTRACT OF SALE A thing which would have existed and been the subject of sale to some other person even if the order had not been given

Risk of loss before delivery is borne by the worker or contractor, not by the employer (person who ordered) If services dominate the contract even though there is a sale of goods involved

Risk of loss borne by the buyer Where the primary object of the contract of sale is a sale of manufactured goods, it is a sale of goods, even though the item is manufactured by labor furnished by the seller and upon previous order of the customer Within the statute of frauds Ex. Particular size and style which is ordinarily manufactured but not available

Not within the Statute of frauds Ex. Order shoes for deformed feet

1468. If the consideration of the contract consists partly in money, and partly in another thing, the transaction shall be characterized by the manifest intention of the parties. If such intention does not clearly appear, it shall be considered a barter if the value of thing given as part of the consideration exceeds the amount of the money or its equivalent; otherwise, it is a sale 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 BARTER OR EXCHANGE One of the parties binds himself to give one thing in consideration of the other’s promise to give another thing

CONTRACT OF SALE The vendor gives a thing consideration for a price in money

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BUT ABOVE DISTINCTION IS NOT ADEQUATE, HENCE THE RULE IN 1468 FOR THOSE CASES IN WHICH THE THING GIVEN IN EXCHANGE CONSISTS PARTLY IN MONEY AND PARTLY IN ANOTHER THING • Manifest intention of the parties is paramount

 

 

 

 

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Such intention may be ascertained by taking into account the contemporaneous and subsequent acts of the parties If the intention cannot be ascertained ! last sentence of article applies ! (Value of thing given as part of consideration > money or its equivalent = barter) o E: But if the intention is that contract shall be one of sale, then such intention must be followed even though the value of the thing given as part of the consideration > amount of money given Only difference between the two: element in sale which is “price certain in money or its equivalent” Example: Sugar (20k) and WB (20k) – page 57 o 100 Whiskey bottle as payment for sugar = barter o 25 Whiskey bottles + 15k cash = barter " On date of delivery, only had 25 WB " Amount of 15k was paid in consideration for the 75 bottles o No whiskey bottles at the time of delivery + 20k instead = Barter " Payment is in consideration of the value of the whiskey and not of the sugar " Manifest intention = barter o B had 100 WB on date of delivery BUT paid 20k = sale " Intention of parties to convert it to sale o If WB OR Cash ! paid in cash = sale o Deliver 50 WB and pay 10k // OR 75WB or pay 5k // OR 25 WB or 15k ! transaction shall be considered barter or sale depending on manifest intention of the parties " If such intention does not clearly appear • Barter – if cash is 5k • Sale – if cash is 15k or 10k

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 • Landlord transfers merely temporary possession and enjoyment of the thing leased • In sale: seller transfers ownership of the thing sold DATION IN PAYMENT • Dacion en pago is the alienation of property by the debtor to the creditor in satisfaction of a debt in money • Governed by law on sales

 

Existence of debt Obligation Cause

DACION EN PAGO ✓ Debt to creditor Obligations are extinguished Cause is extinguishment of

DE LEON SALES REVIEWER

SALE X pre-existing credit or debt Obligations are created Cause is the price paid –

 

Freedom in fixing price Payment

the debt – viewpoint of debtor Object acquired in lieu of debt – viewpoint of creditor X freedom in fixing price since value of property may not exactly correspond to amount of debt Payment is effectively received by the debtor before the contract is perfected -If amount of thing is less than debt, debtor must supply deficiency UNLESS parties have considered the conveyance as full payment

viewpoint of seller Thing sold – viewpoint of buyer More freedom in fixing the price Buyer still has to pay the 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 a 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 persons 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 the party in fault as are allowed the seller or the buyer, as the case may be. PRICE CERTAIN IN MONEY OR ITS EQUIVALENT • The buyer pays a price certain in money or its equivalent • HOWEVER, even if the buyer does not pay a price certain in money or its equivalent, ! there may be a valid contract of sale IF there was some other consideration for the sale WHERE PRICE CONSIDERED CERTAIN 1. NO SALE IF PRICE IS NOT CERTAIN OR ASCERTAINABLE • There can be no sale without a price • Price must be certain or capable of being ascertained • Money = currency • Equivalent = promissory notes, checks, mercantile instruments generally accepted as representing money • The fact that the exact amount to be paid for the thing sold is not precisely fixed = X bar to an action to recover purchase price

 

 

 

 

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PROVIDED that contract, by its terms furnishes a basis or measure for ascertaining the amount agreed upon CASES WHEN PRICE IS CONSIDERED CERTAIN 1. The parties have fixed or agreed upon a definite amount 2. It be certain with reference to another thing certain 3. The determination of the price is left to the judgment of a specified person or persons 4. Fixed by court ** Last 3 cases applicable only when no specific amount stipulated by the parties PRICE CERTAIN WITH REFERENCE TO ANOTHER THING CERTAIN • Example: If the purchase price is “the total amount of the debt of the seller or buyer” ! amount of debt as of the sate of the sale can be determined • If the purchase price is the “appraised value” of a specific thing, when such appraised value was previously known to the contracting parties o

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EFFECT WHERE PRICE FIXED BY THIRD PERSON DESIGNATED • GR: A price fixed by a third person designated by the parties is BINDING upon them • E: 1. Third person acts in Bad Faith or by Mistake rd • As when 3 person fixed the price having in mind not the object which is the object of sale, but another analogous or similar thing ! in which case, the court may fix the price • Mere error in judgement = X serve as basis for impugning the price fixed rd 2. When the 3 person disregard specific instruction or procedure marked out by the parties or the date given him ! thereby fixing an arbitrary price EFFECT WHERE PRICE NOT FIXED BY THIRD PERSON DESIGNATED rd • If 3 person designated REFUSES or CANNOT FIX IT (without fault of seller or buyer) ! Contract = ineffective as if no price has been agreed upon o E: If parties subsequently agree on the price rd • If 3 person is PREVENTED from fixing the price by the FAULT OF SELLER/BUYER ! party in fault may obtain redress against the party in fault ! Choice: o Rescission + damages o Fulfillment + damages ! court shall fix the price Art. 1470. Gross inadequacy of the price does not affect the contract of sale, except as it may indicate a defect in consent, or that the parties really intended a donation or some other act or contract. EFFECT OF GROSS INADEQUACY OF THE PRICE • GR: Lesion or inadequacy of cause will NOT invalidate a contract (1335)

 

DE LEON SALES REVIEWER

 

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o E: if there if FRAUD, MISTAKE OR UNDUE INFLUENCE In determining whether the price is adequate or not, the price obtaining at the date of the execution of the contract, not those obtaining a number of years later, should be considered Allegation of inadequacy must be proven

WHERE LOW PRICE INDICATES A DEFECT IN CONSENT • When fraud, mistake or undue influence is present = contract may be annulled because CONSENT is defective • Ex. Contracts of sale entered into by guardians are rescissible if ward suffers lesion more than ¼ of the value of the thing WHERE PRICE SO LOW SO AS TO INDICATE THAT THE PARTIES INTENDED ANOTHER CONTRACT • Where the price is so low that “ a man in his senses and not under a delusion” would not accept it ! the contract may be shown to be a donation or some other contract • BUT where the price paid is much higher than the assessed value of the property and the sale is effected by a father to his daughter in which filial love must be taken into account, the price is not to be construed “as so inadequate as to shock the court’s conscience” EFFECT OF GROSS INADEQUACY OF PRICE IN VOLUNTARY SALES • A JUDICIAL OR EXECUTION SALE - is one made by the court with respect to the property of a debtor for the satisfaction of his indebtedness • GR: Mere inadequacy of price is X sufficient ground for the cancellation of an execution sale if there is no showing that in the event of a resale, a better price can be obtained o E: Where the price is so low as to be “shocking to the conscience” ! judicial sale of property will be set aside WHERE SELLER IS GIVEN RIGHT OF REPURCHASE • The validity of the sale is NOT necessarily affected where the law gives to the owner the right to redeem, as when a sale is made at public option, upon the theory that the lesser the price, the easier it is for the owner to effect the redemption • He may reacquire the property or also sell his right to redeem and thus recover the loss he claims he suffered by reason of the price obtained at the execution sale 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 SIMULATION OF CONTRACT • May be absolute or relative • ABSOLUTE o When the parties do not intend to be bound at all o VOID

 

 

 

 

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There is a colorable contract but it has no substance as the parties have no intention to be bound by it o Effect: Parties may recover from each other what they may have given under the contract RELATIVE o When the parties conceal their true agreement o It does not prejudice third persons o Is not intended for any purpose contrary to law, good customs, public order or public policy o Effect: Binds the parties as to their real agreement o

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WHEN SIMULATION OCCURS • When an apparent contract is a declaration of a fictitious will deliberately made by agreement of the parties to produce, for the purpose of deception, the appearance of a juridical act which does not exist or is different from that which is really executed REQUISITES: 1. An outward declaration of will different from the will of the parties 2. The false appearance must have been intended by mutual agreement 3. Purpose is to deceive third persons EFFECT WHERE PRICE IS SIMULATED 1. SALE IS VALID AS DONATION • If the price is simulated such as when the vendor really INTENDED to transfer the thing GRATUITOUSLY o SALE = VOID o VALID AS DONATION 2. SALE VOID • If not showed to be a donation or any other act or contract transferring ownership because the parties do not intend to be bound at all • Ownership of thing X transferred = void • Action or defense for declaration of inexistence of contract = X prescribe EFFECT WHEN PURCHASE PRICE STATES BUT NOT ACTUALLY PAID • When the deed of sales states that the purchase price has been paid BUT in fact has NEVER been paid ! deed of sale = VOID for lack of consideration • If no payment was actually made ! fact indicates that price purportedly paid was simulated • Non-payment of the price by the supposed buyer (minor) + intrinsic defects of the deed of sale = price simulated = void EFFECT WHEN • When parties intended to be bound but deed did not reflect actual purchase price ! contact (relative simulated contract) = valid and enforceable ! subject to REFORMATION to show the true intention of the parties

 

DE LEON SALES REVIEWER

 

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X reflect actual price by reason of MISTAKE or CONCEAL TRUE AGREEMENT (FALSE PRICE) = VALID = REFORMATION

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 in a particular exchange or market, or when an amount is fixed above or below the price on such day, or in exchange or market, provided said amount be certain PRICE ON A GIVEN DAY AT A PARTICULAR MARKET • 1469 – A price is considered certain if it could be determined with reference to another thing certain • When amount is fixed above or below the price on a given day or in a particular exchange or market, the said amount MUST BE CERTAIN • The sale is inefficacious if the price cannot be determine • Applicable to fungible things (securities, grains, liquids, etc) ! the price of which are subject to fluctuations of the market 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 FIXING OF PRICE BY ONE OF THE CONTRACTING PARTIES NOT ALLOWED • Consent is an essential element of sale • To be just, price must be determined impartially by both parties or left to the judgment of specified persons or person • E: Where the price fixed by one party is ACCEPTED by the other ! contract is deemed perfected because there is meeting of minds upon the price 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 reasonable price is a question of fact dependent on the circumstances of each particular case EFFECT OF FAILURE TO DETERMINE PRICE 1. WHERE CONTRACT EXECUTORY • The contract is without effect • Price certain = essential element of contract • No obligation on the vendor to deliver and vendee to pay 2. WHERE DELIVERY HAS BEEN MADE • The buyer must pay reasonable price therefor • Obligation of the buyer may be: o Contractual (if the agreement omits any reference to price) o Quasi-contractual (if the agreement provides that the parties thereafter to agree on the price)

 

 

 

 

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NOTE: In case parties do not intend to be bound until after the price is settled ! the buyer must return the goods already received • If unable to do so, must pay reasonable value at the time of delivery and the seller must return any portion of the amount received CONCEPT OF REASONABLE PRICE • Generally the market price at the time and place fixed by the contract or by law for the delivery of goods • SC: A reasonable price may or may not agree with the current price of the commodity at the port of shipment is made DETERMINATION OF FAIR MARKET VALUE • Reasonable sum which property would bring on a fair sale by a man willing, but not obliged to sell to a man willing but not obliged to buy ART. 1475. The contract of sale is perfect 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 law governing the form of contracts. PERFECT OF CONTRACT OF SALE GR: Contracts are perfect by mere consent 1. MOMENT OF CONSENT • Contract of sale = consensual • Perfected at the moment of consent without the necessity of any other circumstances • The reciprocal obligations of the parties arise even when neither has been delivered • Mutual consent = state of mind ! inferred from 2 acts: 1. Offer certain as to the object of the contract and its consideration 2. Acceptance by one of the offer made by the other • GR: A person not incompetent to contract merely because of advanced years or by reason of physical infirmities o E: When such age or infirmities have impaired the mental faculties as to prevent a person from intelligently protecting his property rights = undeniable incapacitated • There is no difference in law where a person gives his consent reluctantly and even against his good sense and judgment as when he acts voluntarily and freely 2. FORM OF THE CONTRACT • GR: Contract of sale is binding regardless of its form o E: If it falls within the provisions of the Statute of Frauds or of any other applicable statute which requires a certain form for its enforceability or validity ! form must be complied with 3. CONDUCT OF THE PARTIES

 

DE LEON SALES REVIEWER

 

Appropriate conduct by the parties may be sufficient to establish an agreement • The actions of the parties may indicate that a binding obligation has been undertaken • There is no perfected sale where it is conditional (subject to approval of authorities) and the condition is not fulfilled • Letter of intent to buy and sell is just that – X contract to sell nor conditional contract of sale 4. TRANSFER OF OWNERSHIP • Sale, but itself, does not transfer or affect ownership • The most sale does is to CREATE THE OBLIGATION TO TRANSFER OWNERSHIP • Ownership is not transferred until the delivery of the thing o E: if parties stipulate that ownership is not transferred until full payment of the purchase price •

4. APPLICAN’T QUALIFICATION TO BUY STILL SUBJECT FOR INVESTIGATION • Agreement was denominated as “contract of sale” BUT subject to revocation after investigation of applicant’s qualification and approval of the board of liquidators showing that applicant is not qualified =X perfected contract of sale ! mere application to buy and sell 5. BREACH OF CONTRACT BY ONE PARTY • A party commits breach of contract when he fails without legal reason or justification to comply with the terms which form the whole or part of the contract • Injured party may sue for: o Fulfillment + damages o Rescission + damages RULES WITH RESPECT TO OFFER 1. Offer must be certain (1319) 2. Person making the offer may fix the time, place and manner of acceptance, all of which must be complied with (1322) 3. When the offer has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance by communication such withdrawal • Except when the option is founded upon a consideration, as something paid or promised (1324) 4. An offer becomes ineffective upon the death, civil interdiction, insanity or insolvency of either party before acceptance is conveyed (1323) RULES WITH RESPECT TO ACCEPTANCE 1. The acceptance of an offer must be UNQUALIFIED AND ABSOLUTE • Counter-offer - Anything short of that level of mutuality produces not a contract but a mere awaiting acceptance // where a party sets a different purchase price than the amount of the offer such acceptance was qualified • Must be unanimous both on the rate of the payment and on its term

 

 

 

 

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An acceptance may contain a request for certain changes in the terms of the offer and yet be binding as an acceptance as long as it is clear that the meaning of the acceptance is positively and unequivocally to accept the offer, whether request is granted or not Acceptance may be EXPRESS OR IMPLIED •

2.

WHEN DEFINITE AGREEMENT ON MANNER OF PAYMENT IS ESSENTIAL • GR: Valid contract upon the meeting of the minds. It is not the act of payment of the price that determines the validity of a contract of sale • EXCEPTIONS (Instances when definite agreement is essential): 1. Purchase price payable in installments • It is not enough that the parties agree on the price as well as the amount of downpayment 2. Where the parties still have to meet and agree on how and when the downpayment and installment payments are to be made = contract of sale X perfected • Toyota Shaw Inc. vs court of appeals – nothing was mentioned about the full purchase price and the manner the installments were to be paid 3. The minds of the parties must also meet on the terms or manner of payment of the price, the same is needed ! otherwise, there is no sale • A disagreement on the manner of payment is tantamount to failure to agree on the price 4. An agreement on the price but a disagreement on the manner of its payment will not result in consent • An agreement on the terms of payment is integral to the element of price certain EFFECT OF FAILURE TO PAY STIPULATED PRICE FAILURE TO PAY Results in a right to demand: - Fulfillment OR - Cancellation of the obligation under an existing valid contract

LACK OF CONSIDERATION Prevents the existence of a valid contract

EFFECT OF FAILURE TO PAY STIPULATED PRICE 1. VALIDITY OF CONTRACT NOT VITIATED • Failure to pay stipulated price after the execution of the contract = X convert the contract into one without cause or consideration as to vitiate the contract, it not being essential for the existence of the cause that payment or full payment be made at the time of the contract 2. REMEDY OF THE VENDOR • Specific performance + damages • Rescission + damages 3. PROOF OF PAYMENT • Sales invoice = only evidence of the receipt of goods ! X evidence of payment

 

DE LEON SALES REVIEWER

 

• Best evidence: Official receipt 4. NOTARIZED DEED OF SALE STATES RECEIPT OF PRICE • Strong evidence of payment • X defeated by unsupported verbal claim ! Evidence to the contrary must be clear, strong and convincing 5. WHERE THE PRICE STATED AS PAID NEVER BEEN PAID • Null and void • Sale is without cause or consideration RIGHT OF OWNER TO FIX HIS OWN PRICE 1. 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 it • He may even impose a condition hard to fulfill and name a price quite out of proportion to the real value of the thing offered for sale 2. He is also well within his right to quote a small or nominal consideration • Such consideration is just as effectual and valuable a consideration as alleger sum stipulated or paid 1476. In the case of a sale by auction: (1) Where goods are put up for sale by auction in lots, each lot is the subject of a separate contract of sale (2) A sale by auction is perfected when the auctioneer announces its perfection by the fall of the hammer, or in any other customary manner. Until such announcement is made, any bidder may retract his bid; and the auctioneer may withdraw the goods from the sale unless the auction has ben announced to be without reserve (3) A right to bid may be reserved expressly by or on behalf of the seller, unless otherwise provided by law or by stipulation (4) Where notice has not been given that a sale by auction is subject to a right to bid on behalf the seller, it shall not be lawful for the seller to bid himself or to employ or induce any person to bid at such sale on his behalf or for the auctioneer, to employ or induce any person to bid at such sale on behalf of the seller or knowingly take any bid from the seller or any person employed by him. Any sale contravening this rule may be treated as fraudulent by the buyer. RULES GOVERNING AUCTION SALES 1. SALES OF SEPARATE LOTS BY AUCTION ARE SEPARATE SALES • Where separate lots are the subject of separate biddings and are separately knocked down, there is a separate contract in regard to each lot 2. SALE PERFECTED BY THE FALL OF THE HAMMER • Each bid is an offer and the contract is perfected only by the fall of the hammer or in other customary manner • The bidder may retratct his bid and the auctioneer may withdraw the goods from sale anytime BEFORE THE HAMMER FALLS o E: If the sale is announced without reserve, the auctioneer cannot withdraw the goods from sale once bid has been made and the highest bidder has right to enforce his bid

 

 

 

 

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3.

4.

5.

RIGHT OF SELLER TO BID IN THE AUCTION • GR: Puffing or secret bidding is not allowed – where there is no notice that the sale is subject to seller’s right to bid, it shall be unlawful for the seller to bid directly or indirectly or for the auctioneer to employ or induce any person to bid on behalf of the seller • This is also true although the employment of the puffer by the auctioneer was without the owner’s knowledge, since the auctioneer is the owner’s agent • It would operate as fraud upon the purchaser and a sufficient ground for relieving him from his bid and avoiding the sale o EXCEPTION REQUISITES: 1. Such right was reserved 2. Notice was given that the sale is subject to a right to bid on behalf of the seller 3. The right to bid by the seller is not prohibited by law or by stipulation CONTRACT NOT TO BID • It is not permissible for intending buyers at auction or other competitive sales to make an agreement for a consideration that only one of them shall bid, in order that the property may be knocked down at a low price • Bargain is fraudulent as regards the seller though the agreement is without consideration, if it is actually carried out, for the fraud against the seller is the same as if there were considerations ADVERTISMENT FOR BIDDERS • Simply invitations to make proposals • Advertiser is not bound to accept the highest or lowest bidder, unless the contrary appears

RIGHT OF OWNER TO PRESCIBE TERMS OF PUBLIC AUCTION • The owner of property has the right to prescribe the manner and conditions and terms of sale • He may provide that all of the purchase price or any portion thereof should be paid at the time of the sale or that time will be given for that payment, or that any or all bids may be rejected • Conditions of a public sale announced by the auctioneer or owner of the property at the time and place of sale ! binding upon all the bidders, whether they knew of such conditions or not ART. 1477 The ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof ART. 1478. The parties may stipulate that ownership in the thing shall not pass to the purchaser until he has fully paid the price OWNERSHIP OF THING TRANSFERRED BY DELIVERY 1. NECESSITY OF DELIVERY • It is only after delivery of the thing sold that the purchaser acquires real right or ownership over it

 

DE LEON SALES REVIEWER

 

Deliver may be actual or constructive The contract is consummated by delivery of the thing sold and of the purchase money PURCHASE ON CREDIT • In the absence of stipulation to the contrary, the ownership of the thing sold passes to the vendee upon delivery of the vendor • This is true even if the purchase price has been made on credit NON-PAYMENT OF PURCHASE PRICE • Payment of purchase price = X essential to the transfer of ownership as long as the property sold has been delivered • Non-payment only creates the right to (1) demand payment or (2) rescind the contract or (3) criminal prosecution for bouncing checks PRESENCE OF INTENTION TO DELIVER • The act of delivery, whether actual or constructive, should be coupled with the intention to deliver the thing sold • Act without intention = insufficient ! there is NO tradition • Sales invoice = X prove transfer of ownership • •

2.

3.

4.

5.

6.

CONTRARY STIPULATION • Ownership is transferred by delivery, not mere payment o E: However, the parties may stipulate that despite delivery, the ownership of the thing shall remain with the seller until the purchaser has fully paid the price = CONTRACTUAL RESERVATION OF TITLE (common in sales on installment plan) = considered contract to sell • Parties may also stipulate that ownership is transferred even if the purchaser has not yet fully paid the price CONTRACT TO SELL • Ownership is retained by the seller and is not passed until full payment of the price, such payment is a positive suspensive condition • Failure of suspensive condition = X breach ! simply an event that prevents the obligation of the vendor to convey title from acquiring binding force • If ownership is retained until full payment of purchase price merely to SECURE PERFORMANCE BY BUYER OF HIS OBLI ! seller X liable in case of loss of the goods • If there is doubt as to the wording of the contract ! Should be resolved in favor of the greatest reciprocity in interest = Obtained if the buyer’s obligation is deemed actually existing, with only its maturity (due date) postponed or deferred • If there is stipulation that ownership is retained until full payment of purchase price ! binding only upon the contracting parties, their rd assigns and agent ! X binding upon 3 persons without notice • The stipulations in the contract – for the reservation of the ownership of the thing sold until full payment of its purchase price and for the los or destruction of the thing being for the account of the buyer = valid and can exist with conjunction to another o A free on board stipulation in a contract can exist with the contract to sell

 

 

 

 

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Free on board stipulation – ownership of the products sold is retained by the seller until after the postdated checks evidenced by provisional receipts given as payment by the buyer are cleared, with stipulation that loss or destruction of the product during transit is for the account of the buyer CONTRACT OF INSURANCE • A perfected contract of sale even without delivery bests in the buyer EQUITABLE TITLE, an existing interest over the goods sufficient to be the subject of insurance o

7.

Busmente notes: - Constructive Delivery: • GR: Execution of public document transfers ownership o E: If there is legal impediment (Adisson & ten forty case) • There can only be constructive delivery if there is no legal impediment – Addisson case • Payment for subject or thing has no bearing. It is delivery that transfers ownership – Sampaguita Case 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. KINDS OF PROMISES TREATED IN ART 1479 1. An accepted unilateral promise to sell in which the promisee (acceptor/buyer) elects to buy 2. An accepted unilateral promise to buy in which the promisee (acceptor/seller) elects to sell; 3. A bilateral promise to buy and sell reciprocally accepted in which either of the parties chooses to exact fulfillment EFFECT OF UNACCEPTED UNILATERAL PROMISE – “POLICITACION” • Created no juridical effect or legal bond • Unaccepted imperfect promise or offer • A period may be given to the offeree within which to accept the offer OPTION • A contractual privilege existing in one person for which he has paid a consideration which gives him the right to buy or sell NATURE OF OPTION CONTRACT 1. Preparatory contract separate and distinct from the main contract itself 2. Merely secures a privilege to buy/sell 3. Gives the party granted the option the right to decide w/n to enter into a principal contract

 

DE LEON SALES REVIEWER

 

4.

Binds the party who has given the option not to enter into the principal contract with any other person during the agreed time and within that period 5. To enter into such contract with the one to whom the option was granted if the latter should decide to use the option 6. Imposes no binding obligation on the person holding the option aside from the consideration for the offer ! it is only when the option is exercised may a sale be perfected 7. Option must be supported by a consideration distinct from the price 8. Optionee or promisee has the burden of proving such consideration a. Lacking any proof of such consideration, the option is unenforceable 9. Consideration need not be monetary or actual cash a. May consists of other thins or undertakings but they must be something of value (onerous nature of option contract) b. When such consideration is not monetary, it must be clearly specified as such in the option contract or clause 10. The consideration is “the why of the contract, the essential reason which moves the contract parties to enter into the contract” a. An option without consideration is void EFFECT OF ACCEPTED UNILATERAL PROMISE nd 1. 2 paragraph = Option the commercial world 2. GR: A unilateral promise to sell or to buy a determinate thing for a price certain does NOT bind the promissor even if accepted and may be withdrawn at any time o E: It is only if the promise is SUPPORTED BY A CONSIDERATION DISTINCT AND SEPARATE FROM THE PRICE that its acceptance will give rise to a perfected contract 3. The optionee (holder of the option) AFTER accepting the option and BEFORE he exercises it ! has the right, but not the obligation to buy or sell, as the case may be 4. Once the option is exercised (offer is accepted before the breach of the option), a BILATERAL PROMISE to sell and to buy ensues ! both parties are then reciprocally bound to comply with their respective undertakings 5. If he withdraws the offer BEFORE THE ACCEPTANCE (exercise of the option) by the optionee-offeree ! The optionee-offeree may NOT sue for specific performance on the proposed contract since it has failed to reach its own stage of perfection o BUT offerror is liable for damages for breach of the option FULL PAYMENT OF PRICE NOT NECESSARY FOR EXERCISE OF OPTION TO BUY • Obligations under an option to buy are reciprocal obligations – the performance of one obligation is conditioned upon the simultaneous fulfillment of the other obligation • The party who has an option may validly and effectively exercise his right by: o Merely notifying the owner of the former’s decision to buy and o Expressing his readiness to pay the stipulated price 13         © Michelle Duguil,

Notice need NOT be coupled with actual payment of the purchase price so long as this is delivered to the owner of the property upon the execution and delivery by him of the deed of sale The payment of the price is contingent upon the delivery of the deed of sale o Unless and until the owner shall have delivered DOS, the buyer who has the option does NOT and CANNOT be held in default in the discharge of his obligation to pay o Consignation in court of the purchase price not required o Option to buy = X contract of purchase and sale o

•

ART. 1324 • GR: 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 o E: When the option is founded upon a separate consideration, the offerrer cannot withdraw his offer, even if the same has not yet been accepted, before the expiration of the stipulated period

SOUTHERN SUGAR AND MOLASSES COMPANY VS. ATLANTIC GULF • It is true that under 1324 of the CC, the GR regarding offer and acceptance is that, when the offerer gives to the offeree a certain period to accept, “ the offer may be withdrawn at any time before acceptance” except when the option is founded upon a consideration • But this GR must be interpreted as modified by the provision of 1479 which applies to a “promise to buy and sell” specifically ! this rule requires that for a promise to sell to be valid, it must be supported by a consideration distinct from the price • **ABANDANDONED DOCTRINE ★ SANCHEZ VS. RIGOS • Even supposing that petitioner granted an option which is not binding for lack of consideration, the authorities hold that: if the option is given without a consideration, it is a mere offer of a contract of sale, which is not binding until accepted. If however, acceptance is made before a withdrawal, it constitutes a binding contract of sale, even though the option was not supported by a sufficient consideration ★ ATKINS, KROLL and CO, INC VS CU HIAN TEK • If the option is given WITHOUT CONSIDERATION ! it is a mere offer of a contract of sale, which is NOT binding until accepted • If, however, THE ACCEPTANCE IS MADE BEFORE A WITHDRAWAL ! it constitutes a binding contract of sale, even though the option was not supported by sufficient consideration RIGHT OF FIRST REFUSAL

DE LEON SALES REVIEWER

• •

• •

ART. 1479 AND ART. 1324 COMPARED

 

•

•

The right of first refusal is an integral part of the contract of lease ! consideration is built into the reciprocal obligation of the parties Assurance that lessee will be given first crack or first option to buy the property at the price which lessor is willing to accept rd If 3 person buyer is in BF because he was aware of the existence of the contract of lease ! lessee who has the right of first refusal he may have the fraudulent sale SET ASIDE OR RESCINDED A right of first refusal means identity of terms and conditions to be offered to the lessee and all other prospective buyers A contract of sale entered into in violation of a right of first refusal of another person, while VALID, IS RESCISSIBLE Basis of the right of first refusal must be the current offer to sell of the seller or offer to purchase of any prospective buyer

RIGHT OF FIRST REFUSAL X stand on its own (accessory contract) X Require separate consideration – consideration is integral part of the contract of lease already Conditional Can be subjected to specific performance Remedy: Set aside or rescind fraudulent sale OPTION MONEY VS EARNEST MONEY

OPTION CONTRACT Can stand on it own (principal contract) Requires a separate consideration distinct from that of the contract of sale in order to be valid Not conditional X subject to specific performance since there is no perfected contract of sale yet

OPTION MONEY Money given as a distinct consideration for an option contract Applies to contract of sale X perfected

EARNEST MONEY Money which is part of the purchase price Applies to contracts of sale already perfected The buyer who gives the earnest money is bound to pay the balance

The would be buyer who gives the option money is X bound to buy

EFFECT OF BILATERAL PROMISE TO BUY AND SELL • When the promise is BILATERAL - one party accepts the other’s promise to buy and the latter, the former’s promise to sell a determinate thing for a price certain ! Practically has the same effect as a perfected contract of sale since it is reciprocally demandable 1480. An injury or benefit from the thing sold, after the contract has been perfected, from the moment the perfection of the contract to the time of delivery shall be governed by articles 1163-1165, and 1262 This rule shall apply to sale of fungible things, made independently and for a single price, or without consideration of their weight, number or measure. Should fungible things be sold for a price fixed according to weight, number, or measure, the risk shall not be imputed to the vendee until they have been

 

 

 

 

 

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weighed, counted, or measured and delivered, unless the latter has incurred delay. c. 4 RULES REGARDING RISK OF LOSS d. WHEN Thing lost BEFORE perfection Lost AT THE TIME of perfection

WHO Seller

AFTER BUT delivery

Buyer

perfection BEFORE

Seller

(subj to exceptions)

Lost AFTER deliver

Buyer

WHY Thing perishes with the owner (res perit domino) - Seller bears the risk of loss as the buyer is not bound to pay the purchase price if the thing is entirely lost at the time of perfection - If lost in part at the time of perfection, the seller also bears ROL as the buyer may (1) withdraw from the contract or (2) continue with the contract but pay reduced price - Exception to the rule of res perit domino ! Buyer bear ROL even before the ownership is transferred to the buyer - Applicable if thing is DETERMINATE - Applicable to paragraph 2 - E to E: Seller bears risk of loss if: 1. Thing is lost through fault of seller or when the seller delays 2. Thing lost = generic 3. Thing lost = fungible things sold for a price fixed according to weight, number, or measure 4. Thing lost falls under definition of goods 5. Lost thru FE Res perit domino

RISK OF LOSS IN CASE OF FORTUITOUS EVENT 1. 2 THEORIES a. German Code – Principle of tradition ! risk of loss is allocated to the seller based on the theory that the property sold is not transferred until delivery of the thing b. ★ Roman law – Principle of perfection ! risk of loss is transmitted to the buyer from the moment contract is perfected 2. Roman law is followed by the Civil Code 3. Buyer is obliged to pay the price of the thing even if it was lost due to a fortuitous event 4. Legal basis a. 1164 – Buyer has the right to fruits of the thing from the time of perfection of contract of sale thus it is logical that the buyer bears the loss from the moment of perfection b. 1165 – If the seller delays or has promised to deliver to 2 or more persons who do not have same interest ! seller is still liable for

 

DE LEON SALES REVIEWER

 

FE until he has effected delivery ! If the seller was not at fault buyer would be responsible for the FE even prior to delivery 1262 – The seller’s obligation is generally extinguished if the thing sold is lost as a result of FE rd 3 paragraph of 1480 – Implies that with respect to items covered by the first 2 paragraphs, the risk of loss is with the buyer even prior to delivery

SCOPE OF 1480 (2 RULES) Thing is lost after perfection but before delivery – buyer bears risk of loss (rule no. 3)

- Rule No 3 is applicable if thing is DETERMINATE - Applies to fungible things sold for a price not fixed in relation to weight, number, or measure ! in such case the fungible things have been particularly segregated -The buyer assumes the risk of loss caused by FE - without the fault of the seller and - before he has incurred delay - after the perfection of the contract at the time of delivery rd - 3 paragraph - Paragraph 3 is an exception to the rule that the buyer bears the loss after the perfection of the contract and before delivery = seller assumed the risk - E to E: buyer assumes the risk if he has incurred delay in in receiving the goods sold

Fungible things sold for a price fixed in relation to weight, number or measure

CONSISTENCY WITH ARTICLE 1504 *See reconciliation later by Atty. Busmente ;) 4 RULES REGARDING RISK OF DETERIORATION WHEN BEFORE PERFECTION AT THE TIME PERFECTION

WHO Seller

OF

Seller

AFTER PERFECTION BUT BEFORE ITS

Buyer

 

 

 

 

WHY There was no contract for there was no cause or consideration 1494. Buyer may at his option treat the sale as: 1. Avoid 2. Valid in all of the existing goods or in some much thereof as have not been deteriorated E: If the thing deteriorates through fault of the seller © Michelle Duguil,

15

DELIVERY

! seller bears risk of loss - Buyer may choose between: 1. Rescission + damages 2. Fulfillment + damages

AFTER DELIVERY

Buyer

1504. Unless otherwise agreed, the goods remain at the seller’s risk until the ownership therein is transferred to the buyer, but when the ownership therein is transferred to the buyer, the goods are at the buyer’s risk whether actual delivery has been made or not, except that: (1) Where delivery of the goods has been made to the buyer or a bailee for the buyer, in pursuance of the contract and the ownership in the goods has been retained by the seller merely to secure performance by the buyer of his obligation under the contract, ! the goods are at the BUYER’S RISK from the time of such delivery; (2) Where actual delivery has been delayed through the fault of either the buyer or seller the goods ! are at the RISK OF THE PARTY IN FAULT RISK OF LOSS GENERALLY ATTENDS TITLE • GR: If the thing is lost through FE, the risk is borne by the owner of the thing at the time of the loss under the principle of res perit domino o EXCEPTIONS: 1. Seller reserves the ownership of the goods MERELY TO SECURE THE PERFORMANCE OF THE BUYER OF HIS OBLIGATIONS ! ownership is considered transferred to the buyer, who therefore assumes the risk from the time of delivery 2. Where actually delivery has been DELAYED THROUGH THE FAULT OF EITHER BUYER OR SELL ! goods are at the risk of the party at fault with respect to any loss which might not have occurred but for such fault CONFLICT BETWEEN 1480 and 1504 WHO RISK

 

BEARS

WHAT IS ESSENTIAL

1480 If the thing is lost after perfection of the contract but before delivery (even before ownership is passed), the risk of loss by FE without seller’s fault ! risk is borne by the BUYER = Buyer is still obliged to pay the price if he has not yet paid = He cannot recover from the seller when he has paid already although the seller’s obligation to deliver the thing is extinguished by its loss

DE LEON SALES REVIEWER

 

1504 Until ownership of goods is transferred to the buyer ! goods generally remain at the SELLER’S risk

SOLUTION SUGGESTED AUTHOR’S OPINION BUSMENTE’S VIEW – Circumstantial

After perfection of contract even before delivery (before transfer of ownership) + lost thru FE ! Buyer’s risk **follows roman law – risk is transferred to buyer upon perfection of contract - Sale of things (ex. Sale of real estate) - General Rule DE LEON SELLER defense

should

use

this

as

Before Delivery aka transfer of ownership ! Seller’s risk After transfer of ownership (delivery) ! Buyer’s risk - Sale of goods - Exception PARAS BUYER should use this as defense

(Needs legislation to avoid irreconcilable conflict)

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 by description, it is not sufficient that the bulk of goods correspond with the sample if they do not correspond with the description. The buyer shall have a reasonable opportunity of comparing the bulk with the description or the sample. SALE OF GOODS BY DESCRIPTION AND/OR SAMPLE • Sale of goods by: 1. Description 2. Sample 3. Sample and description • Provides for cause for rescission distinct from those stated in 1597 Note: 1597 – Where the goods have not been delivered to the buyer, and the byer has repudiated the contract of sale, or had manifested his inability to perform his obligations thereunder, or has committed a breach thereof, the seller may totally rescind the contract of sale by giving notice of his election so to do to the buyer SALE BY DESCRIPTION • Occurs where a seller sells things as being of a particular kind, the buyer not knowing whether the seller’s representations are true or false, but relying on them as true

 

 

 

 

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•

• • • •

Where the purchaser has not seen the article sold and relies on the description given him by the vendor, or has seen the goods but the wants o identity is not apparent on inspection Reason: Dealer should understand that purchaser relies upon the description as a representation by the seller that is the thing described Creates an implied warranty that the goods will conform to that description and that the goods are of merchantable quality If the bulk of the goods do not correspond with the description, ! the contract may be rescinded But if the thing delivered is as described, the fact that the buyer cannot use the thing sold for the purpose for which it was intended without the seller’s fault ! X exempt buyer from paying the purchase price agreed upon

SALE BY SAMPLE • There is a sale by sample when a small quantity is exhibited by the seller as a fair specimen of the bulk, which is not present and there is no opportunity to examine or inspect the same • Parties treated sample as the standard of quality and that they contracted with reference to the sample with the understanding that the product to be delivered would correspond with the sample • E: Mere exhibition of a sample by the seller in the absence of any showing that it was an inducement of the sale or formed the sole basis thereof ! X sale by sample as where the quality of the articles to be furnished is expressly described in the contract w/o reference to the sample or the parties agree that the goods ordered shall differ from the sample in some particular matter • Species of sale by description • Implied warranty that the goods shall be free from any defect which is not apparent on reasonable examination of the sample and which would render the goods not merchantable SALE BY DESCRIPTION AND SAMPLE • When a sale is made both by sample and by description, the goods must satisfy all the warranties appropriate to either kind of sale • It is not sufficient that the bulk of goods correspond with the sample if they do not also correspond with the description and vice versa MEANING OF BULK OF GOODS • Used to denote the goods as distinguished from the sample with which they correspond • X used to designate the greater portion of the goods • Goods which as a while body should correspond substantially with the sample and description THE BUYER IS GIVEN REASONABLE OPPORTUNITY OF COMPARING THE BULK WITH THE DESCRIPTION OR THE EXAMPLE DESCRIPTION

 

DE LEON SALES REVIEWER

SAMPLE

 

BOTH

WHAT

Where the purchaser has not seen the article sold Relies on the description given him by the vendor Or has seen the goods but the wants of identity is not apparent on inspection

•

•

•

WARRANTY REMEDY

•

•

Implied warranty Rescission

There is a sale by sample when a small quantity is exhibited by the seller as a fair specimen of the bulk, Which is not present and there is no opportunity to examine or inspect the same

Implied warranty Rescission

When a sale is made both by sample and by description,

Implied warranty

ART. 1482. Whenever earnest money is given in a contract of sale, it shall be considered as party of the price and as proof of the perfection of the contract. EARNEST MONEY • Something of value given by the buyer to the seller to show that the buyer is really in earnest, and to bind the bargain • It is actually a partial payment of the purchase price • Considered as proof of perfection of contract • Forms part of the consideration only if the sale is perfected and the sale is consummated upon full payment of the purchase price • It must be deducted from the total price • Delivery of part of the purchase price should not be understood as constituting earnest money to bind the agreement in the absence of something in the contract showing that such was the intention of the parties • If the earnest money was given in a contract to sell ! X apply 1482 DISPUTABLE PRESUMPTION • Disputable presumption that prevails in the absence of contrary or rebuttal evidence OPTION MONEY VS. EARNEST MONEY OPTION MONEY Money given as a distinct consideration for an option contract Applies to contract of sale X perfected

EARNEST MONEY Money which is part of the purchase price Applies to contracts of sale already perfected The buyer who gives the earnest money is bound to pay the balance

The would be buyer who gives the option money is X bound to buy

 

 

 

 

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Note: Novation of contract ! option money may become earnest money ! if the parties so agree, or it may actually be in the nature of earnest money when considered with the other terms or words used in the contract

3.

Note: X apply to contract to sell (sale is not yet perfected) 4.

ART. 1483. Subject to the provisions of the Statute of Frauds and of any other applicable statute, a contract of sale may be made in writing, or by word of mouth, or partly in writing and partly by word of mouth, or may be inferred from the conduct of the parties FROM OF CONTRACT OF SALE 1. GR: A contract of sale has no prescribed form. X need technical description of the subject property, real or personal provided that all essential requisites are present. 2. E: Particular form may be required for the enforceability under the Statute of Frauds, or validity of the contract, or for convenience of the parties 1. Statute of frauds – must be in writing subscribed by the party charged or by his agent ! otherwise, contract cannot be enforced by action 2. Form required in order to be valid – Where the applicable statute requires that a contract be in a certain form ! so that contract may be valid and enforceable 3. Form required only for the convenience of the parties – a certain form (ex. Public instrument) is required for the convenience of the rd parties for sale to be registered in RD ! to binding against 3 persons 3. Notarized deed of sale • The fact that the deed of sale is a notarized document does not necessarily justify the conclusion that the said sale is a true conveyance to which the parties thereto are irrevocably bound • The intention of the parties is still the primary consideration in determining the nature of the contract • An invalidly notarized deed of sale ! must be considered merely as a private document STATUTE OF FRAUDS 1. MEANING OF THE TERM • Descriptive of statutes which require certain classes of contract to be in writing • X deprive parties of the right to contract ! merely regulated the formalities of the contract necessary to render it enforceable 2. PURPOSE • Prevent perjury and fraud 3. COVERAGE • The following contracts must be in writing, otherwise they shall be unenforceable by action: 1. Sale of personal property at a price not less than P500 2. Sale of real property or an interest therein regardless of the price involved

 

DE LEON SALES REVIEWER

 

5.

Sale of property not to be performed within 1 year from the date thereof regardless of the nature of the property and the price involved OTHER TRANSACTIONS – WHEN SF X APPLICABLE • SF refer to specific kinds of transaction and X apply to any other transactions not enumerated in Art 1403 (2) 1. Right of first refusal – contractual grant of the right of first refusal, not of sale of property involved 2. Easement of right of way – X sale of property or interest therein 3. Partition effected by heirs where there are no creditors involved – not a conveyance of property resulting in change of ownership but merely a designation and segregation of that part which belongs to the heirs PERFECTED CONTRACTS • Where there is no perfected contract, there is no basis for the application of SF

RATIFICATION OF CONTRACTS INFRINGING STATUTE 1. FAILURE TO OBJECT TO ORAL EVIDENCE • Ratified by failure to object to the presentation of oral evidence to prove the same • Objection against admission of evidence ! must be made at the proper time (at the time the question is asked) ! otherwise contract is ratified • If counsel asks questions on cross-examination, which elicits evidence proving the existence of a perfected contract of sale o E: if direct testimonies of witnesses were presented in affidavit form where prompt objection to the inadmissible evidence is hardly possible 2. ACCEPTANCE OF BENEFITS • Acceptance of benefits under the contract 3 MODES OF SATISFACTION IOF THE STATUTE OF FRAUDS IN WHICH CONTRACT OF SALES OF GOODS WITHIN ITS TERMS MAY BE BINDING 1. The giving of a memorandum 2. Acceptance and receipt of part of the goods sold and actual receipt of the same 3. Payment or acceptance at the time some part of the purchase price THE SF APPLIES NOT ONLY TO GOODS BUT TO THINGS IN ACTION AS WELL • Example: assignment of credit at a price not less than P500 STATUTE OF FRAUD APPLICABLE ONLY TO EXECUTORY CONTRACTS • Applicable only to executor contracts and not to contracts which are totally consummated or partially performed • Executory contract – where no performance (delivery and payment) has as yet been made by both parties

 

 

 

 

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Reason for the rule: o Partial performance like the writing, furnishes reliable evidence of the intention of the parties or the existence of the contract Circumstances indicating partial performance o Relinquishment of rights o Continued possession by a purchaser who is already in possession o Building of improvements o Tender of payment o Rendition of services o Payment of taxes o Surveying of the land at the vendee’s expense o Where there is partial performance of a parol contract of sale of realty, the principle excluding evidence of such contract does not apply Contracts not to be performed within 1 year o To be taken out of the SF, all that is required if complete performance within the year by one party ! there should be nothing left to be than but the payment of the consideration for the performance

SALE OF REAL PROPERTY • A sale of a piece of land or interest therein when made thru an agent is ! VOID o E: If the agent’s authority be in writing rd • To be effective against 3 persons ! sale must be registered in the RD of the province or city where the property is located + public document o Registration = X mode of acquiring ownership o Actual notice = registration • Sale of land in private instrument is valid between the contracting parties • Deed of sale X need to be notarized, sufficient that it is in writing LEGAL RECOGNITION OF ELECTRONIC DATA MESSAGES AND ELECTRONIC DOCUMENT - RA 8792 – ELECTRONIC COMMERCE ACT 1. VALIDITY AND ENFORCEABILITY • Electronic date messages or electronic documents shall have the legal effect, validity or enforceability as any other document or legal writing 2. INCORPORATION BY REFERENCE • Information shall not be denied validity or enforceability solely on the ground that it is not contained in the electronic data message or electronic document but is merely incorporated by reference therein 3. WRITING • An electronic document or electronic data message shall be sufficient if it: 1. Maintains its integrity and reliability 2. TESTS: Can be authenticated so as to be usable for subsequent reference - Integrity - It has remained complete and unaltered - Reliability - Reliable in light of the purpose for which it was generated and in light of relevant circumstances 4. ORIGINAL

 

DE LEON SALES REVIEWER

 

When the law requires that a document be presented or retained in its original form, that requirement is met by an ED or EDM if: 1. Reliable assurance of integrity of ED or EDM from the time it was first generated in its final form and such is shown by evidence aliunde (evidence other than EDM itself) ! see tests above 2. ED OR EDM is capable of being displayed to the person to whom it is to be presented SOLEMN CONTRACTS • X apply when the law required that contract be in some form in order that it may be valid and enforceable, or that a contract is proved in a certain way ! requirement is absolute and indispensible •

5.

LEGAL RECOGNITION OF ELECTRONIC SIGNATURES • An electronic signature relating to an ED or EDM shall be equivalent to the signature of a person on a written document if the signature COMMUNICATION OF ELECTRONIC DATA MESSAGES AND ELECTRONIC DOCUMENTS 1. FORMULATION AND VALIDITY OF ELECTRONIC CONTRACTS o Offer, acceptance of an offer and other such elements required under existing laws for the formation and perfection of contracts may be expressed thru EDM ! Valid (except as otherwise agreed by the parties 2. CONSUMMATION OF ELECTRONIC TRANSACTION WITH BANKS o Transactions made throught networking among bank is deemed consummated upon the actual dispensing of cash or the debit of one account and the corresponding credit to another o Applies to ATM switching network 3. RECOGNITION BY PARTIES OF EDM o A declaration of will or other statement shall not be denied legal effect, validity or enforceability on the ground that it is in the form of an EDM or ED

ART. 1484. In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise any of the following remedies: (1) Exact fulfillment of the obligation, should the vendee fail to pay (2) Cancel the sale, should the vendee’s failure to pay cover two or more installments (3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee’s failure to covert 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 contrary shall be void. REMEDIES OF VENDOR IN A SALE OF PERSONAL PROPERTY PAYABLE IN INSTALLMENTS 19         © Michelle Duguil,

1. 2. 3.

Exact fulfillment of the obligation, should the vendee fail to pay Cancel the sale, should the vendee’s failure to pay cover two or more installments Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee’s failure to covert 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 contrary shall be void.

If the mortgagor unjustifiable refused to surrender the chattel or if he concealed the chattel to place it beyond the reach of the mortgagee ! expenses incurred for prosecution of the case such as atty’s fees ! could be rightly awarded FORECLOSURE • Foreclosure by the usual methods including sale of thing at public auction •

4.

REMEDIES ALTERNATIVE • X cumulative • Election of one is a waiver of the right to resort to other remedies • Alternative remedies as distinguished from alternative obligations o In alternative obligations – mere choice communicated by the person entitled to exercise the option concludes the parties " E: if the chosen alternative proves to be ineffectual or unavailing due to no fault on his part o In alternative remedies – choice generally becomes conclusive only upon the EXERCISE of the remedy APPLICABILITY OF ART 1484 • The contract of sale of personal property • Payable in installment • And there has been a failure to pay 2 or more installments • X apply to sale of personal property not payable in installments • X apply to sale of personal property on straight term or partly in cash and partly in term • X apply to sale of immovable property nor to real estate mortgage • X apply to contracts to sell MEANING OF CERTAIN TERMS AS USED IN ART 1484 1. EXERCISE • Desistance of plaintiff on its own initiative from proceeding with the auction sale without gaining any advantage or benefit and without causing disadvantage or harm to the defendant-mortgagor ! X considered exercise of remedy of foreclosure ! incomplete implementation ! X barred from suing the unpaid account 2. ACTION • Refers to any judicial or extra-judicial proceeding by virtue of which the vendor may be lawfully enabled to exact recovery of the supposed unsatisfied balance of the purchase price from the purchaser or his privy 3. ANY UNPAID BALANCE • Deficiency judgment which the mortgagee may be entitled, where after the mortgaged chattel is sold at public auction, the proceeds obtained therefrom are insufficient to cover the full amount of the secured obligation • Includes principal, atty’s fees, expenses of collection and costs

 

DE LEON SALES REVIEWER

 

 

 

 

 

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WHEN AVAILABLE RECOVERY OF PURCHASE PRICE

SPECIFIC PERFORMANCE Where there is a contract of sale of personal property + the price thereof which is payable in installments + and the purchaser fails to pay Seller is entitled to ✓RECOVERY of any unpaid balance of the price • If the proceeds of the sale were not enough ! the vendor may cause an alias writ of execution to be issued on other properties of the vendor • If vendor chose SP and X exercise remedy of foreclosure mortgage over the thing sold ! the attachment and subsequent sale of the thing sold = X foreclosure mortgage ! vendor can recover from the purchaser the unpaid balance of the price on real and personal property of the purchaser not exempt by law from attachment or execution

CANCELLATION Vendor may cancel the sale should the vendee’s failure to pay cover 2 or more installments Seller X recover any unpaid balance of the price

-

Buyer may demand only RETURN of payments already made • E: there is a stipulation about forfeiture and the stipulation is not unconscionable under the circumstances Ex. Seller repossessed the car after buyer failed to redeem it within the agreed 15 days period by paying the purchase price

RETURN OF PURCHASE PRICE

EXERCISE REMEDY

OF

If specific performance is chosen ! vendor waives other remedies

FORECLOSURE The vendor may foreclose any CM constituted on the thing sold should the vendee’s failure to pay cover 2 or more installments Seller X recover any unpaid balance remaining after the foreclosure and actual sale of the mortgages chattel - any agreement to the contrary = void BUT ✓ recover amounts not part of the unpaid balance (ex. Expenses of suit incurred by the prosecution for the action of replevin so that he can regain possession of the chattel because mortgagor has (1) concealed, (2) unjustifiably refused to surrender, or (3) repossession expenses) Purpose of PROHIBITION AGAINST RECOVERY OF UNPAID BALANCE • Remedy the abuses committed in connection with the foreclosure of CM • Prevents mortgagees from seizing the mortgaged property, buying it ay a foreclosure sale for a low price and bringing a suit against the mortgagor for deficiency judgment • Mortgagee is limited to the property included in the mortgage • Seller-mortgagor has no more cause of action against the purchaser or his guarantor Seller is not obliged to return to the vendee the amount of installments already paid

This means foreclosure by the usual methods including: • Sale of the thing at a public auction • Actual sale in accordance with CM law • Pactum commisorium – taking of the chattel without proceeding to the sale of the same at public auction but instead, appropriating the same in payment of the buyers indebtedness, is not lawful X considered exercising foreclosure if: • If seller merely informed of foreclosure but desisted • Mere demand for surrender of thing sold but no foreclosure • Action for replevin • Action chosen is specific performance and mortgaged property is subsequently attached and sold by virtue of an execution • Seller given possession by the buyer but did not foreclose • Seller filed petition for extra-judicial foreclosure

 

DE LEON SALES REVIEWER

 

 

 

 

 

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and obtained possession but did not foreclose Thing not sold at public auction as it was released by sheriff and sale was not rescinded by the seller • Ordinary discounting transactions - where there rd is precise stipulation that 3 person has a right of recourse against the seller should the buyer fail to pay the assigned credit in full = ✓demand payment of unpaid balance If the seller exercised the remedy of foreclosing the CM on thing sold ! vendor X run after other securities given rd by the purchaser or any 3 person in order to recover the unpaid balance of the price •

RECOURSE AGAINST OTHER SECURITY GIVEN TO SECURE PURCHASE PRICE

Notes: •

•

•

 

DE LEON SALES REVIEWER

 

 

 

If this is allowed this is considered circumvention of the law since it is the seller who will still be ultimately liable If he chooses to go after the additional securities instead of foreclosing thing sold ! deemed to waive right to foreclose thing sold Seller X allowed to proceed against any third party who may have guaranteed the vendee’s performance of his obligation

 

 

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SALE OR FINANCING OF REAL ESTATE ON INSTALLMENT PAYMENTS MACEDA LAW • RA 6552 • Governs the sale or financing of real estate on installments • Act applies to contract to sell or conditional sales and contract of sale, provided that the terms on payment of the price require at least 2 installments REAL ESTATE COVERED • Covers real estate including residential condominium apartments o EXCEPTIONS… Sale on installment of: 1. Industrial lots 2. Commercial buildings 3. Sales to tenants under the Code of Agrarian Reform ! In these cases, the act recognized the seller’s right unqualifiedly to cancel the sale upon default of the buyer PURPOSE OF THE LAW • Protect buyers of real estate on installment payment against onerous and oppressive conditions • Avoid “take it or leave it” basis • Protect buyers from one-sided and pernicious contract stipulations wherein sellers get to forfeit all the installment payments of defaulting buyers and resell the same lot to another buyer with the same exigent conditions ★ RIGHTS OF BUYERS Rights of the buyer depends on w/n the buyer has paid more than 2 years of installment 1. To pay without additional interest the unpaid installments due within the total grace period earned by him • 1 month grace period ! for every 1 year of installment paid • Right shall only be exercised by him only once in every 5 years of the life of the contract and its extension, if an 2. If the contract is cancelled ! refund of cash surrender value • 50% of the total payments made • After 5 years of installments ! additional 5% every year but not to exceed 90% of total payments made 3. In case of defaulting buyer who has paid less than 2 years of installment ! grace period of not less than 60 days from the date the installment became due • If he fails to pay the installment due at the expiration of the grace period ! seller may cancel the contract after 30 days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by notarial act • Here, buyer is not entitled to refund of cash surrender value 4. Buyer has right to sell his right or assign the same • Before actual cancellation of the contract

 

DE LEON SALES REVIEWER

 

5.

Pay in advance any unpaid installment anytime without interest and to have such full payment of the purchase price annotated in the Certificate of title covering the property

CANCELLATION OF SALE BY SELLER • Extrajudicial cancellation or one done outside of court • But cancellation must be done in conformity with the requirements therein prescribed: 1. Where the buyer has paid at least 2 installments • Actual cancellation shall take place after 30 days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by notarial act • And upon full payment of cash surrender value 2. Where the buyer has paid less than 2 years installments • Actual cancellation shall take place after 30 days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by notarial act • X entitled to cash surrender value REQUIREMENT OF NOTARIAL ACT • Both notice of cancellation and demand for rescission should be by notarial act • Demand letter – A mere notice or letter, short of a notarial act ! X suffice (ex. Letter written by vendor’s counsel) • Action for rescission – The vendor can go to court to demand judicial rescission in lieu of a notarial act for rescission • X NEED TO COMPLY WITH REQUIREMENT OF NOTARIAL ACT o File action for annulment of contract o Motion for execution o Ejectment case decision • X exempt him from complying with the requirement of notice of cancellation or demand for rescission by notarial act o An action for unlawful detainer o An action for reconveyance GRACE PERIOD • Section 3 & 4. Provide grace period for payment of the unpaid installments • Section 6. Additional grace period for the buyer as it allowed the buyer to “reinstate the contract by updating the account during the grace period and before actual cancellation of the contract” CALCULATION OF INSTALLMENTS • Down payments, deposits or options on the contract ! shall be included in the computation of the total number of installment payments made APPLICATION OF GENERAL PRINCIPLES OF EQUITY • X applicable now because of the enactment of RA 6552 • Legarda and Layug ruling no longer applicable

 

 

 

 

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•

Where there is an adequate remedy at law available to the parties, equity should not come into play

ART. 1485. The preceding article shall be applied to contracts purporting to be leases of personal property with option to buy, when the lessor has deprived the lessee of the possession or enjoyment of the thing LEASE OF PERSONAL PROPERTY WITH OPTION TO BUY 1. NATURE OF TRANSACTION • Sales of personalty payable in installments • Rules provided in Art 1484 are equally applicable 2. PURPOSE OF PROVISION • Prevent vendors from resorting to this form of contract which is usually is in reality a contract of sale of personal property payable in installments in contravention of the provisions of Art 1484 3. REPOSSESSION BY LESSOR NEED NOT BE THROUGH COURT ACTION • X required that deprivation of enjoyment of the property be brought through court action • May apply even if the lessee voluntarily delivers the property to the lessor if he does so in obedience to the demands of the lessor ART. 1486. In the cases referred to in the two preceding articles, a stipulation that the installments or rents paid shall not be returned to the vendee or lessee shall be valid insofar as the same may not be unconscionable under the circumstances STIPULATION AUTHORIZING THE FORFEITURE OF INSTALLMENTS OR RENTS PAID • ✓ VALID • In so far as the same may not be unconscionable under the circumstances • Otherwise, the court has the power to order the return of a portion of the total amount paid in installments or rents ART. 1487. The expenses for the execution and registration of the sale shall be borne by the vendor, unless there is a stipulation to the contrary EXPENSES FOR EXECUTION AND REGISTRATION • Seller has the duty not only to pay for the execution of the sale but also for the registration of the same o in the absence of any agreement between the parties to the contrary • Expenses incurred SUBSEQUENT TO THE TRANSFER OF TITLE ! borne by the BUYER o E: Unless cause by the fault of the seller ART. 1488. The expropriation of property for public use is governed by special laws.

 

DE LEON SALES REVIEWER

 

EXPROPRIATION OF PROPERTY FOR PUBLIC USE • Procedure for the exercise of power of eminent domain = Rule 67 of ROC • Expropriation must be decreed by competent authority and for public use and always upon payment of just compensation CHAPTER 2 CAPACITY TO BUY OR SELL 1489. All persons who are authorized in this Code to obligate themselves, may enter into a contract of sale, saving the modifications contained the in the following articles. Where necessaries are sold and delivered to a minor or other persons without capacity to act, he must pay reasonable price therefor. Necessaries are those referred to in Art. 290. PERSONS WHO MAY ENTER INTO A CONTRACT • All persons, natural or juridical, who can bind themselves also have legal capacity to buy and sell o E: Those cases when the law determines that a party suffers from either absolute or relative incapacity KINDS OF INCAPACITY • Absolute – persons who cannot bind themselves • Relative – exist only with reference to certain persons or certain class of property (Art. 1490 – 1491) • There are no incapacities except those provided by law ! such incapacities cannot be extended to other cases by implication for the reason that such construction would be in conflict with the very nature of Art. 1489 SALE BY MINORS AND OTHER INCAPACITATED PERSONS • Art. 1327. The following cannot give consent to a contract o Unemancipated minors o Insane or demented persons o Deaf-mutes who do not know how to read and write • The contracted entered into by them are VOIDABLE ! binding unless annulled by competent authority • Contract entered into by insane person during lucid interval ! valid • When the defect of the contract consists in the incapacity of one of the parties ! the incapacitated person is NOT obliged to make restitution o E: insofar as he has BENEFITED by the thing or price received by him • Necessaries – those things which are needed for sustenance, dwelling, clothing, medical attendance, education and transportation according to the financial capacity of the family of the incapacitated person

 

 

 

 

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Necessaries sold and delivered to a minor (without intervention of the parents or guardian) ! minor must pay reasonable price therefore o Minor has right to recover only excess above a reasonable value paid by him Estoppel – sale of real estate effected by minors who have already passed the ages of puberty and adolescence and are now in adult age, when they pretend to have already reached majority, while in fact they have not ! VALID ! X permitted afterwards to excuse themselves from compliance with the obligations assumed by them or to seek their annulment Parents of the minor will have capacity to give consent to sale of property owned by the minor Sale by parents of property owned by their minor child requires court authority and approval A person becomes emancipated when he reaches age of majority (18) ! terminates parental authority o

•

• • •

1490. The husband and wife cannot sell property to each other, except: (1) When separation of property was agreed upon in the marriage settlements; or (2) When there has been judicial separation of property under article 191 (135 now) RELATIVE INCAPACITY OF HUSBAND AND WIFE • GR: H&W are prohibited from selling property to each other o EXCEPTIONS: 1. Separation of property in marriage settlement 2. Judicial separation of property decreed by the court • GR: Donation between husband and wife = X allowed o E: Moderate Gifts on the occasion of family rejoicing • Prohibition to sell or donate applies to common law relationships o Void because it is contrary to morals and public policy PROPERTY COVERED • In a system of ACP o Both community property o Property belonging to each spouses • In a system of CPG o CP property o Exclusive properties of spouses • In regime of separation of property o X covered by prohibition if separation whether total or partial** o Free to sell to each other both separate property and property owned in common REASON FOR PROIBITION • It would destroy the system of CPG

 

DE LEON SALES REVIEWER

 

Prevent exercise of undue influence by one spouse over the other Protect institution of marriage rd Protection of 3 person who, relying upon supposed property of either spouse enters into a contract with either of them only to find out that the property relied upon was transferred to the other spouse • Presumption is that property acquired during the marriage is conjugal STATUS OF CONTRACT • VOID AB INITIO • • •

PERSONS PERMITTED TO QUESTION SALE 1. Persons who bear such relation to the parties making the transfer or to the property itself that such transfer interferes with their rights or interests 2. Heirs of either spouse 3. Creditors at the time of the transfer 4. Government in matters involving taxable transactions ART. 1491. The following persons cannot acquire by purchase, even at a public or judicial auction, either in person or through the mediation of another: (1) The guardian ! the property of the person or persons who may be under his guardianship (2) Agents ! the property of the person who may be under his guardianship • Unless the consent of the principal have been given (3) Executors and administrators ! the property of the estate under administration (4) Public officers and employees ! the property of the State or 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 (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 litigation in which they may take part by virtue of their possession INCAPACITY BY REASON OF RELATION TO PROPERTY • By reason of the relation of trust with the persons under their charge or their peculiar control over the property ! prohibited from acquiring said property, directly or indirectly • WHO: 1. Guardians 2. Agents 3. Executors and Administrators

 

 

 

 

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4. Public officers and employees 5. Judicial officers, employees, and lawyers 6. Others especially disqualified by law Persons disqualified to buy referred to in Art 1490 and 1491 ! also disqualified to become lessees of the things mentioned theron

PROHIBITION WITH RESPECT TO PUBLIC OFFICIALS AND EMPLOYEES • Refers to properties: 1. Belonging to the state or any subdivision, GOCC or institution 2. Administration of which has been entrusted to the public official or employee • Includes judges and government experts who in any manner take part in the sale

REASON FOR PROHIBITIONS • Public policy • Fiduciary relationship involved or the peculiar control over the properties by the parties • Prevents fraud and minimize temptations to exercise undue and improper influence • Article is interpreted restrictively

PROHIBITION WITH RESPECT TO JDUGES, ETC. AND LAWYERS • SALE OR ASSIGNMENTS COVERED o Sale or assignment of property which are the subject of litigation to the person disqualified therein o Sale or assignment must take place during the pendency of the litigation involving the property • WHEN PROPERTY CONSIDERED “IN LITIGATION” o It is not required that some contest or litigation ober the property have been tried by the judge o In litigation from the moment it became subject to judicial action of the judge who afterwards purchased it o X apply if decision is already final and afterward purchased by the judge o X allowed ! property mortgaged to lawyer by client subsequently acquired by the lawyer in foreclosure sale after the termination of the case • A lawyer who violated this prohibition may be reprimanded, suspended, or disbarred o X GF defense • Lawyer who is member of the firm involved ! X allowed also • CASES X COVERED: 1. Sale of the property of the client effected before it became involved in the action 2. Assignment of the amount of judgment made by a person to his attorney in payment of professional services 3. Sale of a parcel of land, acquired by a client to satisfy a judgment in his favor, to his attorney as long as the property was not the subject of litigation 4. Lawyer X prohibited from charging a contingent fee based on a certain percentage of the value of the property in litigation ! payment is made only after judgement

•

COVERAGE OF THE PROHIBITION 1. X purchase even at a judicial or public auction 2. Covers a sale to the disqualified person as well as sale done through the mediation of another PROHIBITION WITH RESPECT TO GUARDIANS • Presumption of fraud - when the sale was entered into while the property is still under the control of the guardian and until accounts have been finally settled PROHIBITION WITH RESPECT TO AGENTS • Agent and principal form one juridical person • Fiduciary relationship • Prohibition is not absolute • GR: Agents x allowed to acquire the property of the person who may be under his guardianship o EXCEPTIONS: 1. After the termination of the agency or other properties different from those he has been empowered to sell 2. Principal gives his full consent thereto with full knowledge of every detail known to the agent which might affect the transaction 3. Where the sale of the property in dispute was made under a special power inserted in or attached to the real estate mortgage in extra-judicial foreclosure of real estate mortgage PROHIBITION WITH RESPECT TO EXECUTORS AND ADMINISTRATORS • Refers only to properties under the administration of the executor or administrator at the time of the acquisition • X extend to property not falling within this class • X apply to purchase by an executor of hereditary rights even in those cases in which the executor administers the property pertaining to the estate

 

DE LEON SALES REVIEWER

 

OTHER PERSONS ESPECIALLY DISQUALIFIED 1. Aliens who are disqualified to purchase private agri lands 2. Unpaid seller having a right of lien or having estopped the goods in transitu, who is prohibited from buying the goods either directly or indirectly in the resale of the same at a public or private sale which he may make 3. Officer conducting the execution sale or his deputies cannot become a purchaser, or be interested directly or indirectly in any purchase at an execution sale

 

 

 

 

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EFFECT OF VIOLATION OF PROHIBITION 1. Nos. 1 to 3 = VOIDABLE a. Only private interests are affected b. Can be ratified by the seller • Ratified by means of a new contract • Cause of nullity which have ceased to exist cannot impair the validity of the new contract • Ratification or second contract could then be valid from its execution ! BUT it does not retroact to the date of the first contract 2. Nos. 4 to 6 = VOID a. Public interest b. Definite and perfected and cannot be ratified

•

Applies to sale of specific thing

1493 LOSS OR INJURY OCCURRED BEFORE OR AT THE TIME THE CONTRACT IS PERFECTED

RULES: EXTENT OF LOSS THING ENTIRELY LOST

ART. 1492. The prohibitions in the two preceding articles are applicable to sales by virtue of legal redemption, compromises, and renunciations THING ONLY PARTIALLY LOST

PROHIBITION EXTENDS TO SALES IN RCR COMPROMISE • Contract whereby the parties, by reciprocal concessions, avoid a litigation or put an end to one already commenced • Amicable settlement of a controversy RENUNCIATION • Creditor gratuitously abandons his right against his creditor • Condonation or remission Note: Persons disqualified to buy referred to in art 1490 and 1491 ! also disquaified to become lessees of the things mentioned therein CHAPTER 3 EFFECTS OF THE CONTRACT WHEN THE THING SOLD HAS BEEN LOST Art. 1493. If at the time the contract of sale is perfected, the thing which is the object of the contract has been entirely lost, the contract shall be without any effect. But if the thing should have been lost in part only, the vendee may choose between withdrawing from the contract and demanding the remaining part, paying its price in proportion to the total sum agreed. EFFECT OF LOSS OF THING AT THE TIME OF SALE • The loss or injury referred to in this article is on, which has taken place BEFORE OR AT THE TIME THE CONTRACT IS PERFECTED

 

DE LEON SALES REVIEWER

 

1480 & 1504 LOSS INJURY OCCURS AFTER THE CONTRACT IS PERFECTED BUT PRIOR TO THE TIME OF DELIVERY

EFFECT • Contract is inexistent and void because there is no object = no contract • No necessity for bringing an action for annulment • Owner bears the loss • Buyer may choose between: 1. Withdrawing from the contract 2. Demanding the remaining part, paying its proportionate part

WHEN A THING IS CONSIDERED LOST • Perishes or goes out of commerce • Disappears in such a way that its existence is unknown or it cannot be recovered • Perishes – material deterioration or complete change in the nature of the thing in such a manner that it loses its former utility taking into consideration the time the contract was entered into ART. 1494. Where the parties purport a sale of specific goods, and the goods, without the knowledge of the seller have perished in part or have wholly or in a material part so deteriorated in quality as to be substantially changed in character, the buyer may at his option treat the sale as: (1) Avoided (2) as valid in all of the existing goods or in so much thereof as have not deteriorated, and as binding the buyer to pay the agreed price for the goods in which the ownership will pass, if the sale was divisible EFFECT OF LOSS IN CASE OF SPECIFIC GOOD • Applies to sale of goods • Specific goods – goods identified and agreed upon at the time a contract of sale was made • Remedies: 1. Avoided/ withdraw from the contract 2. Demanding the remaining part, paying its proportionate part a. Applies only if contract is divisible

 

 

 

 

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• •

Sale divisible – A sale is divisible when its consideration is made up of several parts Sale indivisible – When the consideration is entire and single o If the sale is indivisible, what price is the buyer to pay for the remaining goods if he elects to continue with the sale? " Buyer should be made to pay only the proportionate price of the remaining goods. The object thereof may be considered as a specific thing CHAPTER 4 OBLIGATIONS OF THE VENDOR SECTION 1. GENERAL PROVISIONS

ART. 1495. The vendor is bound to transfer the ownership of and deliver, as well as warrant the thing which is the object of the sale PRINCIPAL OBLIGATIONS OF THE VENDOR 1. Transfer the ownership of the determinate thing sold 2. Deliver the thing, with its accessions and accessories, if any, in the condition in which they were upon the perfection of the contract 3. Warrant against eviction and against hidden defects 4. Take care of the thing, pending delivery, with proper diligence 5. To pay for the expense of the deed of sale, unless there is a stipulation to the contrary BUSMENTE NOTE: Obligation 4 & 5 are may be waived OBLIGATION TO TRANSFER OWNERSHIP AND DELIVER 1. PRIMARY OBLIGATION OF THE SELLER AFTER THE PERFECTION OF THE CONTRACT OF SALE • Obligation is also right – with the delivery, the seller will be entitled to collect purchase price and free himself from the obligation to take care of the thing sold • With the seller’s right to deliver is the corresponding obligation of the buyer to accept delivery • When property belonging to a person is unlawfully taken by another ! the person unlawfully deprived has the right of action against the unlawful taker for the recovery of the property o Right may be transferred by the sale or assignment of property and the transferee can maintain an action against the wrongdoer 2. OWNERSHIP BY THE VENDOR AT THE TIME OF PERFECTION OF A CONTRACT X ESSENTIAL • It is sufficient that he has a “right to transfer the ownership thereof at the time it is delivered” 3. TRANSFER X ESSENTIAL TO PERFECTION OF CONTRACT

 

DE LEON SALES REVIEWER

 

GR: transfer of ownership and deliver of the thing sold are not essential to the perfection of the contract o E: If the seller does not deliver at the time stipulated ! the buyer may ask for the RESCISSION of the contract or the FULFILLMENT with right to DAMAGES in either case 4. NO OBLIGATION TO MAKE DELIVERY DURING PERIOD OF REDEMPTION • Purchaser in execution sales is not entitled to immediate possession of the property sold • The debtor is not obliged to make delivery during the period of redemption since the conveyance of land is accomplished by the deed which is issued only AFTER THE REDEMPTION PERIOD HAS EXPIRED o Extra-judicial foreclosure sale - Mortgagor may redeem property sold within 1 year from the date of registration of the sale o Judicial foreclosure of real estate mortgage – Mortgagor cannot exercise his right of redemption after the sale is confirmed by the court 4. RIGHT OF THE VENDEE TO TRANSFER CERTIFICATE OF TITLE • The buyer has a right to receive and the seller has the obligation to transfer to the buyer: 1. Possession and employment of the land 2. Certificate of title 5. RIGHT OF BUYER TO RECOVER THE PRICE PAID • The purchaser is entitled to recover the money paid by him where the contract is set aside by reason of the mutual mistake of the parties as to the identity or quantity of the land sold • He is also entitled to interest on the money paid from the time of payment •

OBLIGATION TO TAKE CARE OF, PRESERVE THE THING • Seller is obliged to take care of the property with diligence of a good father of a family o UNLESS the law or stipulation of the parties require another standard of care • Seller 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 • Seller is obligated not to transform, alter or alienate the thing sold • He can be made responsible for damage or injury to the thing as a result of fault, fraud, or negligence on his part during the time between the perfection of the contract and delivery to the buyer 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 specific in Art. 1497 to 1501, or in any other manner signifying an agreement that the possession is transferred from the vendor to the vendee. WAYS OF EFFECTING DELIVERY • Ownership of the thing sold shall be transferred to the vendee UPON THE DELIVERY thereof which may be effected in the following ways: 1. Actual or real delivery 2. Constructive or legal delivery

 

 

 

 

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3. • • •

Delivery in any other manner signifying an agreement that the possession is transferred to the vendee Critical factor: Actual intention of the vendor to deliver, and its acceptance by the vendee (Actual intention to deliver + delivery = tradition) Transfer of ownership by mere consent is not admitted The delivery must be made to the seller or his authorized representative o Where no name is indicated on behalf of buyer ! seller must deliver to buyer exclusively

2. 3.

WAYS OF EFFECTING CONSTRUCTIVE DELIVERY • Constructive delivery is equivalent to actual delivery • Effected in any of the following ways: 1. Execution of a public instrument 2. Symbolical tradition or tradition symbolica 3. Traditio longa manu 4. Traditio brevi manu 5. Traditio constitutum possessorium 6. Quasi-delivery or quasi-traditio • Contrary may be stipulated o The parties may however stipulate that ownership shall pass to the buyer only after he has fully paid the price – contract to sell or fulfilled certain conditions • In the contract of absolute sale – ownership is transferred simultaneously with the delivery of the thing sold SECTION 2. DELIVERY OF THE THING SOLD ART. 1497. The thing sold shall be understood as delivered, when it is placed in the control and possession of the vendee CONCEPT OF TRADITION OR DELIVERY • Tradition is a derivative mode of acquiring ownership by virtue of which one has the right to alienate a corporeal right, transmits it by virtue of a just title to one who accepts the same • Original acquisition – one which applied to things which has been abandoned, res nullius • Derivative acquisition – arose when a person entered into the right of property which has pre-existed in another EQUATORIAL REALTY DEVELOPMENT INC VS MAYFAIR THEATRE IMPORTANCE OF TRADITION 1. TRANSFER OF OWNERSHIP • GR: Delivery is needed to transfer ownership

 

DE LEON SALES REVIEWER

 

E: Art. 1499 – delivery of movable property made by mere or consent or agreement is the thing sold cannot be transferred to the possession of the vendee at the time of sale • Delivery (actual or constructive) + intention to delivery + acceptance by the buyer = transfer of ownership • X transfer of ownership when buyer when he steals it ENJOYMENT OF THE THING SOLD • Delivery is necessary to enable the buyer to enjoy and make use of the property purchased LIABILITY IN CASE OF LOSS • When the thing subject of purchase is placed in the control and possession of the buyer or his agent ! the delivery is complete ! seller can avoid liability in case the thing is subsequently lost without the fault of the seller RIGHT OF VENDOR TO CLAIM PAYMENT • The seller has the right to claim payment of the price • Where the buyer has not become the owner for lack of delivery ! action is for specific performance or rescission + damages (both) DELIVERY AND NON-PAYMENT OF PRICE • Ownership shall pass to from the seller to the buyer upon actual or constructive delivery if the thing sold even if the purchase price has not yet been fully paid o UNLESS there is a stipulation that ownership will not pass until price is fully paid CONSUMMATION OF CONTRACT • Delivery of the thing + payment of the price = consummation of contract of sale • Perfection of the contract when the moment there is meeting of minds between the parties o

4.

5.

6.

ACTUAL DELIVERY OF THE THING SOLD 1. WHEN DEEMED MADE • When the thing sold is placed in the CONTROL and POSSESSION of the buyer and his agent • Involves physical delivery which is usually done by the passing of a movable thing from hand to hand 2. NOT ALWAYS ESSENTIAL TO PASSING TITLE • Actual or manual delivery of an article sold is not always essential to the passing of title thereto • Parties to a contract may agree as to when and on what conditions the ownership of the subject of the contract shall pass to the buyer PROOF OF DELIVERY • Generally evidenced by a written acknowledgement of a person that he or she has actually receive the thing or the goods (e.g. delivery receipts) • X bill of lading proof of delivery o Bill of lading - is evidence of the receipt by the carrier of the goods from the shipper for transportation and delivery • X factory consignment invoice

 

 

 

 

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o

An invoice - is nothing more than a detailed statement of the nature, quantity and cost of the thing sold

ART. 1498. When the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot be clearly inferred. With regard to movable property, its delivery may also be made by the delivery of the keys of the place or depository where it is made. EXECUTION OF PUBLIC INSTRUMENT OR DOCUMENT 1. DELIVERY MADE TO BUYER BY NOTARIZED DEED OF CONVEYANCE • Public instrument – an instrument or document attested to and certified by a public officer authorized to administer oath, such as a notary public • Execution of public instrument applies to both MOVABLE and IMMOVABLE property • Symbolic • Buyer may use document as proof of his ownership • Possession + ownership + incorporeal rights (right to eject tenants and squatters) ! transferred to buyer by virtue of notarized deed of sale • An agreement analogous to a deed of sale made through a public instrument ! execution is equivalent to transfer of ownership • Prior physical possession or delivery is not required 2. NO DELIVERY • If it appears from the document or it can be inferred therefrom that it was NOT THE INTENTION of the parties to make delivery ! no tradition 3. DELIVERY PRESUMPTIVE ONLY • The execution of a public document ! prima facie presumption of delivery • The presumption can be rebutted by means of clear and convincing evidence • Presumption is negated ! by failure of the buyer to take actual or material possession of the land sold 4. SALE OF THING NOT SUBJECT TO CONTROL OF VENDOR • There will be no delivery if the seller does not have control and possession over the property sold • Principle: the seller cannot give more than what he has and the seller cannot place the buyer in possession of a thing that is not in the possession of the seller • Essential that at the moment of sale, the material delivery could have been made • 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 is sufficient

 

DE LEON SALES REVIEWER

 

If in spite of execution of instrument, the buyer cannot take control or possession of the object sold because the object is enjoyed or opposed by another person ! X delivery (fiction yields to reality) o Ex. No constructive delivery if the parcel of land was occupied by a person claiming to be its owner • The continuous possession by the seller of the property sold ! makes dubious the contract of sale between the parties • EXCEPTION: o If the sale has been made under the express agreement of imposing upon the vendee the obligation to take necessary steps to obtain the material possession of the thing sold and if proven that he knew that the thing was in possession of a third person claiming to have property rights thereon ! agreement is valid (Addison vs. Felix) o If the buyer was prepared to accept delivery not withstanding rd the presence of 3 party occupants, such as when the buyer’s counsel during the sales negotiation undertook the necessary job of ejecting the occupants and buyer actually filed suit to eject occupants (Power commercial & industrial corp vs. CA) o Equatorial and realty development inc. vs Mayfair Theatre inc SALE OF REGISTERED LAND • Modified by provisions of the Property Registration Decree • Registration in RD + Transfer of the certificate of title in the name of the buyer = necessary only to bind third parties to the transfer of ownership • As between the seller and the buyer ! transfer of ownership takes effect upon the execution of a public instrument conveying the real estate • Such registration or issuance of CT is not a mode of acquiring ownership POSSESSION OF A PART AS CONSTRUCTIVE POSSESSION OF WHOLE • Purchaser who took actual possession of the considerable portion of the land sold by the exercise of possessory acts of clearing the area of trees and of cultivating the same through tenants ! such possession and cultivation if logically and legallt constructive possession of the whole •

5.

6.

SYMBOLIC TRADITION • Constructive delivery is symbolic ! when to effect the delivery, the parties make use of a token symbol to represent the thing delivered • Delivery of the key where the thing is stored or kept = delivery of thing • Delivery to buyer of delivery orders which would authorize him to withdraw the goods from the warehouse ! upon withdrawal, there is actual delivery ! consummated sale Art. 1499. The delivery of movable property may likewise be made by the mere consent or agreement of the contracting parties, if the thing sold cannot be

 

 

 

 

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transferred to the possession of the vendee at the time of the sale or if the latter already had it in his possession for any reason TRADITIO LONGA MANU • Long hand delivery • First part of 1499 • Delivery takes place by mere consent or agreement of the contracting parties as when the vendor MERELY POINTS the THING SOLD ! which shall thereafter be at the control and disposal of the buyer • QUALIFIED BY THE PHRASE: If the thing sold cannot be transferred to the possession of the vendee at the time of sale • Busmente: Remember car example of sir TRADITIO BREVI MANU • Short hand delivery • When the vendee has already the possession of the thing sold by virtue of another title as when the lessor sells the thing leases to the lessee • Instead of turning over the thing to the vendor so that the latter may, in turn, deliver it ! all these are considered done by action of law APPLICABILITY TO IMMOVABLE • 1499 expressly applies to movable • Traditio longa manu and tradition brevi manu MAY APPLY TO IMMOVABLE PROPERTY (?)

•

Example: Delivery to a person of a negotiable document of title in which it is stated that goods referred to therein will be delivered to the bearer amount to delivery of the goods to such person

INTENTION TO DELIVER AND TO ACCEPT A TRANSFER OF POSSESSION • Act of delivery+ intention to deliver • Ex. of no intention to deliver: o When keys are delivered to buyer only so that he can examine the subject property • Any act, although not provided for in the preceding articles, but accompanied by the evident intention of the vendor to deliver or of the buyer to receive the thing sold ! considered as tradition SUMMARY OF CONSTRUCTIVE DELIVERY DEFINITION Execution of public instrument

a

ART. 1500. There may also be tradition constitutum possessorium.

QUASI-TRADITIO • With respect to incorporeal things, delivery is effected through: 1. Execution of the public instrument 2. When that mode of delivery is not applicable, by the placing of the titles of ownership in the possession of the vendee, or 3. By allowing the vendee to use high rights as new owner with the consent of the owner

 

DE LEON SALES REVIEWER

 

IT

EXAMPLE

&

Delivery of negotiable document of title

E: If in spite of execution of instrument, the buyer cannot take control or possession of the object sold because the object is enjoyed or opposed by another person

TRADITIO CONSTITUTO POSSESSORIUM • Opposite of tradition brevi manu • Takes place when the seller continues in possession of the property sold not as owner but in some other capacity • Example: seller stays not as owner, but as tenant of the buyer • Instead of the seller delivering the thing to the vendee so that the latter, may in turn, deliver it back to the vendor ! the law considers that all these have taken place by mere consent or agreement of the parties Art. 1501. With respect to incorporeal property, the provisions of the first paragraph of article 1498 shall govern. In any other case wherein said provisions are not applicable, the placing of the titles of ownership in the possession of the vendee or the use by the vendee of his rights, with the vendor’s consent, shall be understood as delivery

Public instrument – an instrument or document attested to and certified by a public officer authorized to administer oath, such as a notary public

WHEN APPLIES Movable immovable property

Symbolic tradition tradition symbolica

or

Traditio longa manu (long hand delivery)

 

When to effect the delivery, the parties make use of a token symbol to represent the thing delivered Delivery takes place by mere consent or agreement of the contracting parties as when the vendor MERELY POINTS the THING SOLD ! which shall thereafter be at

 

 

 

Movable property

Key

Movable property

Car

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the control and disposal of the buyer

ART. 1502. When the goods are delivered to the buyer “on sale or return” to give the buyer an option to return the goods instead of paying the price, the ownership passed to the buyer on delivery, but he may revest the ownership in the seller by returning or tendering the goods within the time fixed by the contract, or if no time has been fixed, within reasonable time.

QUALIFIED BY: If the thing sold cannot be transferred to the possession of the vendee at the time of sale Traditio brevi manu (short hand delivery)

When the vendee has already the possession of the thing sold by virtue of another title as when the lessor sells the thing leases to the lessee

When the goods are delivered to the buyer on approval or on trial or on satisfaction, or other similar terms, the ownership therein passes to the buyer: Movable property (express prov) *immovable property

Traditio constitutum possessorium

Takes place when the seller continues in possession of the property sold not as owner but in some other capacity

Movable immovable property

Quasi-delivery or quasi- traditio

With respect to incorporeal things, delivery is effected through: 1. Execution of the public instrument 2. When that mode of delivery is not applicable, by the placing of the titles of ownership in the possession of the vendee, or 3. By allowing the vendee to use high rights as new owner with the consent of the owner

Incorporeal rights

 

DE LEON SALES REVIEWER

 

&

When the vendee has already the possession of the thing sold by virtue of another title as when the lessor sells the thing leases to the lessee Seller stays not as owner, but as tenant of seller

Delivery of negotiable document of title

(1) When he signifies his approval or acceptance to the seller or does any other act adopting the transaction; (2) If he does not signify his approval or acceptance to the seller, 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. What is reasonable time is a question of fact. CONTRACT OF SALE OR RETURN, AND OF SALE ON TRIAL OR APPRIVAL OR SATISFACTION 1. IN GENERAL • Buyer shall temporarily take the goods into his possession to see whether they are satisfactory to him • If they are not satisfactory to him ! he may refuse to become an owner • Question of fact in every case whether the parties intend to make approval a condition, without which the ownership shall not pass, or whether their intent is that the ownership shall pass at once with the right to return the goods • Reasonable time – determined upon the particular circumstance of the case • Duty of the buyer to return the goods in the same or substantially the same condition in which they were when the contract was made o If they are injured or damaged substantially through the negligence or misuse of the buyer ! X right to return = sale becomes absolute 2. SALE OR RETURN • A contract by which property is sold but the buyer, who becomes the owner of the property on delivery ! has the option to return the same to seller instead of paying the price • Option to purchase or return ! rests entirely on the buyer without reference to the quality of goods • Buyer may revest ownership in the seller by returning the goods within the time fixed in the contract o If no time has been fixed ! within reasonable time o Otherwise the sale becomes absolute and the buyer is liable for the price

 

 

 

 

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Loss or destruction of the goods prior to the exercise of right to return ! falls upon the buyer and renders him liable to the seller for the purchase price or such part thereof as remain unpaid • Return ! implies a previous transfer of title • Prior to expiration of the permitted period ! the buyer may indicate to the seller that the buyer is no longer returning the goods or the buyer may waiver his right to return the goods = absolute sale • If the buyer makes the return of goods impossible, such as when the buyer resells the goods to other person = absolute sale • If the buyer makes a proper tender of goods ! the seller cannot prevent the revesting of ownership by refusing to accept the return of the property ! seller becomes the owner of the property irrespective of his acceptance SALE ON TRIAL OR APPROVAL • It is a contract in the nature of an option to purchase if the goods prove satisfactory, the approval of the buyer being a condition precedent • Title shall continue in the seller until the sale has become absolute either by: o The buyer’s approval of the goods or by his failing to comply with the express or implied conditions of the contracts as to giving notice of dissatisfaction or o As to returning the goods or o By his doing of any other act adopting the transaction (e.g. mortgaging the property or selling the property to a third person • In a sale on approval where the contract fixes a trial period but does not fix a time for approval to be signified ! o Better view is that the buyer need NOT signify his approval or rejection within the trial period ! he may use the full period for trial and exercise his option of giving notice within a reasonable time from the end of the trial period • It devolves upon the buyer to give notice that he does not accept the goods o BUT it is possible for the parties to agree in regard to the matter they see first " Example: the contract ma provide that the seller must ascertain whether the buyer is satisfied • Risk of loss or injury to the article pending the exercise by the buyer of his option to purchase or return it ! seller o E: If the buyer is at fault in respect to the care and condition of the article or may have agreed to stand the loss • The buyer CANNOT accept part and reject the rest of the goods since this falls outside the normal intent of the parties

pay and ownership is extinguished

•

3.

SALE OR RETURN DISTINGUISHED FROM SALE ON TRIAL Condition imposed

 

ON SALE OR RETURN Subject to a resolutory condition – when the buyer returns, obligation to

DE LEON SALES REVIEWER

SALE ON TRIAL Suspensive condition – ownership passes to the

 

Dependent on Ownership

Risk loss

of

Depends entirely on the will of the buyer The ownership of the goods passes to the buyer on delivery and subsequent return of goods reverts ownership to seller Buyer

buyer upon performance of the abovementioned 2 actions Depends on the character or quality of the goods The ownership remains in the seller until the buyer signified his approval or acceptance to the seller Seller

Note: If the contract uses the phrase “FOR sale or return” ! intention may be to enter a contract of agency Art. 1503. Where there is a contract of sale of specific goods, the seller may, by the terms of the contract, reserve the right of possession or ownership in the goods until certain conditions have been fulfilled. The right of possession or ownership may thus be reserved notwithstanding the delivery of the goods to the buyer or to a carrier or other bailee for the purpose of transmission to the buyer. Where goods are shipped, and by the bill of lading the goods are deliverable to the seller of his agent, or to the order of the seller or of his agent, the seller thereby reserves the ownership in the goods. But if, except for the form of the bill of lading, the ownership would have passed to the buyer on the shipment of the goods, the seller’s property in the goods shall be deemed to be only for the purpose of securing performance by the buyer of his obligations under the contract. Where goods are shipped, and by the bill of lading the goods are deliverable to the order of the buyer or his agent, but possession of the bill of lading is retained by the seller or his agent, the seller thereby reserves a right to the possession of the goods as against the buyer. Where the seller of goods draws on the buyer for the price and transmits the bill of exchange and bill of lading together to the buyer to secure acceptance or payment of the bill of exchange, the buyer is bound to return the bill of lading if he does not honor the bill of exchange, and if he wrongfully retains the bill of lading he acquires no other right thereby. If, however, the bill of lading provides that the goods are deliverable to the buyer or to the order of the buyer by the consignee named therein, one who purchases in good faith, for value, the bill of lading, or goods from the buyer will obtain the ownership in the goods, although the bill of exchange has not been honored, provided that such purchaser has received delivery of the bill of lading indorsed by the consignee named therein, or of the goods, without notice of the facts making the transfer wrongful. WHEN OWNERSHIP IS NOT TRANSFERRED UPON DELIVERY

 

 

 

 

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• •

This article related to SALE OF SPECIFIC GOODS GR: The ownership in the goods sold passes to the buyer upon their delivery to the carrier o EXCEPTIONS: 1. If a contrary intention appears by the terms of the contract nd rd 2. In the cases provided in the 2 and 3 paragraphs of Art. 1523 st nd rd 3. In the cases provided in the 1 , 2 and 3 paragraphs of article 1503

TRANSFER OF OWNERSHIP WHERE GOODS SOLD DELIVERED TO THE CARRIER 1. GR: Delivery, be it only constructive, passes title in the thing sold and delivery to the carrier is deemed to be delivery to the buyer ! risk of loss falls upon the buyer • 1503 provides for rules on reservation of the right of ownership or possession when goods are shipped • The form of the bill of lading ! considered as showing the transfer or the retention of ownership in the goods as between the buyer and seller • If a seller consigns goods to another specified person ! indicated intention to deliver to the carries as bailee for the person named therein o If such shipment was authorized by that person as a buyer ! ownership vests in him o Same rule if after the goods have been shipped without a named consignee ! the carrier, at the consignor’s request agrees to deliver to a specified person 2. WHERE RIGHT OF POSSESION OR OWNERSHIP OF SPECIFIC GOODS SOLD RESERVED • If the seller directs the carrier to redeliver the goods at their destination to the seller himself or to his order ! indicated intention that carrier shall be bailee for the seller ! ownership remains in the seller • The seller, may by the terms of the contract ! reserve the right of possession or ownership in the goods until certain conditions are fulfilled 3. FORM NOT CONTROLLING • The form of the bill of lading will NOT necessarily pass ownership to the buyer simply because the buyer is named as the consignee • Example: if the shipper does not own the goods, or the authority from the seller to sell the goods ! ownership of the goods will X pass to the consignee by mere fact that the consignee’s name was inserted in the bill of lading • The shipper CANNOT transfer to a consignee ownership of goods o UNLESS the consignee assents to receive the said goods WHERE SELLER OR HIS AGENT IS CONSIGNEE 1. CARRIER BECOMES BAILEE FOR SELLER

 

DE LEON SALES REVIEWER

 

Where goods are shipped and by the bill of lading, the goods are deliverable to the seller or his agent or to the order order of the seller of his agent ! the seller thereby reserves the ownership in the goods and the carrier is a BAILEE FOR THE SELLER and not the buyer • GR: Principle is applicable even though the goods are shipped on the buyer’s vessel o Exceptions: ownership in the goods will be passed to the buyr ! if it appears to be the intention of the parties, as for instance (example: where the goods are shipped for the account and for the risk of the buyer) 2. RIGHTS OF SELLERS 1. The seller may retain the goods until the buyer performs his obligation under the contract 2. He may, even in violation of the contract, dispose of them to third persons o If he does this though ! he is liable for damages to the buyer ! but the second purchaser from the seller acquires a better right WHERE SELELR’S TITLE ONLY FOR PURPOSE OF SECURITY 1. FORM OF BILL OF LADING NOT CONCLUSIVE • GR: Form of bill of lading ! strong evidence of the intent of the seller to transfer or retention of ownership over the property o E: Not always conclusive ! whatever the form of the bill of lading, the parties can prove their actual intent 2. WHERE OWNERSHIP WOULD HAVE PASSED BUT FOR THE FORM OF BILL OF LADING • Were it not for the form of the bill of lading ! the ownership would have passed to the buyer or shipment of the goods • This is true when the object of the seller in reserving ownership is simply to secure himself in regard to the performance by the buyer of his obligation • The effect of naming himself as consignee in the bill of lading ! should not be greater than is necessary to effectuate the purpose of the parties o This purpose is to reserve the property for security only ! the same purpose that the seller of goods under a conditional sale has •

SIGNIFICANCE WHERE TITLE HELD MERELY AS SECURITY TITLE MERELY HELD AS SECURITY

Risk of loss

Buyer (beneficial owner) bears risk of loss from the time the goods are delivered to the carrier

 

 

 

 

ORDINARY CASE WHERE THE SELLER RETAINS OWNERSHIP Seller

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Right of action based on ownership

even though the legal title remains in the seller • Buyer has more than a mere contract right in regards to the goods • Buyer has as against anyone bring an action based on ownership on making tender of the price o E: Against innocent purchaser for value of the bill of lading from the consigne

WHERE BUYER OR HIS AGENT IS CONSIGNEE BUT SELLER RETAINS ORDER OF BILL OF LADING 1. RIGHT OF POSSESSION OF GOODS AS AGAINST BUYER • Where the goods are shipped and by the bill of lading the goods are deliverable to the order of the buyer or of his agent ! BUT the possession of the bill of lading is retained by the seller or his agent ! the seller retains a right to the possession of the goods as against the buyer 2. EFFECT OF RETENTION • Although the ownership in the goods will ordinarily pass to the buyer on delivery ! the buyer is unable to obtain the goods without the bill • Analogous to the retention of lien by the seller after the property has passed to the buyer • Last paragraph of 1503 ! applies to an order bill 3. HISTORY OF PROVISION • Bill of lading is a STRAIGHT BILL – it specifies a person as consignee without the use of the word, “order” • If the bill is a straight bill, the railway company is unquestionably fulfilling its contract ! in delivering the goods to the consignee so named ★ 3 DEVICES BY WHICH THE SELLER OF THE RETAINS A HOLD UPON GOODS BY MEANS OF LADING AFTER SELLER HAS SHIPPED THEM: 1. Consigning the goods to himself, either by an order bill or straight bill 2. Consigning the goods to the order of the buyer and retaining the possession of the bill of lading rd 3. Consigning the goods to a 3 person (usually a banker) requesting the latter to retain the bill of lading or goods until the payment of the price WHERE A THIRD PERSON WHO RETAINS THE BILL IS A CONSIGNEE rd • Consigning the goods to a 3 person (usually a banker) requesting the latter to retain the bill of lading or goods until the payment of the price • When the price is paid ! the consignee of the goods indorses the bill or delivers the goods to the buyer o Immaterial whether the bill is an order or straight bill " If it is an ORDER BILL – the carrier will NOT deliver the goods ! until the bill is surrendered ! and the buyer CANNOT get the goods so as to make the necessary surrender except from the holder (the consignee)

 

DE LEON SALES REVIEWER

 

Even if NOT AN ORDER BILL – the carrier, thought it may not require the surrender of the bill of lading ! will deliver only to the consignee " In BOTH CASES ! GR: buyer is unable to get the goods ! EXCEPT: by obtaining an order from the holder of the bill of lading Legal title vested in third persons rd " By naming a 3 person as consignee of the bill of lading rd ! the seller vests a legal title in the 3 person rd " Title is merely held for the benefit of the seller ! if the 3 person is the seller’s agent only and has not advanced the money of his own to the seller rd " Usually, 3 person = banker ! and by discounting a draft drawn on the buyer by paying or accepting a draft drawn on himself ! bank has acquired a personal interest in the goods ! interest is simply to secure payment of money advance or liabilities incurred "

?

o

WHERE BILL OF LADING SENT FORWARD WITH DRAFT ATTACHED 1. DELIVERY CONDITIONAL • Where the seller draws on the buyer for the price + transmits the bill of exchange + bill of lading ! to the buyer to secure acceptance or payment of the bill of exchange = title is regarded as RETAINED IN THE SELELR until the bill of exchange is paid or accepted • The fact that the bill of lading and a bill of exchange are attached together = indicates that the sellers intends to make delivery of the goods CONDITIONAL UPON THE PAYMENT OR ACCEPTANCE OF THE DRAFT 2. DUTY OF BUYER IF DRAFT NOT HONORED • If buyer does not honor the bill of exchange ! Buyer is bound to RETURN THE BILL OF LADING • If he wrongfully retains the bill of lading ! he acquired no additional right thereby o This is why when the bill of lading and bill of exchange are attached and sent ! it is usually sent not directly to the buyer (to a third person) ! so that buyer is unable to obtain the goods without paying the price EFFECT OF BUYER OBTAINING POSSESSION OF BILL OF LADING WITHOUT HONORING DRAFT 1. RETENTION OF OWNERSHIP OF GOODS IN SELLER • Usually happens when both the bill of lading and bill of exchange is sent to the buyer directly without intervention of a third person • GR: In any litigation under these circumstances ! the seller will prevail

 

 

 

 

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E: if the buyer wrongfully sells the bill of lading or obtains the goods and sells them ! a different question arises where the rd seller seeks to enforce his right against innocent 3 persons FORM OF BILL rd • The form of bill lading is material to the issue of whether the 3 person will obtain ownership of the goods: 1. If a seller has named the buyer as consignee ! the property has passed to the consignee or at least it seems to have been so to one who inspects the document 2. If the bill of lading, though naming the seller as the consignee, is indorsed by him to the buyer or in blank ! the possession of the document by the buyer gives him, if not the actual title, at least an apparent ownership 3. If the bill of lading names the seller or third person as consignee and no indorsement of the document has been made ! possession by the buyer would NOT indicate the buyer has title RIGHT OF INNOCENT THIRD PERSONS • A purchaser in GF for value of the bill of lading or goods from the buyer ! will obtain the OBTAIN OWNERSHIP OF THE GOODS although the bill of exchange has not been honored in the following cases: 1. If the bill of lading provides that the goods are deliverable to the buyer or to the order of the buyer 2. Indorsed in the blank 3. Indorsed to the buyer by the consignee named therein RATIONALE rd • Where the document gives the buyer APPARENT OWNERSHIP + 3 person purchases the goods relying thereon ! it seems clear on broad principles of justice that since one of the 2 innocent parties must suffer ! he should suffer who act has brought about the loss (seller) rd ! seller X allowed to recover goods from the 3 persons o

2.

3.

4.

**Consign – to give over to another’s care 1504. Unless otherwise agreed, the goods remain at the seller’s risk until the ownership therein is transferred to the buyer, but when the ownership therein is transferred to the buyer, the goods are at the buyer’s risk whether actual delivery has been made or not, except that: (1) Where delivery of the goods has been made to the buyer or a bailee for the buyer, in pursuance of the contract and the ownership in the goods has been retained by the seller merely to secure performance by the buyer of his obligation under the contract, ! the goods are at the BUYER’S RISK from the time of such delivery; (2) Where actual delivery has been delayed through the fault of either the buyer or seller the goods ! are at the RISK OF THE PARTY IN FAULT

 

DE LEON SALES REVIEWER

 

(SEE PAGE 15) 1505. Subject to the provisions of this title, where the 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 by is his conduct precluded from denying the seller’s authority. Nothing in this title, however, shall affect: (1) The provisions of any factors’ acts, 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 SALE BY A PERSON NOT THE OWNER • GR: Fundamental doctrine of law that no one can give what he has not or transfer a greater right to another than himself has ! person can sell only what he owns or is authorized to sell • A derivative right (contract of sell) cannot exist higher than its source • EXCEPTIONS: 1. Where the owner of the goods, is by his conduct, precluded from denying the seller authority to sell 2. Where the law enables the apparent owner to dispose of the goods as if he were the true owner thereof 3. Where the sale is sanctioned by statutory or judicial authority 4. Where the sale is made at merchant’s stores, fairs, or markets 5. Where the seller has a voidable title which has not be avoided at the time of sale (1506) 6. Where the seller subsequently acquires title WHERE THE OWNER OF THE GOODS, IS BY HIS CONDUCT, PRECLUDED FROM DENYING THE SELLER AUTHORITY TO SELL • Where the owner of the goods, is by his conduct, precluded from denying the seller authority to sell ! the buyer may acquire a valid title although the seller had neither title nor authority to transfer title • Based on estoppel o Essential that the party estopped shall have made a representation by words or acts and that someone shall have acted on the faith of this representation in such a way that he cannot without damage withdraw from the transaction WHERE THE LAW ENABLES THE APPARENT OWNER TO DISPOSE OF THE GOODS AS IF HE WERE THE TRUE OWNER THEREOF • Philippines has no such law as the Factor’s Act • Law referred to here must be found in the provisions of our CC on agency

 

 

 

 

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•

Example of recording laws: o Property registration decree o Land transportation and traffic code o Revised Admin Code – sale of large cattle and sale of vessels o Any other provision of law – Negotiable instruments law, Warehouse Receipts Law

WHERE THE SALE IS SANCTIONED BY STATUTORY OR JUDICIAL AUTHORITY • Ordinary execution sale – governed by Rule 39 of ROC • Judicial foreclosure sale – governed by rule 68 of ROC • Extrajudicial foreclosure sales of real estate mortgages – Act. No. 4118 • Sale by sheriff pursuant to court order = valid even if sheriff is not the owner and even if owner did not consent to or objects the sale of the property • Government X warrant the title to properties sold by the sheriff at a public auction or judicial sales WHERE THE SALE IS MADE AT MERCHANT’S STORES, FAIRS, OR MARKETS • Adopts the English principle of market overt • Goods sold in market overt cannot be reclaimed by the buyer even though the seller had no title, provided: o The buyer acts in GF o Without notice of any defect in the title WHERE THE SELLER HAS A VOIDABLE TITLE WHICH HAS NOT BE AVOIDED AT THE TIME OF SALE (1506) WHERE THE SELLER SUBSEQUENTLY ACQUIRES TITLE • When a person conveys property to another at the time he is not the owner ! his subsequent acquisition of title validates his previous conveyance • Doctrine is equally applicable to: o Conveyance of usufructs o Transfers of full ownership POSSESSION OF MOVABLE PROPERTY • GR: 559 – Possession of movable property acquired in good faith = title 1. Exception: one who has lost any movable or has been unlawfully deprived therefor may recover it from the person in possession of the same without reimbursing the price paid therefor " E to E: If the possessor of the movable has acquired it in GF at a public sale ! owner X obtain its return without reimbursing the price paid therefor SALE OF AN IMMOVABLE • 1505 applies to sale of GOODS, NOT IMMOVABLE • BUT principle in 1505 (person can sell only what he owns or is authorized) applies to the sale of immovable. 1. Estoppel

 

DE LEON SALES REVIEWER

 

The owner of land may be estopped from claiming that the sale of land was not authorized Sale of land registered under the Torrens System • Forged document of sale may be the root of a valid title when the CT has already been transferred to the name indicated by the forger • Remedy of person prejudiced: Action for damages against those who employed fraud within 4 years after the discovery of the deception • One who purchases unregistered land does so at his peril Where the sale is sanction by statutory or judicial authority • If the real property was sold under a statutory power of sale or pursuant to the order of a court of competent jurisdiction ! title can transfer to the buyer in such sale •

2.

3.

ART. 1506. Where the seller of goods has a voidable title thereto, but his title has not yet 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. SALE BY ONE HAVING A VOIDABLE TITLE REQUISITES FOR ACQUISITION OF GOOD TITLE BY BUYER 1. He buys them before the title of the seller has been avoided 2. In GF for value 3. Without notice of the seller’s defect of title BASIS OF RULE • Where the loss has happened which must fall on one of the 2 innocent persons ! it shall be borne by him who is caused the loss • Similar to Innocent Purchaser for Value (Property Registration Decree) • Similar to a holder in due course to whom a negotiable instrument is negotiated for value and in GF (Negotiable instruments Law) ART. 1525. The seller of goods is deemed to be an unpaid seller within the meaning of this Title: (1) When the whole of the price has not been paid or tendered (2) When a bill of exchange or other negotiable instrument has been received as conditional payment, and the condition on which it was received has been broken by reason of the dishonor of the instrument, the insolvency of the buyer, or otherwise, In articles 1525 and 1535 the term “seller” includes an agent of the seller to whom the bill of lading has been indorsed, or a consignor or agent who has himself paid, or is directly responsible for the price, or any other person who is in the position of a seller. MEANING OF UNPAID SELLER • One who has not been paid or tendered the whole price or

 

 

 

 

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•

•

•

Who has received a bill of exchange or other negotiable instrument as conditional payment and the condition on which it was received has been broken by reason of the dishonor of the instrument The term unpaid seller includes: 1. Agent of the seller 2. Consignor or agent who has himself paid or is directly responsible for the price 3. Any other person in the position of the seller A seller is unpaid within the definition whether title has or has not passed

WHERE THE WHOLE PRICE HAS NOT BEEN PAID TENDER OF PAYMENT BY THE BUYER • Although tender of payment is not the same as performance, and the seller to whom the price of goods has been tendered is strictly unpaid and can bring a subsequent action for the price which he has refused ! • Tender DESTROYS THE SELLER’S LIEN PAYMENT OF PART OF PRICE • Payment of a part only of the price does NOT destroy a seller’s lien • The seller remains an unpaid seller even if title has passed to the buyer PAYMENT BY NEGOTIABLE INSTRUMENT • The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when: o They have been cashed or o When through the fault of the creditor they have been impaired ART. 1526. Subject to the provisions of this Title, notwithstanding that the ownership in the goods may have passed to the buyer, the unpaid seller of goods, as such has: (1) A lien on the goods or right to retain them for the price while he is in possession of them; (2) In case of insolvency of the buyer, a right of stopping the goods in transitu after he has parted with the possession of them; (3) A right of resale limited by this Title; (4) A right to rescind the sale as likewise limited by this Title Where the ownership in the goods has not passed to the buyer, the unpaid seller has, in addition to other remedies, a right of withholding delivery similar to and co-extensive with his rights of lien and stoppage in transitu where the ownership has passed to the buyer. SPECIAL REMEDIES OF AN UNPAID SELLER • 1526 gives the unpaid seller of goods certain remedies but they do not cover an action for the purchase price • Even if the ownership in the goods has already passed to the buyer, the unpaid seller may exercise the following rights:

 

DE LEON SALES REVIEWER

 

1. 2. 3. 4. 5.

A lien on the goods or right to retain them for the price while in his possession A right of stopping the goods in transitu in case of insolvency of the buyer Right of resale Right to rescind the sale Right of withholding delivery • If the unpaid seller retains ownership in the goods, he cannot be said to have a lien on his goods.

NATURE OF UNPAID SELLER’S POSSESSORY LIEN ON THE GOODS • Lien – a charge upon the property for the payment or discharge of a debt or duty. A right, which the law gives to the debt, satisfied out of a particular thing. • Presupposes that title to the goods has passed to the buyer • If title X passed to buyer yet ! right of WITHHOLDING the delivery • In truth, greater than a lien – the seller’s position is very nearly that of a pledgee with power to sell at a private sale in case of default and power survives until the payment of the price UNPAID SELLER’S LIEN ON THE PRICE POSSESSORY LIEN 1527-1529 Entitles the seller to retain possession of the goods as security for the purchase price

PREFERRED CLAIM OR LIEN 2241 (3) Goods are no longer in the possession of the buyer, the seller has no more possessory lien but his claim for the unpaid price is a preferred claim or lien Upon delivery, lien on the price remains

Upon delivery, possessory lien on the goods is lost ART. 1527. Subject to the provisions of this Title, the unpaid seller of goods who is in possession of them is entitled to retain possession of them until payment or tender of the price in the following cases, namely: (1) Where the goods have been sold without any stipulation as to credit; (2) Where the goods have been sold on credit, but the term of the credit has expired (3) Where the buyer becomes insolvent The seller may exercise his right of lien notwithstanding that he is in possession of the goods as agent or bailee for the buyer. WHEN UNPAID SELLER’S POSSESSORY LIEN MAY BE EXERCISED 1. Sale without stipulation as to credit 2. Expiration of the term of credit 3. Insolvency of the buyer SALE WITHOUT STIPULATION AS TO CREDIT • In credit sale, the seller binds himself to give the goods over to the buyer without receiving at that time payment for them

 

 

 

 

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• •

•

Where there is a “stipulation as to credit” ! a period for payment of the price has been fixed in the contract In the absence of any stipulation as to credit ! the seller is entitled to the payment of the price at the same time that he transfers the possession of the goods The seller has lien upon the goods until payment or tender of the entire price

EXPIRATION OF THE TERM OF CREDIT • The buyer is entitled to possession of the goods without paying the price ! but if he fails to exercise high right until the term of the credit has expired and the price becomes due ! he loses the right which he therefore had • Obligation of the buyer to pay will also be governed by 1524 INSOLVENCY OF THE BUYER • When one party to a bilateral contract is incapacitated from performing his part of the agreement, the other party also is excused from performing • Insolvency does NOT dissolve the bargain ! it merely revives the seller’s lien • Insolvency is one of the grounds for the loss of the right to make use of the period fixed in an obligation • Insolvent – A person who either ceased to pay his debts in the ordinary course of business or cannot pay his debts as they become due, whether insolvency proceedings have been commenced or not UNPAID SELLER AS BAILEE FOR THE BUYER • For the ownership having passed, the seller is necessarily holding the buyer’s goods and, therefore, acting baliee for him • And though he is has charged the buyer storage for the goods, the lien may still be asserted ART. 1528. Where an unpaid seller has made part of delivery of the goods, he may exercise his right of lien on the remainder, unless such part delivery has been made under such circumstances as to show an intent to waive the lien or right of retention. LIEN GENERALLY NOT LOST BY PART DELIVERY • When part of the goods are delivered ! unpaid seller has lien upon the remainder for the proportion of the price which is due on account of the goods so retained • If the delivery of the part is intended as symbolical delivery of the whole = waiver of any right of retention as to remainder ! lien is lost o The intent to make such waiver = may be inferred from the circumstances Article 1529. The unpaid seller of goods loses his lien thereon: (1) When he delivers the goods to a carrier or other bailee for the purpose of transmission to the buyer without reserving the ownership in the goods or the right to the possession thereof;

 

DE LEON SALES REVIEWER

 

(2) When the buyer or his agent lawfully obtains possession of the goods; (3) By waiver thereof. The unpaid seller of goods, having a lien thereon, does not lose his lien by reason only that he has obtained judgment or decree for the price of the goods. (n) WHEN UPAID SELLER LOSES HIS POSESSORY LIEN 1. Delivery to the agent or bailee of buyer 2. Possession of the buyer or his agent 3. Waiver of the lien DELIVERY TO THE AGENT OR BAILEE OF BUYER • An unconditional deliver to an agent or baliee for the buyer, so far as the seller’s lien is concern ! is the same delivery to the buyer himself • It is true that he can stop them, but he no longer has a lien on them since he is no longer in possession POSSESSION OF THE BUYER OR HIS AGENT • If the goods are already in the possession of the buyer at the time of bargain ! the ownership has transferred and the buyer has no possession necessary for lien o E: If goods are taken wrongfully and if possession of buyer is merely for examination of the goods WAIVER OF THE LIEN • The seller may lose his lien either by express agreement to surrender it • Or by such conduct as estops him from asserting it REVIVAL OF LIEN AFTER DELIVERY • If the buyer refuses to receive the goods after they have been delivered to a carrier or other bailee on his behalf ! seller may reclaim the goods and revest himself with his lien • Buyer returns the goods in wrongful repudiation of the sale ! lien on the purchase price is revived prov that seller makes it clear that is not assenting to the rescission of the sale o E: The return of the goods by the buyer to the seller, not in repudiation of the sale, but for special purpose (ex. repairs or alteration by the seller) ! X revive lien of the seller Article 1530. Subject to the provisions of this Title, when the buyer of goods is or becomes insolvent, the unpaid seller who has parted with the possession of the goods has the right of stopping them in transitu, that is to say, he may resume possession of the goods at any time while they are in transit, and he will then become entitled to the same rights in regard to the goods as he would have had if he had never parted with the possession. (n)

 

 

 

 

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RIGHT OF SELLER TO STOP GOODS IN TRANSITU • Right which a seller of goods on credit has to recall them or retake them while they are in the possession of the carrier or other middleman who received them for delivery to the buyer, on discovery of insolvency of the buyer • Right is exercised either by: o Obtaining actual possession of the goods or o By giving notice of his claim to the carrier or other bailee in possession • Entitled to the same rights to the goods as if he has never parted with the possession thereof • Right continues while the goods are in the hands of the carrier and terminates when the consignee or bona fide transferee obtains lawful possession of the goods shipped • If the seller delivers the goods to the buyers on wharf and the buyer ships the goods by vessel in his own name ! the seller no longer has right of stoppage in transitu, as there was an absolute delivery to the buyer REQUISITES FOR THE EXISTENCE OF THE RIGHT OF STOPPAGE IN TRANSITU 1. Seller must be unpaid 2. Buyer must be insolvent 3. Goods must be in transit 4. Seller must either actually take possession of the goods sold or give notice of his claim to the carrier or other person in possession 5. Seller must surrender the negotiable document of title, if any issued by the carrier or bailee 6. The seller must bear the expenses of delivery of the goods after the exercise of the right

SALE OR CREDIT • No right of SIT exists in cash sales • Sale must be on credit, whether in definite terms or not TITLE TO GOODS IN THE BUYER • Right of SIT is not defeated by the fact that title to the goods has passed to the buyer • The right applies where the title of the goods in transit has vested in an insolvent buyer, who has not paid the entire purchase price INSOLVENCY OF THE BUYER • Does not require the buyer be absolutely bankrupt or have been formally adjudged a bankrupt • Sufficient that he is unable to pay his just debts in the ordinary course of business • The following circumstances do NOT justify the exercise of SIT: 1. A buyer was in DEFAULT in the performance of his obligations

 

DE LEON SALES REVIEWER

 

2. 3. • •

The DEATH of the buyer (unless his estate is insolvent) The fact that the goods have been LEVIED ON by attaching creditors of the buyer (if the buyer was not insolvent) It is sufficient that the buyer became insolvent before he has taken possession of the goods If the seller knew that the buyer was insolvent at the time of sale ! he cannot claim the right of SIT

EFFECT OF EXERCISE OF RIGHT BY SELLER 1. Right to same position as before sale 2. Right to recover possession 3. Right to recovery agreed price Article 1531. Goods are in transit within the meaning of the preceding article: (1) From the time when they are delivered to a carrier by land, water, or air, or other bailee for the purpose of transmission to the buyer, until the buyer, or his agent in that behalf, takes delivery of them from such carrier or other bailee; (2) If the goods are rejected by the buyer, and the carrier or other bailee continues in possession of them, even if the seller has refused to receive them back. Goods are no longer in transit within the meaning of the preceding article: (1) If the buyer, or his agent in that behalf, obtains delivery of the goods before their arrival at the appointed destination; (2) If, after the arrival of the goods at the appointed destination, the carrier or other bailee acknowledges to the buyer or his agent that he holds the goods on his behalf and continues in possession of them as bailee for the buyer or his agent; and it is immaterial that further destination for the goods may have been indicated by the buyer; (3) If the carrier or other bailee wrongfully refuses to deliver the goods to the buyer or his agent in that behalf. If the goods are delivered to a ship, freight train, truck, or airplane chartered by the buyer, it is a question depending on the circumstances of the particular case, whether they are in the possession of the carrier as such or as agent of the buyer. If part delivery of the goods has been made to the buyer, or his agent in that behalf, the remainder of the goods may be stopped in transitu, unless such part delivery has been under such circumstances as to show an agreement with the buyer to give up possession of the whole of the goods. (n)

 

 

 

 

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WHEN GOODS ARE IN TRANSIT • The goods are not yet in transit until they are delivered to a carrier or other bailee for the purpose of transmission to the buyer • Mere arrival of the goods at or on the premises of the carier at the point of destination ! X terminate the transportation and RSIT • Transit includes not only the carriage of the goods to destination, but delivery according to the terms of the contract • Mere act of middleman or carrier giving notice to the buyer regarding the arrival of the goods ! X terminate transit THE GOODS ARE IN TRANSIT 1. After deliver to a carrier or other bailee and before the buyer or his agent takes delivery of them 2. If the goods are rejected by the buyer, and the carrier or other bailee continues in possession of them WHEN GOODS CONSIDERED NO LONGER IN TRANSIT 1. After delivery to the buyer or his agent in that behalf 2. If the buyer or his agent obtains possession of the goods at a point before the destination originally fixed 3. If the carrier or bailee acknowledges to hold the goods on behalf of the buyer 4. If the carrier or bailee wrongfully refuses to deliver the goods to the buyer ATTORNMENT BY THE BAILEE • The right to stop the goods may be terminated not simply by delivery to the buyer, but by attornment of the bailee to the buyer • In order to terminate seller RSIT, carrier must enter into a new relation to hold the goods for the buyer as his agent and not for the purpose of expediting them to the place of original destination

EFFECT OF REFUSAL OF CARRIER TO ATTORN OR DELIVER GOODS • Carrier X allowed to enlarge the seller’s right by wrongfully refusing to deliver or attorn as the buyer’s agent • BUT a rightful refusal of the carrier (ex. refusal of the buyer or his agent to pay the freight) ! will not terminate the RSIT DELIVERY TO A SHIP, ETC, CHARTED OR OWN BY THE BY BUYER 1. CHARTED BY THE BUYER • Mere fact that the carrier is chartered by the buyer ! X make delivery to the carrier a delivery to the buyer 2. OWNED BY THE BUYER • Delivery to a vessel belonging to the buyer is delivery to the buyer

E: if it shown that the seller has an agreement with the buyer to give up possession of the whole of the goods

o

Article 1532. The unpaid seller may exercise his right of stoppage in transitu either by obtaining actual possession of the goods or by giving notice of his claim to the carrier or other bailee in whose possession the goods are. Such notice may be given either to the person in actual possession of the goods or to his principal. In the latter case the notice, to be effectual, must be given at such time and under such circumstances that the principal, by the exercise of reasonable diligence, may prevent a delivery to the buyer. When notice of stoppage in transitu is given by the seller to the carrier, or other bailee in possession of the goods, he must redeliver the goods to, or according to the directions of, the seller. The expenses of such delivery must be borne by the seller. If, however, a negotiable document of title representing the goods has been issued by the carrier or other bailee, he shall not be obliged to deliver or justified in delivering the goods to the seller unless such document is first surrendered for cancellation. (n) WAYS OF EXERCISING THE RIGHT TO STOP 1. By taking actual possession of the goods 2. By giving notice of his claim to the carrier or bailee TAKING ACTUAL POSSESSION OF THE GOODS • Includes not only the power to stop delivery but to order redelivery to himself • Seller has obligation to pay the freight and other necessary expenses of the delivery BY GIVING NOTICE OF HIS CLAIM TO THE CARRIER OR BAILEE • Mere notice to the buyer of the exercise of the seller’s right ! X sufficient • Seller must make a demand upon the carrier or notice to the carrier to stop the goods • No particular form of notice or demand is required DUTIES AND LIABILITIES OF CARRIER • The carrier’s refusal to redeliver possession to the seller after proper notice of the exercise of the RSIT and the tender of freight charges ! will render the carrier liable to the seller • If the carrier delivers to the seller notwithstanding the proper notice from the seller ! the carrier will be liable to the seller for the resulting loss EFFECT OF OUTSTANING BILL OF LADING • RSIT applies to straight (non-negotiable) or negotiable bills • In the case of negotiable bills ! if the goods are covered by a negotiable document of title, the carrier or bailee has no obligation to deliver the goods to the seller UNLESS such document is first surrendered for cancellation

EFFECT OF PARTIAL DELIVERY • The mere fact that part of the goods has been delivered ! X deprive the seller of the right to stop with respect to the remainder

 

DE LEON SALES REVIEWER

 

 

 

 

 

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

4.

Where a resale is made, as authorized in this article, the buyer acquires a good title as against the original buyer. It is not essential to the validity of resale that notice of an intention to resell the goods be given by the seller to the original buyer. But where the right to resell is not based on the perishable nature of the goods or upon an express provision of the contract of sale, the giving or failure to give such notice shall be relevant in any issue involving the question whether the buyer had been in default for an unreasonable time before the resale was made. It is not essential to the validity of a resale that notice of the time and place of such resale should be given by the seller to the original buyer. The seller is bound to exercise reasonable care and judgment in making a resale, and subject to this requirement may make a resale either by public or private sale. He cannot, however, directly or indirectly buy the goods. (n) UNPAID SELLER’S RIGHT OF RESALE 1. WHEN RESALE ALLOWABLE • Unpaid seller can only exercise this when: 1. He has a right of lien 2. Has exercised the RSIT 3. Goods are perishable in nature 4. Where the right to resell is expressly reserved in case the buyer should make default 5. Where the buyer delays in the payment of the price for an unreasonable time • The language is permissive in nature rather than mandatory • No distinction between resale before the transfer of ownership and after the transfer of ownership 2. EFFECT OF RESALE • Seller is not liable for any profit made by such resale • But if he sells for less than the price ! he may sue for the balance • The new buyer acquires goods title to the goods as against the original buyer provided that the resale is made in accordance with Art 1533 (par 2.) • There is no need for an action for rescission to authorize the seller, who is still in possession, to dispose of the property where the buyer fails to pay the price and take delivery 3. NOTICE OF RESALE NOT ESSENTIAL

 

DE LEON SALES REVIEWER

 

A notice by the seller of his intention to resell may operate to fix the time within which it is reasonable that the buyer should perform the obligations • GR: Where the right to resell is reserved, the failure to give notice shall be relevant upon the question whether the buyer has been in default for an unreasonable time o E: In cases of perishable goods MANNER OF RESALE • It is sufficient to have “with a fair sale made in GF according to the established business methods with no attempt to take advantage of the vendee” • Seller cannot however, directly or indirectly buy the goods TIME OF RESALE • Must be made within a reasonable time after the breach • But if the seller acts prudently and with reasonable care and judgment, the time of resale is, to a certain extent at least, is within his discretion PLACE OF RESALE • The seller is ordinary required to resell the goods at the place of deliver ! however, this is not a rigid rule • If the seller is unable to sell readily at a fair price at the place of delivery and can get a better price by reshipment and sale at another place ! he may do so •

5.

6.

Article 1534. An unpaid seller having the right of lien or having stopped the goods in transitu, may rescind the transfer of title and resume the ownership in the goods, where he expressly reserved the right to do so in case the buyer should make default, or where the buyer has been in default in the payment of the price for an unreasonable time. The seller shall not thereafter be liable to the buyer upon the contract of sale, but may recover from the buyer damages for any loss occasioned by the breach of the contract. The transfer of title shall not be held to have been rescinded by an unpaid seller until he has manifested by notice to the buyer or by some other overt act an intention to rescind. It is not necessary that such overt act should be communicated to the buyer, but the giving or failure to give notice to the buyer of the intention to rescind shall be relevant in any issue involving the question whether the buyer had been in default for an unreasonable time before the right of rescission was asserted. (n) UNPAID SELLER’S RIGHT OF RESCISSION 1. WHEN SELLER MAY RESCIND 1. He has a right of lien 2. Has exercised the RSIT 3. Where the right to rescind is expressly reserved in case the buyer should make default 4. Where the buyer delays in the payment of the price for an unreasonable time 2. EFFECT OF RESCISSION

 

 

 

 

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The seller resumes ownership in the goods The seller shall not be liable to the buyer upon the contract of sale ! But the buyer shall be liable to the seller for damages for any loss occasioned by the breach of contract MANNER OF RESCISSION • An election by the seller to rescind may be manifested by: o Notice to the buyer o Some other overt act showing an intention to rescind • •

3.

Article 1535. Subject to the provisions of this Title, the unpaid seller's right of lien or stoppage in transitu is not affected by any sale, or other disposition of the goods which the buyer may have made, unless the seller has assented thereto. If, however, a negotiable document of title has been issued for goods, no seller's lien or right of stoppage in transitu shall defeat the right of any purchaser for value in good faith to whom such document has been negotiated, whether such negotiation be prior or subsequent to the notification to the carrier, or other bailee who issued such document, of the seller's claim to a lien or right of stoppage in transitu. (n)

E to E: Vendor will not be complied to make delivery in case the vendee shall lose the right to make use of the term provided in 1198 of the CC and such vendee has not yet paid the price.

o

Article 1198. The debtor [buyer] shall lose every right to make use of the period: (1) When after the obligation has been contracted, he becomes insolvent, unless he gives a guaranty or security for the debt; (2) When he does not furnish to the creditor the guaranties or securities which he has promised; (3) When by his own acts he has impaired said guaranties or securities after their establishment, and when through a fortuitous event they disappear, unless he immediately gives new ones equally satisfactory; (4) When the debtor violates any undertaking, in consideration of which the creditor agreed to the period; (5) When the debtor attempts to abscond.

EFFECT OF SALE OF GOODS SUBJECT TO LIEN OR STOPPAGE IN TRANSITU 1. WHERE GOODS ARE NOT COVERED BY NEGOTIABLE DOCUMENT OF TITLE • When goods are subject to a legal lien, as they are when an unpaid seller in possession of them ! a purchaser from the original buyer can acquire only such right as the buyer had • The seller can give no larger rights than he has 2. WHERE GOODS COVERED BY NEGOTIABLE DOCUMENT OF TITLE • If goods are covered by NDT ! the seller’s lien CANNOT prevail against the rights of a purchaser for value in GF to whom the document was indorsed • The term purchaser as used in this article ! includes mortgagee and pledgee ART. 1536. The vendor is not bound to deliver the thing sold in case the vendee should lose the right to make use of the term as provided in article 1198. RIGHT OF VENDOR TO WITHHOLD DELIVERY IN SALE ON CREDIT • GR: The vendor is not bound to make delivery if the vendee has not paid the price o E: If, however a period has been fixed for the payment ! the vendor must deliver the thing sold though the price be not first paid

 

DE LEON SALES REVIEWER

 

 

 

 

 

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DEFINITION

LIEN ON THE GOODS OR RIGHT TO RETAIN THEM Lien – a charge upon the property for the payment or discharge of a debt or duty. A right, which the law gives to the debt, satisfied out of a particular thing.

SPECIAL REMEDIES OF UNPAID SELLER RIGHT OF STOPPING THE GOODS IN RIGHT OF RESALE TRANSITU Right which a seller of goods on credit has to recall them or retake them while they are in the possession of the carrier or other middleman who received them for delivery to the buyer, on discovery of insolvency of the buyer

RIGHT TO RESCIND

If title X passed to buyer yet (unpaid owner retains ownership) ! right of WITHHOLDING the delivery

Possessory lien (1527-1529) Entitles the seller to retain possession of the goods as security for the purchase price

WHEN EXERCISED

4. 5. 6.

Sale without stipulation as to credit Expiration of the term of credit Insolvency of the buyer

REQUISITES FOR EXISTENCE OF RSIT: 7. Seller must be unpaid 8. Buyer must be insolvent 9. Goods must be in transit 10. Seller must either actually take possession of the goods sold or give notice of his claim to the carrier or other person in possession 11. Seller must surrender the negotiable document of title, if any issued by the carrier or bailee 12. The seller must bear the expenses of delivery of the goods after the exercise of the right

THE GOODS ARE IN TRANSIT 3. After deliver to a carrier or other bailee and before the buyer or his agent takes delivery of them 4. If the goods are rejected by the buyer, and the carrier or other bailee continues in possession of them

 

DE LEON SALES REVIEWER

 

1. 2. 3. 4.

5.

He has a right of lien Has exercised the RSIT Goods are perishable in nature Where the right to resell is expressly reserved in case the buyer should make default Where the buyer delays in the payment of the price for an unreasonable time

 

RIGHT OF WITHHOLDING DELIVERY

 

1. He has a right of lien 2. Has exercised the RSIT 3. Where the right to rescind is expressly reserved in case the buyer should make default 4. Where the buyer delays in the payment of the price for an unreasonable time

 

 

GR: The vendor is not bound to make delivery if the vendee has not paid the price • E: If, however a period has been fixed for the payment ! the vendor must deliver the thing sold though the price be not first paid • E to E: Vendor will not be complies to make delivery in case the vendee shall lose the right to make use of the term provided in 1198 of the CC and such vendee has not yet paid the price. Article 1198. The debtor [buyer] shall lose every right to make use of the period: (1) When after the obligation has been contracted, he becomes insolvent, unless he gives a guaranty or security for the debt; (2) When he does not furnish to the creditor the guaranties or securities which he has promised; (3) When by his own acts he has impaired said guaranties or securities after their establishment, and when through a fortuitous event they disappear, unless he immediately gives new ones equally satisfactory; (4) When the debtor violates 44 © Michelle Duguil,

any undertaking, in consideration of which the creditor agreed to the period; (5) When the debtor attempts to abscond. EFFECT

When part of the goods are delivered ! unpaid seller has lien upon the remainder for the proportion of the price which is due on account of the goods so retained If the delivery of the part is intended as symbolical delivery of the whole = waiver of any right of retention as to remainder ! lien is lost • The intent to make such waiver = may be inferred from the circumstances

4. 5. 6.

Right to same position as before sale Right to recover possession Right to recovery agreed price

EFFECT OF REFUSAL OF CARRIER TO ATTORN OR DELIVER GOODS • Carrier X allowed to enlarge the seller’s right by wrongfully refusing to deliver or attorn as the buyer’s agent • BUT a rightful refusal of the carrier (ex. refusal of the buyer or his agent to pay the freight) ! will NOT terminate the RSIT EFFECT OF PARTIAL DELIVERY • The mere fact that part of the goods has been delivered ! X deprive the seller of the right to stop with respect to the remainder o E: if it shown that the seller has an agreement with the buyer to give up possession of the whole of the goods EFFECT OF OUTSTANING BILL OF LADING • RSIT applies to straight (nonnegotiable) or negotiable bills • In the case of negotiable bills ! if the goods are covered by a negotiable document of title, the carrier or bailee has no obligation to deliver the goods to the seller UNLESS such document is first surrendered for cancellation

 

DE LEON SALES REVIEWER

 

•

•

•

•

Seller is not liable for any profit made by such resale But if he sells for less than the price ! he may sue for the balance The new buyer acquires goods title to the goods as against the original buyer provided that the resale is made in accordance with Art 1533 (par 2.) There is no need for an action for rescission to authorize the seller, who is still in possession, to dispose of the property where the buyer fails to pay the price and take delivery

•

•

The seller resumes ownership in the goods The seller shall not be liable to the buyer upon the contract of sale ! But the buyer shall be liable to the seller for damages for any loss occasioned by the breach of contract

EFFECT OF SALE OF GOODS SUBJECT TO LIEN OR STOPPAGE IN TRANSITU WHERE GOODS ARE NOT COVERED BY NEGOTIABLE DOCUMENT OF TITLE • When goods are subject to a legal lien, as they are when an unpaid seller in possession of them ! a purchaser from the original buyer can acquire only such right as the buyer had

 

 

 

 

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The seller can give no larger rights than he has WHERE GOODS COVERED BY NEGOTIABLE DOCUMENT OF TITLE • If goods are covered by NDT ! the seller’s lien CANNOT prevail against the rights of a purchaser for value in GF to whom the document was indorsed • The term purchaser as used in this article ! includes mortgagee and pledgee • It is sufficient to have “with a fair sale made in GF according to the established business methods with no attempt to take advantage of the vendee” • Seller cannot however, directly or indirectly buy the goods •

MANNER

1. 2.

WHEN LOST

4. 5. 6.

 

Delivery to the agent or bailee of buyer Possession of the buyer or his agent Waiver of the lien

DE LEON SALES REVIEWER

Obtaining actual possession of the goods or By giving notice of his claim to the carrier or other bailee in possession

1. Notice to the buyer 2. Some other overt act showing an intention to rescind

WHEN GOODS CONSIDERED NO LONGER IN TRANSIT 5. After delivery to the buyer or his agent in that behalf 6. If the buyer or his agent obtains possession of the goods at a point before the destination originally fixed 7. If the carrier or bailee acknowledges to hold the goods on behalf of the buyer 8. If the carrier or bailee wrongfully refuses to deliver the goods to the buyer

 

 

 

 

 

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ART. 1536. The vendor is not bound to deliver the thing sold in case the vendee should lose the right to make use of the term as provided in article 1198.

sale of the accessions and accessories is NOT sufficient to convert title or right to the former NOTE:

RIGHT OF VENDOR TO WITHHOLD DELIVERY IN SALE ON CREDIT • GR: The vendor is not bound to make delivery if the vendee has not paid the price o E: If, however a period has been fixed for the payment ! the vendor must deliver the thing sold though the price be not first paid o E to E: Vendor will not be complied to make delivery in case the vendee shall lose the right to make use of the term provided in 1198 of the CC and such vendee has not yet paid the price. Article 1198. The debtor [buyer] shall lose every right to make use of the period: (1) When after the obligation has been contracted, he becomes insolvent, unless he gives a guaranty or security for the debt; (2) When he does not furnish to the creditor the guaranties or securities which he has promised; (3) When by his own acts he has impaired said guaranties or securities after their establishment, and when through a fortuitous event they disappear, unless he immediately gives new ones equally satisfactory; (4) When the debtor violates any undertaking, in consideration of which the creditor agreed to the period; (5) When the debtor attempts to abscond. 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. CONDITION OF THING TO BE DELIVERED • The vendor is obliged to preserve the thing pending delivery because the thing sold and its accessions and the accessories must be in the condition in which they were upon the perfection of the contract • Duty of seller to deliver the thing sold in a condition suitable for its enjoyment by the buyer for the purposes contemplated • Ex. It is the seller’s (subdivision lot seller) duty to construct the necessary roads in the subdivision that could serve as outlets • Sale of a determinate thing (land) includes all its accessions (ex. house) and accessories even though they may not have been mentioned ! the

 

DE LEON SALES REVIEWER

 

Accessions - are the fruits of a thing; or additions to, or improvements upon, a thing such as the young of animals, house or trees on land, etc. Accessories – anything attached to a principal thing for its completion, ornament, or better use such as a picture frame, key of house, etc RIGHT OF VENDEE TO THE FRUITS 1. WHEN VENDEE ENTITLED • The vendee has the right to fruits of the thing sold from the time the obligation to deliver arises • The obligation to deliver arises upon the perfection of the contract 2. WHEN VENDEE NOT ENTITLED • Rule provided in 1537 par 2 is modified by agreement of the parties ! agreement shall govern • If the buyer rescinds the contract instead of exacting the fulfillment ! entitled only to damages (interest, atty’s fees) and costs but not claim of the fruits of the thing sold • Contract of promise to sell ! only right of the parties is to reciprocally demand the fulfillment of the contract ART. 1538. In case of loss, deterioration or improvement of the thing before its delivery, the rules in article 1189 shall be observed, the vendor being considered the debtor. RULES IN CASE OF LOSS, DETERIORATION, OR IMPROVEMENT OF THING BEFORE DELIVERY 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: LOST WITHOUT FAULT OF DEBTOR LOST THRU FAULT OF DEBTOR

Obligation = extinguished Pay damages **When lost – when it perishes, goes out of commerce, or disappears in such a way that its existence is unknown or it cannot be recovered Impairment is borne by creditor

DETERIORATES WITHOUT THE FAULT OF THE DEBTOR DETERIORATES THRU FAULT OF

 

 

 

Creditor may choose between:

 

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DEBTOR THING IS IMPROVED BY ITS NATURE OR BY TIME THING IMPROVED AT THE EXPENSE OF THE DEBTOR

1. Rescission + damages 2. Fulfillment + damages Improvement shall inure to benefit of the creditor Debtor shall have no other right than that granted to the usufructuary

Note: Both under Article 1480 (par 1&2) and 1538, the loss shall be at the risk of the vendee pending delivery. **Debtor – Seller ; Creditor – Buyer ART. 1539. The obligation to deliver the thing sold includes that of placing in the control of the vendee all that is mentioned in the contract, in conformity with the following rules: If the sale of real estate should be made with a statement of its area, at the rate of a certain price for a unit of measure or number, the vendor shall be obliged to deliver to the vendee, if the latter should demand it, all that may have been stated in the contract; but, should this be not possible, the vendee may choose between a proportional reduction of the price and the rescission of the contract, provided that, in the latter case, the lack in the area be not less than one-tenth of that stated. The same shall be done, even when the area is the same, if any part of the immovable is not of the quality specified in the contract. The rescission, in this case, shall only take place at the will of the vendee, when the inferior value of the thing sold exceeds one tenth of the price agreed upon. Nevertheless, if the vendee would not have bought the immovable had he known of its smaller area or inferior quality, he may rescind the sale. SALE OF REAL PROPERTY BY UNIT OF MEASURE OR NUMBER ENTIRE AREA STATED IN CONTRACT MUST BE DELIVERED • If the sale of real estate should be made with: 1. Statement of its area 2. At the rate of a certain price per unit of measure or number • The cause of the contract with respect to the buyer ! the number of such units, or if you wish, the thing purchased as determined by the stipulated number of units • Seller must deliver the entire property agreed upon • Ex. Land (500 sqm, 1k/sqm) = vendor must deliver the entire area stated • Immovable must be of the quality specified in the contract WHERE ENTIRE AREA COULD NOT BE DELIVERED • If all that is included within the stipulated boundaries is NOT delivered ! object of the contract is not delivered

 

DE LEON SALES REVIEWER

 

•

Buyer is entitled to: 1. Rescind it 2. Enforce the contract with corresponding decrease in price

WHEN VENDEE ENTITLED TO RESCIND SALE OF REAL PROPERTY The right of rescission is available to the buyer in the following cases: 1. Lack in area is at least 1/10 than that stated or stipulated - 1/10 is based on the area stipulated in the contract and not the real area which the thing may actually have 2. Deficiency in the quality specified in the contract exceeds 1/10 of the price agreed upon 3. Buyer would not have bough the immovable had he known of its smaller area or inferior quality irrespective of the extent of the lack in area or quality NOTE: The above remedies are also available under the second paragraph of 1542 (sale of real estate made in lump sum) NOTE: In case of fulfillment ! buyer is entitled only to a proportionate reduction of the price where there is a deficiency in area or number. • Rule is different where there is a violation of the warranty against hidden defects • Seller is also liable for damages ART. 1540. If, in the case of preceding article, there is a greater area or number in the immovable than that stated in the contract, the vendee may accept the area included in the contract and reject the rest. If he accepts the whole area, he must pay for the same at the contract rate. WHERE IMMOVABLE OF A GREATER AREA OR NUMBER • The seller may accept the area included in the contract and reject the rest • If he accepts the whole ! he makes himself liable for the price of the same at the contract rate • The buyer may NOT withdraw from the contract ART. 1541. The provisions of the two preceding articles shall apply to judicial sales. APPLICATION OF ARTICLES 1539 and 1540 TO JUDICIAL SALES • Applicable to both private (voluntary) and judicial sales • When the immovable is lacking in area or is of inferior quality or is greater in area than stated in the contract • The reason is that the rules they contain are derived from the very nature of the contract of sale • HOWEVER, rules may be varied or suppressed by agreement between the contracting parties ART. 1542. In the sale of real estate made for a lump sum and not at the rate of a certain sum for a unit of measure or number, there shall be no increase or

 

 

 

 

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decrease of the price, although there be a greater or less area or number than that stated in the contract. The same rule shall be applied when two or more immovable are sold for a single price; but if, besides mentioning the boundaries, which is indispensable in every conveyance of real estate, its area or number should be designated in the contract, the vendor shall be bound to deliver all that is included within said boundaries, even when it exceeds the area or number specified in the contract; and should he not be able to do so, he shall suffer a reduction in the price, in proportion to what is lacking in the area or number, unless the contract is rescinded because the vendee does not accede to the failure to deliver what has been stipulated.

WHEN THERE IS CONFLICT BETWEEN AREA STIPULATED AND TITLE TO PROPERTY • The area included within the stipulated boundaries PREVAIL when the boundaries are certain and no alteration thereof has been proved over that which the title shows • Not of vital consequence that a contract on sale of land should disclose the area with mathematical accuracy • Sufficient if its extent is objectively indicated with sufficient precision to enable one to identify it • It is the boundaries indicated in a deed of absolute sale and not the area in sq meters mentioned therein that controls in the determination of which portion of the land a vendee acquires

SALE OF REAL ESTATE MADE FOR A LUMP SUM • In sale involving real estate, the parties may choose between 2 types of pricing agreement: 1. A unit price contract – wherein the purchase price is determined by way of reference to a stated rate per unit (ex. 1k/sqm) 2. Lump sum contract – states a full purchase price for an immovable the area of which may be declared based on an estimate or where both the area and boundaries are states (ex. 1m for 1k meters)

WHERE IDENTITY ERRONEOUSLY DESIGNATED PROPERTY CLEARLY ESTABLISHED • It does NOT vitiate consent of the parties or affect the validity and binding effect of the contract • Reason: One sells or buys property as he sees it in its actual setting and by its physical metes and bounds, and not by the mere lot number assigned to it in the certificate of title • REMEDY: Document reformed

MISTAKE IN AREA STATED IN CONTRACT IMMATERIAL • If sale is made in lump sump ! cause of contract is the thing sold independent and irrespective of its number and measure • Law presumes that buyer had in mind a determinate price for the real estate and that he ascertained its area and quality before the contract was perfected • Presumption that buyer intended to buy a determinate thing in its entirety and not just any unit of measure or number, and the price is determined with relation to it • Its greater or lesser area cannot influence the increase or decrease of the price • The boundaries of the land stated in the contract determine the effects and scope of the sale, not the area thereof • Seller is obligated to deliver all the land included within the boundaries • Possibility of error is a hazard which the parties must be presumed to have assumed ! hazard works both ways • The rule in 1542 however has EXCEPTIONS WHERE AREA OF NUMBER STATED TOGETHER WITH BOUNDARIES • If the vendor cannot deliver to the vendee all that is included within the boundaries mentioned in the contract ! the seller buyer has the option to: 1. Reduce the price in proportion to the deficiency 2. Set aside the contract • “Should he not be able to do so” – refers to a situation when the seller, either because a part or parcel of the real estate does not belong to him, cannot deliver all that is included within the boundaries

 

DE LEON SALES REVIEWER

 

WHERE WORDS “ABOUT,” “MORE OR LESS,” ETC ARE USED • The words when used in connection with quantity or distance, are words of safety and caution, intended to cover some slight or unimportant inaccuracy, and while enabling an adjustment to the imperative demands or fixed monuments, they do NOT weaken or destroy the statement of distance and quantity when no other guides are furnished • The words “about,” “approximately,” and “more or less” in connection with courses and distances ! may be disregarded if not controlled or explained by monuments, boundaries and other expressions of intention CONFLICT BETWEEN AREA STATED AND BOUNDARIES 1. WHERE BOUNDARIES GIVEN ARE SUFFICIENTLY CERTAIN • An erroneous statement relative to the area of the questioned parcel may be disregarded • Boundaries prevail over the area because what defined a piece of ground is not the area, calculated with more or less certainty, mentioned in its description 2. WHERE BOUNDARIES DO NOT IDENTIFY LAND OR OVERLAPPING BOUNDARIES EXISTS • Above rule is NOT applicable where the boundaries relied upon do not identify the land beyond doubt • In this case, area stated in the document should be followed • Where there appeared to be an overlapping of boundaries, the actual size of the property gains importance

 

 

 

 

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3.

WHERE DISCREPANCY IN MEASUREMENT IS SO GREAT • When the land sough to be registed is almost 7x as much as that described in the deed, the evidence as to natural boundaries must be very clear and convincing before that rule can be applied

GF Ownership shall belong, in the order stated hereunder: 1. Vendee who first registers the sale in GF in the RD 2. In the absence of registration ! the vendee who first takes possession in GF 3. In the absence of both registration and possession ! the vendee who presents the oldest title (who first bought the property) in GF

IMMOVABLE

ART. 1543. The actions arising from Articles 1639 and 1542 shall prescribe in 6 months, counted from the day of delivery. PRESCRIPTION OF ACTIONS • The actions based on Article 1539 and 1542 for either: 1. Recission of contract or 2. Proportionate reduction of the price • Must be brought within 6 months counted from the day of delivery 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 possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith. WHEN ART. 1544 APPLICABLE REQUISITES: 1. The 2 (or more) sales transactions must constitute valid sales; 2. The 2 (or more) sales transactions must pertain to exactly the same subject matter 3. The 2 (or more) buyers at odds over the rightful ownership of the subject matter must each represent conflicting interests; and 4. The 2 (or more) buyers at odds over the rightful ownership of the subject matter must each have bought from the very same seller NOTE: Art. 1544 CANNOT be invoked where 2 different contracts of sale are made by 2 different persons, one of them not being the owner of the property sold RULES AS TO PREFERENCE OF OWNERSHIP IN CASE OF A DOUBLE SALE • It applies only to purchasers in GF • If the SAME property is VALIDLY sold by the SAME vendor (who has an existing right in the property sold and the power to dispose it), to DIFFERENT vendees, each representing conflicting rights of said vendees shall be resolved in accordance with the following rules: KINDS OF PROPERTY MOVABLE

 

DE LEON SALES REVIEWER

OWNERSHIP Vendee who first takes possession in

 

NOTE: The term “vendee” includes a mortgagee, lessee and other encumbrance for value PURCHASER IN GOOD FAITH • One who buys the property of another without notice that some other person has a right to or interest in, such property and pays full and fair price for the same SALES BY SINGLE VENDOR • Art. 1544 contemplated a case of double or multiple sales by a single vendor to 2 or more buyers • Conveyance must have been made by a party who has an existing right in the thing and the power to dispose of it • It cannot be invoked where the 2 different contracts of sale are made by 2 different persons, one of them not being the owner of the property sold • Even if the sale was made by the same person, if the second sale was made when such person was no longer the owner of the property because it has been acquired by the first purchaser in full dominion, the second purchaser cannot acquire any right TWO OR MORE SALES 1. SALE TO DIFFERENT VENDEES • There must be at least 2 deeds of sale over the same property • There is no double sale where after the sale of the property in favor of a person, the vendor did not anymore execute another sale over the same property in favor of another 2. VOIDABLE SALE • 1544 is NOT applicable where there is only one valid sale, the previous sale having been found fraudulent or where one deed of sale was registered ahead of the other but said deed if found to a forgery ! the right of the other vendee should prevail 3. CONTRACT OF SALE FICTITOUS OR FORGED, OR SELLER WITHOUT RIGHT TO SELL • It does NOT apply if the contract of sale first registered is fictitious or forged or

 

 

 

 

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If the vendor is not the owner of the property sold and had no right to sell the same • E: A forged deed of sale of registered land can legally be the root of a valid title when an IPV intervenes and the certificate of title has already been transferred from the name of the true owner to the forger • The remedy of the true owner if to bring an action for damages against the one who cause or employed the fraud and if the latter is insolvent, an action against the Treasurer of the Philippines may be filed for recovery of damages against the Assurance Fund. 4. DONATION • Art 1544 ✓ APPLIES to donations made to different donees • A deed of donation executed with all the formalities of law is on the same footing as a deed of sale in the form of a public instrument • NOTE: Art. 1544 applies only if the same thing has been “sold” to different vendees. Therefore, it does NOT apply if one transaction is a sale and the other is a donation. 5. CONTRACTS TO SELL AND CONDITIONAL SALES • X apply to contract to sell • ✓Apply to conditional sales 6. SALE OF PROPERTY TO ONE PARTY AND ASSIGNMENT OF RIGHT TO THE PROPERTY TO ANOTHER • Par. 3 1544 does NOT apply to a case where the sale in favor of one party was the property itself, while the transaction in favor of another was a mere promise to assign, or at most, an actual assignment of the right to repurchase the same property. POSSESSION OF PROPERTY SOLD • Possession means both actual physical delivery and constructive delivery o Actual delivery – when the thing is placed under the control and possession of the vendee o Constructive delivery – when the sale is made through a public instrument, the execution thereof shall be equivalent to delivery if from the deed the contrary does not appear or cannot be clearly inferred • After the sale of realty by means of a public instrument, the vendor who resells it to another, does not transmit anything to the second vendee, and if the latter, by virtue of the second sale, takes material possession of the thing, he does it as mere detainer, and it would be unjust to protect this detention against the rights of the thing lawfully acquired by the first vendee • The fact that the first sale was notarized does NOT mean that the second sale cannot be given effect ! if the land is registered under the TS, the rd mere execution of a sale by means of a public instrument will not bind 3 persons (including the second buyer). • If the first sale (albeit notarized) was not registered with the Register of Deeds, and the second buyer acquired the same property in GF and registers the sale in GF with the RD ! the second buyer should prevail •

NOTE: A vendee has a preferred right over another vendee who has not registered his title even if the latter is in actual possession if the immovable property NOTE: More credit is given to registration than actual possession • • •

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REGISTRATION OF IMMOVABLE SOLD •

 

DE LEON SALES REVIEWER

 

REGISTRATION MEANING Any entry made in the books of the Registry of Property which records solemnly and permanently the right of ownership and other real rights When a deed of sale is inscribed in the registry of property on the original document itself, what was done with respect to said entries or annotations and marginal notes amounted to a registration of the sale REGISTRATION AS AN OPERATIVE ACT PD 1529 (Property Registration Decree) Parcels of land brought under the operation of the Torrens system are considered registered lands The act of registration is the operative act to convey or affect the land in so far as third persons are concerned As against privies of the seller, Failure to register will not violate the vendee’s right of ownership conferred by an unregistered deed of sale A sale of registered land that was not registered with the RD will NOT prevail over a subsequent sale that was registered in GF by the second buyer Each RD us required to keep a primary entry book in which, upon payment of the entry fee, he shall enter, in the order of their reception, all instruments relating to the land. The instrument is regarded as registered from the time so noted. Registration in its juridical aspect must be understood as the entry made in a book or public registry of deeds. SALE REGISTERED IN GF Mere registration is NOT enough; GF must concur (Registration + GF = entitled to priority) GOOD FAITH – without knowledge of the previous alienation by the vendor to another or must not have been aware of facts which should put him upon inquiry to acquaint him with the defect or lack of title of his vendor The defense of indefeasibility of the Torrens Title does NOT extend to a transferee who takes the certificate of title in BF o NOTE: This defense refers to sale of lands and not sale of properties situated therein SALE REGISTERED IN BF Art, 1544 does not declare void a deed of sale registered in BF ! BUT it does not mean that such contract is not void To give full effect to the provision, the status of the 2 contracts must be determined and clarified ! one contract must be declared valid so that one vendee may exercise all the rights of an owner, while the other contract must be declared void to cut off all rights which may arise from said contract If registration is done in BF = no registration at all ! buyer who has first taken possession of the property in GF shall be preferred or in the 51         © Michelle Duguil,

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absence of possession, to the person who presents the oldest title in GF. • UNREGISTERED LAND • Art. 1544 has NO application to land not registered under the Torrens System • NOTICE OF ADVERSE CLAIM WAS REGISTERED PREVIOUS TO SALE TO POSSESSOR • The first buyer has a superior right to the property since he was the first who recorded his right in GF over the immovable property • REGISTRATION OF DEED OF EXTRAJUDICIAL PARTITION • Registration of a deed of extrajudicial partition does NOT operate as rd registration of the deed of sale in so far as 3 persons are concerned because what could validly transfer or convey the vendee’s right to the property to petitioners is the deed of sale and not the DEP which only mentioned the DS • ISSUANCE OF 2 CERTIFICATES • The better approach is to trace the original certificates from which the certificates of titles in dispute were derived • Should there be only one common original certificate of title, the transfer certificate issued on an earlier date along the line must prevail, absent any anomaly or irregularity tainting the process of registration • ISSUANCE OF TCT NOTED/NOT NOTED ON THE CT The issuance of a TCT to the second buyer was noted in the OCT which nd was cancelled by virtue of the issuance ! 2 buyer acquired ownership over lot since they were the first register in GF their sale in the DR as compared to the first buyer whose TCT was never noted on the OCT

REQUIREMENTS OF GOOD FAITH

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NOTE: GF or BF is relevant only where: o The subject of the sale is registered land and o The purchase was made from the registered owner, o Whose title to the land is clean, in which case o The purchaser who relied on the clean title of the purchaser is protected if he is a purchaser in good faith for value If the land is unregistered and the seller had no right to sell it, the purchaser bought the property at his own peril Presumption: transferee of registered land is not aware of any defect in the title of the property he purchased Actual notice is equivalent to and more binding that presumed notice by registration 1.

 

GOOD FAITH OF THE FIRST BUYER • Prius tempore, patior jure – first in time, stronger in right

DE LEON SALES REVIEWER

 

GF of the first buyer remains all throughout despite his subsequent acquisition of knowledge of the subsequent sale o E: When the second buyer registers in good faith the second sale GOOD FAITH OF THE SECOND BUYER • He is deemed a possessor in GF who is not aware that there exists in his title or mode of acquisition any flaw which invalidates it • Two fold requirement: Acquisition in GF and registration in GF • The failure of a prospective buyer to take such precautionary steps would mean negligence on his part and would thereby preclude him from claiming or invoking the rights of a purchaser in GF BURDEN OF PROOF • Good faith is presumed • It is upon those who allege the BF on the part of the possessor ! rests the burden of proof • The burden of proving the status of one as a purchaser in GF and for value ! lies upon him who asserts that status where the seller had none to transmit to the purchaser and the other claimant is himself a purchaser in GF from the successor-in-interest of the original title holder • BF is a question of fact which must be proven by clear and convincing evidence • To determine GF or BF, the point in time to be considered is the moment when the parties actually entered into the contract of sale PRUCHASE MUST BE FOR VALUABLE CONSIDERATION • Purchaser in Good Faith – one who buys property of another, without notice that some other person has a right to, or interest in, such property and pays a full and fair price for the same at the time of such purchase, or before he has notice of the claim or interest of some other person in the property ACTUAL KNOWLEDGE • Knowledge gained by the second buyer of the first sale defeats his rights even if he is first to register, since such knowledge taints his registration with bad faith • The rule in this case would be that the ownership shall pertain to the person, who in GF, first entered into possession of the property or in the absence of possession, to the person who presents the oldest title, provided there is GF DUTY OF PURCHASER TO LOOK BEYOND THE CERTIFICATE • GR: A buyer may rely on the TT of the seller in the absence of anything which excited suspicion o E: Where there exists important facts which would create suspicion in an otherwise reasonable man to go beyond the present title and to investigate those that preceded it o E2: Banking institutions have the standard and indispensable duty to ascertain the status or condition of the property and the validity of the vendor’s (or mortgagor’s) o E3: Financial institutions and realty corporations! requires higher degree of diligence because of the nature of their business o E4: Property purchased already peaceably possessed by another in the concept of an owner •

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• This rule only applied to purchasers in GF for value PURCHASER WITH NOTICE OF RIGHT OF REPURCHASE WHICH HAS ALREADY ELAPSED • One who buys property with notice that it is subject to the right of repurchase from his vendor (the vendee a retro in a previous sale), although such right has already elapsed and there is no annotation of any repurchase by the vendor a retro BUT the title has not yet been cleared of the encumbrance, without looking into the right of redemption inscribed on the title ! X purchaser in GF for he has notice that some other person could have a right or interest in the property ADVERSE CLAIM OR LIS PENDIS PREVIOUSLY ANNOTATED ON TITLE OF PROPERTY SOLD • A subsequent sale of land cannot prevail over an annotated adverse claim which was previously annotated in the certificate of title of the property • A prior judicial determination of the validity of the adverse claim before it can flaw the title of the subsequent transferees X required • Annotation of an adverse claim – measure designed to protect the interest of a person over a piece of property and serves as a notice and warning to third parties dealing with said property that someone is claiming an interest in the same or may have better right than the registered owner thereof o E: When the alleged flaw (notice of lis pendis) was already being cancelled at the time of purchase PURCHASER EXAMINED ONLY THE LAST CERTIFICATE OF TITLE • To be a purchaser in GF, it is enough that he examines the latest certificate of title • He is not bound by the OCT but only the certificate of title of the person from whom he purchased the property

SALES INVOLVING UNREGISTERED LAND 1. GENERAL PRINCIPLES • Art. 1544 does NOT apply to sales involving unregistered lands • Section 113 of PD1529 – No deed, conveyance, mortgage, lease or other voluntary instrument affecting land not registered under the TS shall be valid, except as between the parties thereto, unless such instrument shall been recorded in the manner prescribed herein in the office of the RD for the province or city where the land lies… Any recording made under this section shall be without prejudice to a third party with a better right • Registration is given some priority, provided that there is no other party with a better right 2. SALE OF UNREGISTERED LAND • First buyer would have a better right in view of the fact that his claims is based on a prior sale coupled with OCEN thereof as an owner 3. UNREGISTERED LAND SUBQUENTLY REGISTERED • Where the land was unregistered at the time of the first sale, but was already registered at the time of the second sale ! the second buyer prevails over the first if the second buyer recorded the sale in GF with the RD

 

DE LEON SALES REVIEWER

 

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PREFERENCE OF LEVY OF EXECUTION OR ATTACHMENT OVER PRIOR UNREGISTERED LAW • The priority enjoyed by the levy on execution extends with full force and effect to the buyer at the auction sale conducted by virtue of such levy • The doctrine is that a levy on execution or attachment duly registered takes preference over a prior unregistered sale, and that even if the prior unregistered sale is subsequently registered before the sale on execution but after the levy was duly made, the validity of the execution sale should be maintained because it retroacted to the date of levy

EXECUTION SALES 1. REGISTERED LAND • The second buyer who purchases at an execution sale acquires a better right over the first buyer where the sale to the first buyer was not recorded while the levy was recorded and a new TCT was issued in favor of the second buyer o E: Where a party has actual knowledge of the claimant’s OCEN possession of the disputed property at the time the levy or attachment was registration ! • The preference created by the levy on attachment is not diminished even by the subsequent registration of the prior sale • The order of entry in the primary entry book determines the priority in registration 2. UNREGISTERED LANDS • Art. 1544 does NOT apply where the second buyer acquired the unregistered parcel of land at an execution sale (even if the second buyer was ignorant of the prior sale made by his judgment debtor in favor of the first buyer) • Reason: Purchaser of unregistered land at a sheriff’s execution sale only steps into the shoes of the judgment debtor, and merely acquires the latter’s interest in the property sold at the time the property was levied upon 3. UNREGISTERED LAND WAS SUBSEQUENTLY REGISTERED • RULE #1 : Where the sale in favor of the first buyer was executed before the land was registered, while the conflicting sale in favor of the second buyer was executed after the same property had been registered ! upon expiration of the right of redemption, the purchaser or redemptioner shall be substituted to and acquire all the rights, title interest and claim of the judgment obligor to the property as of the time of the levy ! subsequent levy made on the property for the purpose of satisfying the judgment rendered against the seller in favor of the judgment creditor = void • RULE #2: Where the first sale involved unregistered land while the second sale (not an execution sale) was made when the land was already registered ! the second buyer who purchased the land when it was already registered and who registered the sale in GF will prevail over the first buyer who purchased it when it was still unregistered APPLICABILITY OF ART. 1544 TO CONTRACTS TO SELL 1. NOT APPLICABLE TO CONTRACT TO SELL

 

 

 

 

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X apply to contract to sell for neither a transfer of ownership nor a sales transaction has been consummated • X apply to a case where there was a sale to one party of the land itself while the other contract was a mere promise to sell land ART 1544 PRINCIPLES APPLY TO A CONTRACT TO SELL • SC has applied the governing principles of Art. 1544 in a situation where the first contract was a contract to sell. • GR: Knowledge gained by the first buyers under a contract to sell of the new agreement between the seller and the second buyer will NOT defeat their rights as first buyers o E: Where the second buyer registers or annotates his transaction or agreement on the title of the subject properties in GF ahead of the first buyers • Although the first buyers knew of the second transaction, it will not bar them from availing of their rights granted by law, among them, to register first their agreement as against the second buyer APPLICABILITY TO CONDITIONAL SALE •

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CONTRACT TO SELL There being no previous sale of the property, the third person buying such property despite the fulfillment of the suspensive conditions such as the full payment, cannot be deemed a buyer in BF and the prospective buyer cannot seek relief of reconveyance of the property. X double sale

Title to the property will transfer to the third person after registration because there is no defect in the owner-seller’s title per se Owner-seller may be sued for damages by the intending buyer

CONDITIONAL SALE Upon the fulfillment of the condition, the sale becomes absolute and this will definitely affect the seller’s title thereto ! automatic transfer of ownership upon happening of suspensive condition

Second buyer of the property who may have had actual or constructive knowledge of such defect in the seller’s title, or at least was charged with the obligation to deliver such defect, cannot be a registrant in good faith Second buyer X defeat first buyer’s title

In case title is used to the second buyer, the first buyer may seek reconveyance of the property subject of the sale

OTHER RULINGS ON APPLICATONS OF RULES 1. SUBQUENT MORTGAGE REGISTERED UNDER ACT NO. 3344 • An unrecorded sale of a house of a prior date is preferred to a recorded mortgage of the same house of a later date • Reason: if the original owner had parted with his ownership of the thing sold, then he no longer had ownership and full disposal of that thing so to be able to mortgage it

 

DE LEON SALES REVIEWER

 

The registration of a mortgage under ACT. NO. 3344 is without prejudice to the better right of third parties PACTO DE RETRO SALE • Its is not applicable to a case which involves an earlier pacto de retro sale of an unregistered land and the subsequent donation thereof by the vendor a retro to another who, in turn, sold it to a third party while the property was still in the possession of the vendee a retro who has already acquired title before donation because of the failure of the vendor a retro to repurchase • There being no title to the property which the vendor a retro could convey to the supposed done, since he was no longer the owner thereof, no title could be conveyed by the donee by the sale of the property SUBSEQUENT MORTGAGE OF LAND REGISTERED UNDER THE TORRENS SYSTEM, REGISTERED BY MORTGAGEE • The registered right of GSIS as mortgagee of the property was held inferior to the unregistered right of M, the previous buyer, the unrecorded sale between M as the vendee and Z, the original owner, is preferred • Reason: If Z had parted with his ownership of the land sold, then he no longer had ownership and free disposal of the same as to be able to mortgage it SALE TO FINANCIAL INSTITUTION QUALIFIED AS INNOCENT PURCHASE FOR VALUE • When financial institutions exercise extraordinary diligence in determing the validity of the certificates of title to properties being sold or mortgaged to them and still fail to find any defect or encumbrance upon the subject properties after said inquiries ! such financial institution should be protected like any other IPV if they paid full and fair price at the time of the purchase or before having notice of some other person’s claim in the property • A financial institution is not expected to check the technical description of each and every title in the RD in order to determine whethere there is another title to the property •

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SECTION 3. CONDITIONS AND WARRANTIES 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 non-performance of the condition as breach of warranty. Where the ownership in the thing has not passed, the buyer may treat the fulfillment 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. CONDITION

 

 

 

 

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An uncertain event or contingency on the happening of which the obligation (or right) of the contract depends The obligation of the contract does not attach until the condition is performed First paragraph of 1545 – contemplates a perfected contract of sale. The application of this article presupposes that there is a perfected contract of sale and that one of them fails in the performance of an obligation under the contract The term is not used in the sense of a “promise”

EFFECT OF NON-FULFILLMENT OF CONDITION A contract of sale may be absolute or conditional. 1. If the obligation of either party is subject to any conditions, and such condition is not fulfilled, such party may either: 1. Refuse to proceed with the contract; or 2. Proceed with the contract, waiving the performance of the condition 2. If the condition is in the nature of a promise that it should happen, the nonperformance of such condition may be treated by the other party as a breach of warranted (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. WARRANTY • A statement or representation made by the seller of goods, contemporaneously and as party of the contract of sale, having reference to the character, quality, or title of the goods, and by which promises or undertakes to insure that certain facts are or shall be as he then represented them. NECESSITY OF CONTRACT OF SALE • A warranty is an incident to a contract of sale and assumes or necessarily implies the existence of a contract of sale • A warranty is not an essential element of sale, there can no warranty without a contract of sale TERMINILOGY USED BY PARTIES NOT CONTROLLING • It is NOT necessary that the word “warranty”, “warrant”, “representation”, or “represent” be used by the seller to constitute a warranty • The fact that stipulation in the contract of sale is specially called a “warranty” does NOT itself establish that the agreement thus referred to is a warranty

 

DE LEON SALES REVIEWER

 

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Not easy to determine whether a particular language does or does not amount to a warranty ! much will depend on the situation of the parties and the condition of the things when the language is used and to which it will apply

KINDS OF WARRANTY • EXPRESS OR IMPLIED • EXPRESS WARRANTY – one imposed by the parties to the contract • IMPLIED WARRANTY – Imposed by law • The seller is luable for his express and implied warranties of title, absence of hidden defects, fitness or merchantable quality, description and sample MEANING OF EXPRESS WARRANTY • An affirmation of fact or any promise by the seller relating to the thing, the natural tendency of which is to induce the buyer to purchase the thing and the buyer thus induced, does purchase the same • The parties may agree as to the extent of an express warranty, which may be more limited or more extensive that the warranties imposed by law TYPES OF EXPRESS WARRANTIES 1. A warranty relating to the CONTRACT OR TRANSACTION, such as a representation by the seller that the execution and delivery of the contract will not result in a breach of any agreement applicable to the seller 2. A warranty relating to the OBJECT of the contract, such as representation by the seller that the parcel of land subject matter of the contract is free from liens and encumbrances 3. A warranty relating to the PARTY to the contract, such as a representation by the seller that it is a corporation duly organized and existing under the laws of the RP NOTE: Express warranties can be given by both the seller and the buyer; in practice, sellers usually give more extensive representations as compared to buyers. EFFECT OF EXPRESS WARRANTY • A warranty is a collateral undertaking and as such, it follows the principal wherever it goes • No intent is necessary to make the seller liable for the warranty – it is immaterial whether the seller did not know that it was true or false • It is a natural consequence of what the seller says and the reliance thereon by the buyer that are alone important TIME OF WARRANTY • A warranty must form part of the transaction involving the sale • Courts are not inclined to treat affirmations made by the seller after the perfection of the sale as warranties, even if the affirmation is made before the delivery of the good and payment of the purchase price o E: If a warranty is given after the contract of sale has been perfected, the warranty must generally, in order to be effective, be accompanied by a new and separate consideration

 

 

 

 

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FORM OF WARRANTY • A warranty need not be in writing; it may be made orally o E: If the contract of sale is in writing and purports to embody the whole agreement of the parties, the parol evidence rule will generally preclude proof of an oral warranty INTENTION TO MAKE A WARRANTY • It is unnecessary that the representation or affirmation be actually intended by the seller as warranty • Apparent intent to warrant is sufficient • It is the natural tendency of the affirmation or promise to induce the buyer to purchase that is important, and not the intention of the seller to warrant, and the absence of an intention to warranty is of no consequence KNOWLEDGE AND GOOD FAITH OF THE SELLER • If the seller makes an express warranty, it is immaterial w/n he acted in GF in making the statement leading up to the sale • The seller is liable for breach of warranty even if he acted in good faith in making the warranty or even if he was not aware of the falsity of the warranty DUTY OF BUYER TO INVESTIGATE • If the seller gives an express warranty, the buyer does not have the duty to inspect the goods or to investigate the truth of the seller’s statements • The maxim caveat emptor does not apply to matters included in an express warranty • The buyer’s examination of the goods does not necessarily prevent a sufficient affirmation from being a warranty, especially so where the defects are of such a character as not to be discoverable on examination • Even if the buyer investigates, the parties can expressly stipulate that the investigation by the buyer does not relieve the seller of express warranties

“The usual exaggeration in trade, when the other party had an opportunity to know the facts, are not in themselves fraudulent” (1340) " “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” (1341) " “Misrepresentation made in GF is not fraudulent but may constitute error” (1343) The law permits the seller to exaggerate, puff, or enhance the quality of the product under the civil law maxim “simplex commendation non obligat” (a simple recommendation is not binding) The tendency of the courts however is in the direction of greater strictness against the seller’s untruthful puffing of his wares "

A warranty which comes into existence at the time of sale needs no further consideration since such warranty is supported by the consideration of the sale

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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 WARRANTY • That which the law derived by implication or inference from the nature of the transaction or the relative situation or circumstances of the parties irrespective of any intention of the seller to create it • An implied warranty is never in writing

WAIVER OF BREACH OF WARRANTY • The buyer may waive breach of warranty by: 1. Express agreement 2. Conduct inconsistent with an assertion of the breach 3. Acknowledgment of the satisfaction

IMPLIED BY LAW • The implied warranties contemplated under the civil code are warranties implied by law (as opposed to implied in fact) as attaching to an obligation of the seller which is not express in any words, irrespective of the intention of the parties

EFFECT OF EXPRESSION OF OPINION • An affirmation or representation which merely expresses the seller’s opinion, judgment, belief or estimate do not generally constitute a warranty o E: If the seller made such affirmation or statement as an expert and it was relied upon by the buyer

KINDS 1. Implied warranty as to seller’s title • That the seller guarantees he has a right to sell the thing sold and to transfer ownership to the buyer who shall not be disturbed in his legal and peaceful possession thereof (1548) 2. Implied warranty against hidden defects or unknown encumbrance

 

DE LEON SALES REVIEWER

 

 

 

 

 

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That the seller guarantees that the thing sold is free from any hidden faults or defects or any charge or encumbrance not declared or known to the buyer Implied warranty as to fitness or merchantable quality • That the seller guarantees that the thing sold is reasonably fit for the known particular purpose for which it was acquired by the buyer, or where it was bought by description, that it is of merchantable quality •

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RIGHT TO TRANSFER TITLE AT THE TIME OF DELIVERY • The right of the seller to sell the thing need not reside in him at the time the contract is perfected • It is sufficient that the vendor has a right “at the time when the ownership is to pass” (1459 & 1562) NATURE OF IMPLIED WARRANTY • It is a natural, not an essential, element of a contract because it is presumed to exist even though nothing has been said in the contract on the subject • It is incorporated in the contract • It is an exception to the rule of caveat emptor • HOWEVER, it may be waived or modified by express stipulation – warranties will not be implied if they are inconsistent with the express terms of the sales agreement or contrary to the manifest purpose of the parties where the facts clearly negative any intention to warrant WHEN IMPLIED WARRANTY IS NOT APPLICABLE 1. “AS IS AND WHERE IS” SALE • Means nothing more than the vendor makes no warranty as to the quality or workable condition of the goods, and that the vendee takes them in the condition in which they are found and from the place where they are located • It does not extend to liens or encumbrances unknown to the vendee and could not be disclosed by a physical examination of goods • The term “as is” in the public auction of goods – refers to physical condition of the merchandise and not to the legal situation in which it was at the time of the sale • A provision for the sale and purchase of goods “as is” does not affect the seller’s obligation to furnish goods which comply with the description • It does not prevent fraudulent representation relied on by the buyer from constituting fraud which makes the contract voidable or a ground for damages 2. SALE OF SECONDHAND ARTICLES • There is no implied warranty as to the condition, adaptation, fitness or suitability for the purpose for which made, or the quality of an article sold as and for a second-hand article • BUT such articles might be sold under such circumstances as to raise an implied warranty (ex. a certification issued by the vendor that a

 

DE LEON SALES REVIEWER

 

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secondhand machine was in A-1 condition = express warranty binding to the seller) SALE BY VIRTUE OF AUTHORITY IN FACT OR LAW • No warranty of title is implied in a sale by one not professing to be the owner • It does not apply to a sheriff, auctioneer, mortgagee, pledgee or other person who sells by virtue of authority in fact or law ! they are not liable to a person with legal or equitable interest therein o E: They are still liable for actual representations, fraud or negligence in the exercise of their duties • The risk of defective title here is on the purchaser, the circumstances surrounding such sales being sufficient to put him on notice as to interests of third persons in the sold • The rule of caveat emptor applies to execution sales SUBSECTION 1. – WARRANTY IN CASE OF EVICTION

SECT. 1548. Eviction shall take place whenever by a final judgment based on a right prior to the sale or an act imputable to the vendor, and the vendee is deprived of the whole or part of the thing purchased. The vendor shall answer for the eviction even though nothing has been said in the contract on the subject. The contracting parties, however, may increase, diminish, or suppress this legal obligation of the vendor. MEANING OF EVICTION • The judicial process, whereby the vendee is deprived of the whole or part of the thing purchased by virtue of a FJ based on a right prior to the sale or an act imputable to the vendor WARRANTY IN CASE OF EVICTION • The seller’s obligation is generally NOT extinguished upon the delivery of the thing • The vendor guarantees the buyer’s peaceful possession of the thing sold rd and must generally defend against attacks of 3 persons, based on a defect in the rights of the vendor, on the vendee’s ownership and possession of the thing sold ESSENTIAL ELEMENTS OF WARRANTY AGAINST EVICTION A breach of warranty requires the present of the following circumstances: 1. The buyer is deprived in whole or in part of the thing purchased 2. He is so deprived by virtue of a final judgment 3. The judgment is based on a right prior to the sale or an act imputable to the seller

 

 

 

 

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The seller was summoned in the suit for eviction and made a codefendant at the instance of the buyer There is NO waiver on the part of the buyer

In the absence of these requisites, a breach of warranty against eviction under Art. 1547 cannot be declared TYPES OF EVICTION • Total – the vendee is deprived of the whole thing purchased • Partial – o Vendee is deprived of part of part of the thing purchased o Vendee is deprived of some items that were jointly sold with other items o If the immovable sold should be encumbered with any nonapparent burden or servitude, not mentioned in the agreement, of such a nature that it must be presumed that the vendee would not have acquired it had he been aware thereof (1560) TYPES OF PROPERTY SOLD • The warranty against eviction is generally applicable to the sale of all classes of property o E1: 1630 – The sale of an INHERITANCE ! in which the seller shall only be answerable for his character as an heir, but not ownership of all things that supposedly comprise the inheritance o E2: 1631 – The sale for a LUMP SUM of the whole of certain rights, rents or products ! in which case the seller is not 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 of the things sold TRESPASS CONTEMPLATED BY WARRANTY AGAINST EVICTION • Mere TRESPASS IN FACT does NOT give rise to the application of the doctrine of eviction (1590) o Mere act of trespass – when the trespasser claims no right whatever = vendor NOT liable therefor o Remedy: Buyer has to direct action against the trespasser in the same way as the lessee has such right • The disturbance referred to in the case of eviction is a DISURBANCE IN LAW – which requires that a person go to the courts of justice claiming the thing sold, or part thereof, and invoking reasons o If FJ is rendered depriving the buyer of the thing sold or any part thereof ! the doctrine of eviction becomes applicable VENDOR’S LIABILITY IS WAIVABLE • The obligation of the vendor to warrant against eviction is NOT an essential element of a contract of sale and therefore may be INCREASED, DIMINISHED, OR SUPPRESSED by agreement of the parties • The total or partial waiver of the obligation is consistent with Art. 6 – Rights may be waived, unless the waiver is contrary to law, public order, public

 

DE LEON SALES REVIEWER

 

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policy, morals or good customs, or prejudicial to a 3 person with a right recognized by law o E: Any stipulation exempting the vendor from the obligation to answer for eviction shall be VOID if he acted in BF EVICTION AND WARRANTY AGAINST EVICTION • Eviction and warranty are 2 ideas that complete each other, but each one has a separate meaning EVICTION State of fact Cause: The act by which the buyer is deprived, in whole or in part, of the thing sold by virtue of a FJ

WARRANTY Legal Concept Effect: As a result of this state of fact comes the warranty, which imposes upon the seller the obligation to remedy the damage suffered by the vendee who was deprived of the thing acquired by virtue of a FJ

ART. 1549. The vendee need not appeal from the decision or order that the vendor may become liable for eviction. VENDEE HAS NO DUTY TO APPEAL FROM JUDGMENT • The buyer’s right against the seller is NOT lost because the vendee did not appeal • The requirement of law is deemed satisfied upon judgment becoming final (whatever may be the cause of finality) • The requirement of FJ does not also mean that the parties have taken all remedies • Final judgment may be based on a compromise agreement among the party litigants ART. 1550. When adverse possession had been commenced before the sale but the prescriptive period is completed after the transfer, the vendor shall be liable for eviction. EFFECT OF PRESCRIPTION • Prescription – by prescription, one acquired ownership and other real rights through the lapse of time in the manner and under the conditions prescribed by law. In the same way, rights and actions are lost by prescription. COMPLETED BEFORE SALE • The buyer may lose the thing purchased to third person who had acquired title thereto by prescription • When prescription has commenced to run against the seller and was already complete before sale ! the buyer can enforce the warranty against eviction • In this case, the deprivation is based on a right prior to the sale and an act imputable to the seller

 

 

 

 

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COMPLETED AFTER SALE • Even if prescription has started before the sale but has reached the limit prescribed by law after the sale ! the seller is NOT liable for eviction • The reason is that the buyer could have easily interrupted the running of the prescriptive period by bringing the necessary action EXCEPTION • If the property sold, however is registered under the Torrens system, Art. 1550 is NOT applicable • Under the TS, ownership of land is not subject to prescription ART. 1551. If the property sold is for nonpayment of taxes due and not made known to the vendee before the sale, the vendor is liable for eviction. DEPRIVATION FOR NON-PAYMENT OF TAXES • If the buyer is deprived of the ownership of the property because it is sold for non-payment of taxes due from the seller ! the seller is liable for eviction for an act imputable to him • It is required, however, that at the time of the sale, the non-payment of taxes was NOT known to the buyer ART. 1552. The judgment debtor is also responsible for eviction in judicial sales, unless it is otherwise decreed in the judgment LIABILITY OF JUDGMENT DEBTOR • While the rule on implied warranty does not apply to a sheriff who sells by virtue of authority in law ! the judgment debtor is RESPONSIBLE for eviction and hidden defects even in judicial sales, unless otherwise decreed in the judgement • Art. 1552 is based on the general principle that a person may not enrich himself at the expense of another • If the purchaser of real property sold on execution be evicted therefrom because the judgment debtor (seller) has no right to the property sold ! the purchaser is entitled to recover the price paid with interest from the judgment debtor (seller) • If the sale was effected by the judgment creditor ! the judgment creditor should NOT be permitted to retain the proceeds of the sale, at the expense of the purchaser ART. 1553. Any stipulation exempting the vendor from the obligation to answer for eviction shall be void, if he acted in bad faith STIPULATION WAIVING WARRANTY EFFECT OF SELLER’S BAD FAITH • Bad faith – knowing beforehand at the time of the sale, the presence of the fact giving rise to eviction and possible consequence

 

DE LEON SALES REVIEWER

 

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Thus, if the vendor after selling his property to another, sold it again to another purchaser ! he CANNOT even by stipulation, be exempt from warranty against eviction, because he acted in BF

EFFECT OF BUYER’S BAD FAITH • The buyer should also not be guilty of BF in the execution of the sale • If he knew of the defect of the title at the time of sale, or had knowledge of the facts which should have put him upon inquiry and investigation as might be necessary to acquaint him with the defects of the title of the vendor ! he CANNOT claim that the vendor has warranted his legal and possession of the property sold on the theory that he proceeded with the sale with the assumption of the danger of eviction • He is NOT entitled to warranty against eviction, nor is he entitled to damages ART. 1554. If the vendee has renounced the right to warranty in case of eviction, and eviction should take place ! the vendor shall only pay the value of which the thing sold had at the time of the eviction. Should the vendee have made the waiver with knowledge of the risks of eviction and assumed its consequence ! the vendor shall not be liable. 2 KINDS OF WAIVER EVICTION 1. CONSCIENTE (SIMPLE) – The waiver is voluntarily made by the buyer without the knowledge and assumption of the risks of eviction 2. INTENCIONADA (CALCIFICADA) – The waiver is made by the buyer with knowledge of the risks of eviction and assumption of its consequence EFFECT OF WAIVER BY THE VENDEE 1. If the waiver was only consciente ! the vendor shall pay only the value which the sold had at the time of eviction o This is a case of SOLUTIO INDEBITI o The sole effect of the waiver unaccompanied by the knowledge and assumption of the danger of eviction is: to deprive the buyer of the benefits mentioned in Nos. 2,3,4,5 of Art. 1555 2. If the waiver was intencionada ! the seller is exempted from the obligation to answer for eviction, provided that he did not act in BF PRESUMPTION AS TO KIND OF WAIVER o Every waiver is presumed to be CONSCIENTE while the contrary is not proven o To consider it intencionada: o There must be an act of waiver o Accompanied by some circumstance which reveals the vendee’s knowledge of the risks of eviction and his intention to submit to the consequences

 

 

 

 

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ART. 1555. When the warranty has been agreed upon or nothing has been stipulated on this point, in case eviction occurs, the vendee shall have the right to demand of the vendor:

COSTS OF THE SUIT

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(1) The return of the value which the thing sold had at the time of the eviction, be it greater or less than the price of the sale

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(2) The income or fruits, if he has been ordered to deliver them to the party who won the suit against him

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(3) The costs of the suit which caused the eviction, and in proper cases, those of the suit brought against the vendor for the warranty

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(4) The expense of the contract, if the vendee has paid them (5) The damages and interests and ornamental expenses, if the sale was made in BF RIGHTS AND LIABILITIES IN CASE EVICTION OCCURS • The provisions of the above article specify in detail the rights and liabilities of the seller and the buyer in the event eviction takes place “when the warranty has been agreed upon or nothing has been stipulated on this point” – that is, in the absence of waiver of eviction by the buyer

EXPENSES OF THE CONTRACT

RETURN OF VALUE OF THING

DAMAGES AND INTERESTS

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•

INCOME OR FRUITS OF THING

 

If at the time of the eviction the value of the property is really more or less than its value at the time of sale, by reason of improvement or deterioration ! the seller should pay the excess or not suffer the damage All kinds of improvements (useful, necessary, recreational expenses) voluntary entered into by the buyer or caused by nature or time in so far as they may affect the value of property ! are taken into account in determining the increase in value

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Note: The law does not speak of payment of interest on the purchase price. The law had intended that the interest on the price shall be SET OFF against the fruits received by the buyer from the thing while in possession. • The buyer is liable to the party who won the suit against him for the income or fruits received only if so decreed by the courts ! the seller must indemnify him • Reason: To the buyer belongs the use, free of any liability, of the subject matter of the sale • This benefit is not by any means gratuitous • It is offset by the use without interest of the money of the buyer by the seller

DE LEON SALES REVIEWER

 

 

 

The buyer is also entitled to recover the expenses of litigation resulting in eviction, including the costs of the action brought against the seller to enforce his warranty “Cost of the suit” – does not include travelling expenses incurred by the vendee in defending himself in the action He is not entitled to recover damages unless the sale was made by the seller in BF GR: Does not apply to a situation where the judgment is in favor of the seller o E: In this case, the obligation to reimburse the buyer for costs of suit will arise if the vendor with fault or negligence, but should be proved o Reason: The seller could not expect that a third party would have the pretension to disturb the peaceful possession of the thing sold In the absence of any stipulation to the contrary, the expenses in the EXECUTION AND REGISTRATION of the sale are borne by the SELLER If the buyer should have paid for such expenses ! he shall have the right to demand the same from the seller The right of the buyer to demand “damages and interests and ornamental expenses” - qualified by the condition that the sale was made in BF IF GOOD FAITH IS PRESUMED – The buyer is not entitled to recover damages o E: Bad faith of the seller is shown in making the sale INTERESTS – o Does not cover interest on the purchase price as in lieu thereof, the buyer is entitled to the fruits of the thing o In cases he has been ordered by a court to deliver the fruits to the successful party ! the seller must indemnify him o Refers to interest on costs other than the purchase price, such as costs of suit and expenses of contract

 

 

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RIGHT OF SECOND PURCHASER TO WHOM WARRANTY ASSIGNED • Where a warranty against eviction was expressly agreed upon in a contract nd of sale and the buyer (2 seller) sold the same land to another expressly assigning to him the right of warranty ! the second purchaser has a right of action against the first seller to make good the warranty against eviction • The rule that a contract binds only parties, their assigns and heirs is NOT applicable in this case • The basis of the second purchaser’s action if the first buyer’s transfer to him of the right of warranty, a right which the first buyer had against the seller and which the second purchaser exercises by virtue of transfer ART. 1556. Should the vendee lose, by reason of the eviction, a part of thing sold of such importance, in relation to the whole, that he would not have bought it without said part, he may demand the rescission of the contract; but with the obligation to return the thing without other encumbrances than those which it had when he acquired it. He may exercise his right of action, instead of enforcing the vendor’s liability for eviction. The same rule shall be observed when 2 or more things have been jointly sold for a lump sum, or for a separate price for each of them, if it should clearly appear that the vendee would not have purchased one without the other. ALTERNATIVE RIGHTS OF BUYER IN CASE OF PARTIAL EVICTION • This article contemplates partial eviction • 1554 – Total eviction • If there is partial eviction, the vendee has the option to either: 1. Enforce the seller’s liability for eviction 2. To demand rescission of the contract • The above rule is applicable: 1. The buyer is deprived of a part of the thing sold if such part is of such importance to the whole that he would not have bought the thing without said part 2. When two or more things are jointly sold whether for lump sum or for a separate price for each, and the buyer would not have purchased one without the other • The intention of the buyer would be determined as of the perfection of the sale – it must be demonstrated that the buyer would not have purchased the thing without the portion subject to eviction • Art. 1371 – the contemporaneous and subsequent acts shall be principally considered REMEDY OF RESCISSION NOT AVAILABLE IN CASE OF TOTAL EVICTION • The remedy of rescission contemplates that one demanding it is able to return whatever he has received under the contract • When this cannot be done (in case of total eviction) ! rescission cannot be carried out because the buyer can no longer restore the thing to the seller

 

DE LEON SALES REVIEWER

 

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He has the obligation to return the thing without other encumbrances other than when he acquired it

ART. 1557. The warranty cannot be enforced until a final judgment has been rendered, whereby the vendee loses the thing acquired or part thereof FINAL JUDGEMENT OF EVICTION ESSENTIAL • The above article merely reiterates the 2 essential elements for the enforcement of warranty in case of eviction: 1. Deprivation of the whole or part of the thing sold 2. Existence of final judgment • Eviction may take place by virtue of final judgment of an administrative office or board, and it is not indispensible that it be rendered by court, provided it was rendered by competent authority and in conformity with the procedure prescribed by law • Roman law also admits that it is sufficient that the judgment be made by an arbital tribunal. However, that should apply only if the vendor was also made a party to the arbitration proceeding ART. 1558. The vendor shall not be obliged to make good the proper warranty, unless he is summoned in the suit for eviction at the instance of the vendee. FORMAL SUMMONS ESSENTIAL • Another essential requisite before a vendor may be legally liable for eviction is that he should be summoned in the suit for eviction at the instance of the vendee VENDOR TO BE MADE PARTY IN SUIT FOR EVICTION • The vendor should be made party to the suit either by way of asking that the seller be made: 1. A co-defendant or 2. By filing a third party complaint against said vendor • Furnishing the seller by registered mail with a copy of the opposition of the buyer filed in the eviction suit is NOT the kind of notice prescribed by Art. 1558 and 1559 • It is evident that the notification must be given in the action brought by the third party again the vendee because it is there that the seller must defend the buyer’s peaceful and legal possession for which he is responsible and not in the action to enforce warranty itself which already supposes the eviction • The requirement is NOT satisfied where the unlawful detainer case filed by rd 3 persons against the buyer, which led to the ouster of the buyer from the subject lots, was decided by compromise agreement without impleading the seller as third-party defendants. In order for the case to prosper, it is a precondition that the seller must have been summon in the suit for eviction of the buyer

 

 

 

 

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OBJECT OF THE LAW • The object is to give the seller an opportunity to intervene and defend the title that he has transferred because he alone knows the circumstances or reasons behind the claim of the plaintiff and be in a position to defend the validity of his title • In the absence of such opportunity, the seller is NOT bound by his warranty

NOTE: A servitude (or easement) – is an encumbrance imposed upon an immovable for the benefit of another immovable belonging to a different owner • Example of apparent servitude: A right of way establishing a permanent passage, which is continually kept in view by external sign • Example of non-apparent easement: A party wall which has no exterior sign

ART. 1559. The defendant vendee shall ask, within the time fixed in the Rules of Court for answering the complaint, that the vendor be made a co-defendant

WHEN RIGHT CANNOT BE EXERCISED • The alternative rights granted by 1560 cannot be exercised in the following cases: 1. If the burden or servitude is APPARENT – “made known and is continually kept in view by external signs that reveal the use and enjoyment of the same 2. If the non-apparent burden or servitude is REGISTERED 3. If the buyer had KNOWLEDGE of the encumbrance, whether registered or not • The registration of the non-apparent servitude in the registry of property operates as a constructive notice to the buyer ! seller is relieved from liability o E: If there is an express warranty that the immovable is free from any such burden or encumbrance " E to E: if the burden is known to the buyer, there is no warranty

VENDOR TO BE MADE CO-DEFENDANT • The notification required by Art. 1159 refers to a case where the buyer is the defendant in a suit instituted to deprive him of the thing purchased • The buyer should call in the seller to defend the action which has been instituted against him (buyer) • Rules of Court, Rule 11, Sect. 1 - The buyer should ask the court within the time allowed him to answer that the vendor be made a co-defendant to answer the complaint of the plaintiff who seeks to deprive him (buyer) of the property purchased ART. 1560. If the immovable sold should be encumbered with any nonapparent burden or servitude, not mentioned in the agreement, of such a nature that it must be presumed that the vendee would not have acquired it had he been aware thereof, he may ask for the rescission of the contract, unless he should prefer the appropriate indemnity. Neither right can be exercised if the non-apparent burden or servitude is recorded in the Registry of Property, unless there is an express warranty that the thing is free from all burdens and encumbrances. Within one year, to be computed from the execution of the deed, the vendee may bring the action for rescission, or sue for damages. One year having elapsed, he may only bring an action for damages within an equal period, to be counted from the date on which he discovered the burden or servitude. WHERE IMMOVABLE SOLD ENCUMBERED WITH NON-APPARENT BURDEN RIGHT OF VENDEE • Although the vendee is not deprived of the thing sold, totally or partially, the buyer may still: o Rescind the contract or o Ask for indemnity If the thing sold should be encumbered with any non-apparent burden or servitude, not mentioned in the agreement of such a nature that the buyer would not have acquired it had he been aware thereof • The lack of knowledge on the part of the seller is NOT a defense ! the contract can still be invalidated ON THE GROUND OF MISTAKE

 

DE LEON SALES REVIEWER

 

WHEN ACTION MUST BE BROUGHT • The action for rescission or damages must be brought WITHIN 1 YEAR FROM THE EXECUTION OF THE DEED OF SALE • If the period has already elapsed, the buyer may only bring an action for damages within 1 year from the date of discovery of the non-apparent burden or servitude INTENTION rd st • There is a difference between the 3 paragraph of Art. 1556 and the 1 paragraph of 1560 on how to appreciate or interpret the intention of the buyer on whether he had wished to but 2 or more things without any condition of acquiring all, and whether he had wished to buy the immovable thing with an encumbrance e rd

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3 paragraph of 1156 When 2 or more things have been jointly sold for a lump sum, or for a separate price for each of them

1 paragraph of 1560 If the immovable sold should be encumbered with any non-apparent burden or servitude, not mentioned in the agreement It is enough that circumstances indicate a presumption that the buyer would not have purchased the immovable with encumbrance Less rigorous

It should clearly appear that the buyer would not have purchased one without the other More rigorous

 

 

 

 

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SUBSECTION 2. WARRANTY AGAINST HIDDEN DEFECTS OF, OR ENCUMBRANCE UPON, THE THING SOLD ART. 1561. The vendor shall be responsible for warranty against the hidden defects which the thing sold may have, should they render it unfit for the use for which it is intended, or should they diminish its fitness for such use to an extent that, had the vendee been aware thereof, he would not have acquired it or would have given a lower price for it; but said vendor shall not be answerable for patent defects or those which may be visible, or those which are not visible if the vendee is an expert who, by reason of his trade or profession, should have known them DEFINITION OF TERMS 1. REDHIBITION – the avoidance of a sale on account of some vice or defect in the thing sold, which render its use impossible, or so inconvenient and imperfect that it must be supposed that the buyer would not have purchased it had he known of the vice 2. REDHIBITORY ACTION – An action instituted to avoid a sale on account of some vice or defet in the thing sold, which render its use impossible, or so inconvenient and imperfect that it must be supposed that the buyer would not have purchased it had he known of the vice 3. ACCION MINORIS OR ESTIMATORIS – If the object is to procure the return of a part of the purchase price paid by the buyer 4. REDHIBITORY VICE OR DEFECT – Is a defect in the article sold against which defect the seller is bound to warranty o The vice or defect must constitute an imperfection, a defect in its nature, of certain importance; and a minor defect does NOT give rise to redhibition o The mere absence of a certain quality in the thing sold which the buyer thought it to contain is NOT necessarily a redhibitory defect o One thing is that the thing lack certain qualities and another thing is that it positively suffers from certain defects REQUISITES FOR WARRANTY AGAINST HIDDEN DEFECTS 1. The defect must be important or serious 2. It must be hidden 3. It must exist at the time of the sale 4. The buyer must give notice of the defect to the seller within reasonable time 5. The action for rescission or reduction of the price must be brought within the proper period a. 6 months from the delivery of the thing sold OR b. Within 40 days from the date of delivery in case of animals 6. There must be no waiver of warranty on the part of the buyer

 

DE LEON SALES REVIEWER

 

WHEN DEFECT IMPORTANT • The defect is important if: 1. It renders the thing sold unfit for the use for which it was intended OR 2. If it diminishes its fitness for such use to an extent that the buyer would not have acquired it had he been aware thereof or would have given a lower price for it • The USE contemplated must be: 1. Stipulated 2. In the absence of stipulation, that which is adopted to the nature of the thing and to the business of the purchaser • The imperfection or defect of little consequences does NOT come within the category of being redhibitory – it must be serious • Example: Where an expert witness categorically established that a printing machine sold is in A-1 condition, required many repairs before it could be used, plus the fact that the buyer never made appropriate use of the machine from the time of purchase until an action was filed ! attest the major defect in the said machine justifying rescission of the contract (Moles vs. IAC) WHEN DEFECT HIDDEN • The defect must be hidden • There is no implied warranty against hidden defects of which the buyer has full knowledge or of which he has knowledge sufficient to put him on notice • The defect is hidden (or latent): o If it was not known and could not have been known to the vendee o It is one which is hidden to the eyes and cannot be discovered by ordinarily careful inspection or examination • There is no warranty if the defect is patent or visible (exception to GR) • The vendor’s liability for warranty CANNOT be enforced although the defect is hidden if the buyer is an expert, who by reason of his trade or profession, should have known it (exception to GR) o The same defect, therefore, may be hidden with respect to one person, but not hidden with respect to another REMEDIES (1567) 1. Rescission of the contract + damages 2. Proportionate reduction of the price + damages WHERE DEFECT PATENT OR MADE KNOWN • A warranty does not cover defects which the buyer must have observed o Ex. If the seller of a horse which is obviously blind and which both parties known to be blind, says it is sound, the meaning of “sound” as used in that connect must be sound except as to its eyes • The same rule is applicable to a defect which is not obvious but of which the seller TELLS the buyer, or which the buyer KNOWS or SHOULD HAVE KNOWN • If the seller successfully uses art to conceal the defect = the seller is liable

 

 

 

 

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GR: There is no implied warranty against hidden defects in the sale of second hand goods o E: The seller shall be liable if he has been shown to have made misrepresentation or acted in BF The seller may bind himself against patent or obvious defects (manifest upon causal inspection) if the intent to do so is clearly evident ! the seller cannot allege as defense that inspection (which the buyer failed to make) would have disclosed the defect or that the buyer relied on his own judgment

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DEFECT AT THE TIME OF THE SALE • The seller cannot be held liable for defects suffered by the thing sold after the perfection of the sale • The buyer who claims breach of warranty against hidden defects must prove that the defect existed at the time of sale ART. 1592. 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

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(2) Where the goods are bought by description from a seller who deals in goods of that description (whether he be the grower or manufacturer or not), there is an implied warranty that the goods shall be of merchantable quality IMPLIED WARRANTIES OF QUALITY • QUALITY OF GOODS – includes their state or condition o The purpose of holding the seller on his implied warranties is to promote high standard in business and to discourage sharp dealings o They are based on the principle that “honesty is the best policy” IMPLIED WARRANTY OF FITNESS • GR: There is no implied warranty as to quality or fitness for any particular purpose of goods under a contract of sale o E1: Where the buyer, expressly, or by implication, makes known to the seller the particular purpose for which the goods are required o E2: Whether the buyer relies upon the seller’s skill or judgment (whether he be the grower or manufacturer or not) • KNOWLEDGE OF THE SELLER o GR: there is no general implication of warranty that the goods sold are fit for the purpose for which they are purchased if the seller is not informed of, or expressly or impliedly acquainted with such purpose. The wants and needs of the buyer must be disclosed

 

DE LEON SALES REVIEWER

 

TEST OF AN EXISTENCE OF IMPLOED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE: Whether the buyer informed the seller of the circumstances and conditions which necessitated his purchase of a certain character of article or material and left it to the seller to select the particular kind and quality of article suitable for the buyer’s use RELIANCE ON JUDGMENT AND SKILL OF THE SELLER o The buyer must have relied on the skill or judgment of the seller or circumstances must be shown from which this may be presumed o The buyer’s reliance on the seller may arise by implication, such as where the seller is an expert and requests the buyer to rely on the expert knowledge of such seller o The buyer’s reliance on the seller need not be a total reliance – the buyer may rely on his own judgment as to some matters and on the skill and judgment of the seller on other matters o Doctrine of implied warranty of fitness – has been said to rest on the presumed superior knowledge of the seller and cannot prevail where such knowledge presumably does not exist " Ex.: If the buyer is an experiences manufacturer and the seller is an ordinary dealer, there NO such warranty although the seller knows his purpose. " If the buyer has superior knowledge, the buyer would NOT be relying on the skills and judgment of the seller PARTICULAR PURPOSE OF THE GOODS o It is not some purpose necessarily distinct from a general purpose o Ex.: The general purpose for which all food is bought is to be eaten, and this would also be the particular purpose in a specific instance o It is the purpose expressly or impliedly communicated to the seller for which the buyer buys the goods; and it may appear from the very description of the articles (ex. “coatings” or “hot water bottle”) o But where an article is capable of being applied to a variety of purpose ! the buyer must particularize the specific purpose he has in view TEST o Whether the buyer justifiably relied upon the seller’s judgment that the goods furnished would fulfill the desired purpose, or whether relying on his own judgment, the buyer ordered or bought what is frequently called, “a known, described, and definite article” o The occupation of the seller is important evidence of the justifiableness of the buyer’s reliance o Where the buyer had no opportunity for previous inspection, he is entitled to rely, and will naturally be presumed to have relied, upon the seller’s skill and judgment o

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IMPLIED WARRANTY OF MECHANTABLE QUALITY • Where the goods are bought by description, the seller impliedly warrants that the goods are merchantable quality • MERCHANTABLE QUALITY o The good is of such a quality and in such condition that a reasonable man would, after full examination, accept it under the circumstances of the case, in performance of his offer to buy the goods, whether he buys it for his own use to sell it again o The goods comply with the description of the contract so that to a buyer buying goods of that description, the goods would be good tender -- It does not mean that there will be in fact persons ready to buy the goods ART. 1562 Applied to goods bought by description Refers to an implied warranty that the goods are of “merchantable quality”

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SALEALIBILITY IN A PARTICULAR MARKET o The requirement of merchantable quality caries it NO implication that the goods shall be saleable in a particular market CAUSES OF UNMERCHANTABILITY o Goods may be unmerchantable not because of any defect in their physical condition but because of some other circumstance " Ex: Their infringement of trademarks of others renders them unsaleable o Other goods than food may be unmerchantable because the use of them is dangerous or injuries in ways not to be expected from the goods of the kind " Ex. If an ingredient of a face power is such as to cause irritation on the skin, the goods are not merchantable " Cases of this sort may often involve questions whether the difficulty is due to peculiar sensitiveness of the buyer and if so, whether there is ground for a right of action when goods would not be injurious to most persons APPLICABILITY TO GOODS IN THAT DESCRIPTION o It must be made clear that the warranty that the goods are of merchantable quality applies to all goods bought from a seller who deals in goods in that description, whether they are sold under a patent or trade name or otherwise DISTINGUISHED FROM OTHER WARRANTIES

WARRANTY OF MERCHANTABILITY Warranty that goods are reasonably fit for the general purpose for which they are sold

 

ART. 1565 Applies to goods bought by sample Implied warranty that goods shall be free from any defect rendering them “unmerchantable”

DE LEON SALES REVIEWER

WARRANTY OF FITNESS Warranty that the goods are suitable for the special purpose of the buyer which will not be satisfied by mere fitness for general purpose

 

ART. 1563. In the case of contract of sale of specified article under its patent or other trade name, there is no warranty as to its fitness for any particular purpose, unless there is a stipulation to the contrary. SALE UNDER A PATENT OR TRADE NAME • There is no implied warranty of fitness for any particular purpose where the article is sold under its patent or trade name • By exactly defining what he wants, the buyer has exercised his own judgment instead of relying upon that of the seller o The definition may be given by means of a trade name or in any other way o The description must be the buyer’s choice, or the goods must only be described and definite but known, in order to preclude warranty of fitness • E: In case of a “stipulation to the contrary” o The fact that the article has a trade name does not itself necessarily preclude the existence of an implied warranty of fitness for a particular purpose o The warranty may exist where, although the article has a trade name, the purchase is not made by, or in reliance on, the name, but is made for a particular purpose and supplied for that purpose, in reliance on the seller’s judgment • The fact that there may be no implied warranty for a particular purpose, because the articles are sold under its patent or other trade name, does not preclude the existence of an implied warranty of merchantability o Thus, in case of articles sold by its trade name, there is an implied warranty that the articles are merchantable as articles of such trade name ART. 1564. An implied warranty or condition as to the quality or fitness for a particular purpose may be annexed by the usage of trade EFFECT OF USAGE OF TRADE • A warranty as to the quality or fitness for a particular purpose may be attached by usage to a contract containing no express provision in regard to warranty, though in the absence of usage, no warranty would be implied • The usage is relied on for the purpose of showing the intention of the parties • If there is no usage, the parties would naturally express their intention • A usage in order to bind both parties must be known to both, or if unknown to one ! the other must be justified in assuming knowledge on the part of the person with whom he is dealing with • Presumption: that the parties are aware of the usage of trade ART. 1565. In the case of a contract of sale by sample, if the seller is a deal in goods of that kind, there is an implied warranty that the goods shall be free from any defect rendering them unmerchantable which would not be apparent on reasonable examination of the sample

 

 

 

 

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ABSENCE OF DEFECT RENDERING GOODS UNMERCHANTABLE • There is an implied warranty that the goods shall be free from any defect rendering them “unmerchantable” which would not be apparent on reasonable examination of the sample • The warranty applies only in the case of: o A contract of sale by sample and o If the seller is a dealer in goods of that kind • In a contract of sale by sample, it has been held that it is not enough that the goods are substantially like the samples as to kind, quality and value to be merchantable ! the goods must also be free from defects MERCHANTABILITY OF GOODS SOLD BY SAMPLE • WHERE SAMPLE NOT MERCHANTABLE o GR: All the buyer is entitled to, in case of sale or contract to sell by sample ! is that the goods be like the sample, so he has no right to have the goods merchantable if the sample which he has inspected is not o Reason: Similar with the rule that denies an implied warranty to a buyer who has inspected the goods which he buys o E: WHERE THE SAMPLE SUBJECT TO LATENT DEFECT " Where the defect in the goods is of such a character that the inspection will not reveal it, so in the case of a sale by sample, if the sample is subject to a latent defect ! the buyer reasonably relies on the seller’s skill or judgment, the buyer is entitled not simply to goods like the sample, but to goods like those which the samples seems to represent, that is, merchantable goods of that kind and character " REMEDY: The contract may be RESCINDED where the bulk of goods delivered do not correspond with the sample (1481) 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. RESPONSIBILITY OF VENDOR FOR HIDDEN DEFECTS EFFECT OF IGNORANCE OF THE SELLER • GR: The ignorance of the seller does NOT relieve him from liability to the buyer for any hidden faults or defects in the thing sold • GF cannot be availed of as defense by the vendor EXCEPTION • The parties may provide otherwise in their contract provided that: o The seller acted in GF and o That he is unaware of the existence of the fault or defect

 

DE LEON SALES REVIEWER

 

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E to E: The vendor is not relieved from liability for making false or misleading claims about the thing

WHERE VENDEE AWARE OF THE DEFECT • If the buyer is aware of the defect in the thing he buys or lack of title in the seller ! he cannot later complain thereof • He is deemed to have willfully and voluntarily assumed the risk attendant to the sale DOCTRINE OF “CAVEAT VENDITOR” AND “CAVEAT EMPTOR” • Caveat Emptor – let the buyer beware o ** A basic premise of this doctrine is that there be no misrepresentation by the seller, This ancient defense of caveat emptor belong to a bygone age, and has no place in contemporary business ethics o The seller’s liability for defects of the goods sold was then confined to cases of express promise to warrant the quality of such goods and to those in which the seller had knowledge of the hidden defects and the sale as made without the seller revealing them, but in the latter cases, the basis of the seller’s fraud o At early common law, the implied warranty of quality was not recognized and the rule was then caveat emptor • GR: The Old civil code (following the Roman Law) – rejected the maxim caveat emptor o The doctrine of caveat venditor (let the seller beware) – was adopted in accordance with which, “the seller is liable to the buyer for any hidden faults or defects in the thing sold, even though he was not aware thereof” (Art. 1566) o The doctrine is based on the principle that a sound price warrants a sound article • E: The maxim of caveat emptor, however, is still applicable in the following cases: o Sherriff’s sale o Sales of animals (1574) o Tax Sales (1547) o Double sales of property where the issue is who between 2 vendees has a better right to the property (1544) • The rule of caveat emptor simply requires the purchaser to be aware of the supposed title of the vendor and one who buys without checking the vendor’s title takes all the risks and loses consequent to such failure • A purchaser of real estate at the tax sale obtains only such title as held by the taxpayer ! the principle of caveat emptor applies • GR: A person dealing with registered land is merely charged with notice of the burdens on the property which are noted on the face of the register or the certificate of title o E: The buyer is obliged to investigate or inspect the property sold to him when there are circumstances that would put him on guard, such as the presence of occupants other than the registered owner.

 

 

 

 

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ART. 1567. In the cases of articles 1561, 1562, 1564, 1565 and 1566, the vendee may elect between withdrawing from the contract OR demanding proportionate reduction of the price, with damages in either case. ALTERNATIVE REMEDIES OF THE BUYER TO ENFORCE WARRANTY 1. Action for rescission (accion redhibitoria) = Withdraw of the contract + damages 2. Accion quanti minoris - Proportionate reduction of the price + damages • The remedies are alternative as they are incompatible with each other • The same right is given to the buyer in the sale of animals with redhibitory defects • The buyer must present proof that he suffered damage as a result of the breach of the vendor’s warranty to be entitled to actual damages

Seller is however required to return the price paid less the value of the thing at the time of its loss in case where hidden defects existed In other words, the vendor is still made liable on his warranty The difference between the price paid for the thing and the value at the time of loss = represent damage suffered by the buyer and is at the time the amount with which the vendor enriched himself at the expense of the buyer If the seller acted in BF, he shall also be liable for damages o

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ART. 1570. The preceding articles of this subsection shall be applicable to judicial sales, except that the judgment debtor shall not be liable for damages WARRANTY IN JUDICIAL SALES

ART. 1568. If the thing sold should be lost in consequence of hidden faults, and the vendor was aware of them, he shall bear the loss, and shall be obliged to return the price and refund the expenses of the contract, with damages. If he was not aware of them, he shall only return the price and interest thereon, and reimburse the expenses of the contract which the vendee might have paid. EFFECT OF LOSS OF THING ON THE ACCOUNT OF HIDDEN DEFECTS 1. SELLER AWARE OF HIDDEN DEFECTS • If the vendor was ware of the hidden defects in consequence of which the thing sold was lost, he shall bear the loss because he acted in BF. • The vendee has the right to recover: o Price paid o Expenses of the contract, and o Damages 2. SELLER NOT AWARE OF HIDDEN DEFECTS • If the seller was not aware of them, he shall be obliged to return: o The price paid o Interest thereon, and o Expenses of the contract if paid by the vendee. ** He is NOT made liable for damages because is not guilty of BF ART. 1569. If the thing sold had any hidden fault at the time of the sale, and should thereafter be lost by fortuitous event or through the fault of the vendee, the latter may demand of the vendor the price which he paid, less the value which the thing had when it was lost. If the vendor acted in BF, he shall pay damages to the vendee. EFFECT OF LOSS OF DEFECTIVE THING SOLD • If the thing sold had no hidden defects – its loss through FE or thru the fault of the buyer is borne by the buyer

 

DE LEON SALES REVIEWER

 

AS TO JUDGMENT DEBTOR • In judicial sales, it is not really the sheriff who sells but the judgment debtor • Hence, the provisions regarding warranty are applicable to judicial sales • The buyer can avail either of the alternative remedies to enforce the warranty and the provisions of 1568 and 1569 • However, since the judgment debtor is forced to sell ! there can be NO liability for damages • The publicity surrounding a judicial sale and the fact that the seller does not take active part in the sale and in the determination of the price ! precludes the existence of BF • While in voluntary sales or transaction, the seller or transferor can be expected to defend his title because of his warranty to the buyer ! no such obligation is owed by the owner whose land is sold at execution sale AS TO GOVERNMENT • In judicial sales, the principle of caveat emptor applies • The purchaser who acquires by his purchase no higher or better title or right than that of the judgment debtor • If the judgment debtor has no right, interest or lien in and to the property sold ! the purchaser acquires none • The rule caveat emptor which govern sheriff’s sales puts the purchaser upon inquiry as to the debtor’s title, there being no warranty of title, such sales being involuntary as distinguished from voluntary transactions, and if he buys, he must do so at his own peril RIGHT OF PURCHASER IN JUDICIAL SALES • RIGHT AS ASSIGNEE ONLY o The purchaser of property on sale under execution and levy takes as assignee only o At a sheriff’s sale what is sold is not the property advertised, but simply the interest of the debtor in the property o If it afterwards develops that the judgment debtor has none, the purchaser is still liable on his bid because he has offered so much

 

 

 

 

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for the debtor’s interest in open market and it is for him to determine before he bids what the debtor’s interest is worth RIGHT TO REIMBURSEMENT WHEN JUDICIAL SALE SET ASIDE o When a judicial sale is voided or set aside without fault of the purchaser ! the purchaser is entitled to reimbursement of the purchase money paid by him subject to set-off for benefits he enjoyed while he has possession of the property (purchase money paid – benefits he enjoyed = reimbursement) o A judicial sale can only be set aside upon the return to the buyer of the purchase price with simple interest and other expenses incurred by him ! Buyer is ordinarily entitled to a lien on the property until he is repaid whatever may be due him

ART. 1571. Actions arising from the provisions of the preceding ten articles shall be barred after 6 months, from the delivery of the thing sold PRESCRIPTION OF ACTIONS IN CASES OF IMPLIED/EXPRESS WARRANTY • The action for rescission of the contract or reduction of the purchase price – prescribes in 6 MONTHS from the date of delivery to the buyer of the thing sold or when it was placed in his control or possession • Outside this period – the action is barred • It follows that a buyer should not be permitted to offer as a defense, hidden defects in the thing sold 6 months after he received it • If the action is not for breach of warranty but quasi-delict or negligence – the prescriptive period is 4 YEARS • The 10 preceding articles referred to define the seller’s liability for the defects in the thing sold • 1571 may be applied only in cases of implied warranty • Express warranty – the prescriptive period of 4 years applies o E: if another period is specified in the express warranty ART. 1572. If two or more animals are sold together, whether for a lump sum or for a separate price for each of them, the redhibitory defect of one shall only give rise to its redhibition, and not that of the others; unless it should appear that the vendee would not have purchased the sound animal or animals without the defective one. The latter case shall be presumed when a team, yoke, pair, or set is bought, even if a separate price has been fixed for each one of the animals composing the same. SALE OF TWO OR MORE ANIMALS • When 2 or more animals have been sold at the same time and the redhibitory defect is in one or some of them but not all – GR: The redhibition will not affect the other without it. • It is immaterial whether the price has been fixed for a lump sum for all the animals or for a separate price of each • E: When it can be shown by the buyer that he would not have purchased the sound ones without those which are defective

 

DE LEON SALES REVIEWER

 

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Presumption: Such intention need not be established by the vendee but shall be presumed when a team, yoke, pair or set is bought o E: if the seller proves the contrary Art. 1572 provides only redhibitory actions ! it does not bar the right of the vendee to bring an action quanti minoris (If the object is to procure the return of a part of the purchase price paid by the buyer)

ART. 1573. The provisions of the preceding article with respect to the sale of animals shall in like manner be applicable to the sale of other things SALE OF TWO OR MORE THINGS TOGETHER • The points considered in the preceding article shall also apply to sale of 2 things ! where only one or more of them but not all have hidden defect ART. 1574. There is no warranty against hidden defects of animals sold at fair or at public auctions, or of livestock sold as condemned SALE OF ANIMALS AT FAIRS OR AT PUBLIC AUCTIONS OR AS CONDEMNED • This article is a limitation of the provisions of art. 1570 • It is based on the assumption that the defect must have been clearly known to the buyer • Public auction – judicial or extrajudicial • Sale of condemned animals – precludes all idea of warranty against hidden defects ! such animals are bought not because of their quality of capacity for work ART. 1575. The sale of animals suffering from contagious disease shall be void. A contract of sale of animals shall also be void if the use or service for which they are acquired has been stated in the contract, and they are found to be unfit therefor. WHEN SALE OF ANIMALS VOID • The article declares the class of animals which cannot be the object of commerce o Animals suffering from contagious disease o Those found unfit for the use or service stated • The first paragraph requires that the disease be CONTAGIOUS SALE OF ANUMALS SUFFERING FROM CONTAGIOUS DISEASE • VOID as against public interest • Contract produces no effect and is governed by the rules relating to nullity of contract (1409) • The action or defense for declaration of the inexistence of contract = X PRESCRIBE ** Spanish Supreme Court – X void, voidable lang daw

 

 

 

 

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SALE OF ANIMALS UNFIT FOR USE OR SERVICE • Where the use or service for which the animals are acquired has been stated in the contract and they are found to be unfit therefor • If all essential elements of a contract are present and the buyer, knowing the defect of the animal, agrees to use it for a purpose different from what was originally stated in the contract ! he should not be able to object ART. 1576. If the hidden defect of animals, even in case of a professional inspection has been made, should be of such a nature that expert knowledge is not sufficient to discover it, the defect shall be considered as redhibitory. But if the veterinarian, through ignorance or bad faith, should fail to discover or disclose it, he shall be liable for damages. WHAT CONSTITUTES REDHIBITORY DEFECT OF ANIMALS? • The following constitute redhibitory defects in the animals: 1. If the hidden defect of the animal is of such a nature that even in case of professional inspection has been made ! it is of such a nature that expert knowledge is not sufficient to discover it 2. Fault and defects which are determined by law or by local customs as redhibitory (1577) • To be considered redhiboitory, the defect in the animal must be UNKNOWN TO OR HIDDEN from the seller • The buyer cannot pursue the redhibitory action if the buyer knew the defect of the animal EXEMPTION FROM LIABILITY FOR REDHIBITORY DEFECTS The vendor may exempt from liability for redhibitory defects in the following cases: 1. The buyer has knowledge of the redhibitory defects 2. The buyer is an expert who, by reason of the buyer’s trade or profession, should have known them 3. There is a stipulation that the seller will not be liable and the buyer was not aware of the hidden defect 4. The animals were sold at fairs or at public auctions 5. The livestock was sold as condemned ART. 1577. The redhibitory action, based on the faults or defects of animals, must be brought within 40 days from the date of their delivery to the vendee. The action can only be exercised with respect to faults and defects which are determined by law or by local customs. LIMITATION OF ACTION IN SALE OF ANIMALS • The redhibitory action based on faults of animals should be brought within 40 days from the date of their delivery to the vendee • What should be considered redhibitory defects in the sale of animals ! are only those determined by LAW or by LOCAL CUSTOMS

 

DE LEON SALES REVIEWER

 

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If the defects are patent – there is NO warranty against such defects although there exists a redhibitory vice Local customs – are those that veterinary professors have determined as such in the locality

ART. 1578. If the animal should die within 3 days after its purchase, the vendor shall be liable if the disease which caused the death existed at the time of the contract. RESPONSIBILITY OF VENDOR WHERE ANIMAL DIES • If the animal sold is suffering from a disease and dies after the sale, there may be questions as to whether the death was due to the disease or whether the buyer did not take good care of the animal • If the animals should die within 3 days after its purchase (not date of delivery) ! the seller shall be liable if the disease which caused the death existed at the time of the contract • Claim of the buyer should be based on a finding of an expert that the disease causing the death existed at the time of the contract • E: If the death occurs after 3 days or the defect is patent or visible ! seller is NOT liable • If the loss is caused by a FE or fault of the buyer and the animal has vices ! 1569 applies SUMMARY: WHEN ANIMAL DIED If the animals should die within 3 days after its purchase (not date of delivery)

W/N SELLER LIABLE Seller shall be liable if the disease which caused the death existed at the time of the contract Seller is X liable

If the death occurs after 3 days or the defect is patent or visible If the loss is caused by a FE or fault of the buyer and the animal has vices

1569 applies

ART. 1579. If the sale be rescinded, the 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 redhibitory fault or defect. LIABILITY OF BUYER IN CASE SALE OF ANIMAL IS RESCINDED • If the buyer avails himself of the remedies granted by Art 1567 ! buyer must return the animal in the condition in which it was sold and delivered • In case of injury due to his negligence ! the buyer shall be responsible but this would be no obstacle to the rescission of the contract due to redhibitory defect or fault of the animal • If the animal has died as a result of a redhibitory defect existing at the time of delivery ! the buyer should be able to file the redhibitory acton even if the vendee is not able to return the animal in the condiction in which it was delivered

 

 

 

 

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SUMMARY Circumstance or condition If the buyer avails himself of the remedies granted by Art 1567 In case of injury due to his negligence

If the animal has died as a result of a redhibitory defect existing at the time of delivery

Liability of buyer Buyer must return the animal in the condition in which it was sold and delivered The buyer shall be responsible but this would be no obstacle to the rescission of the contract due to redhibitory defect or fault of the animal The buyer should be able to file the redhibitory acton even if the vendee is not able to return the animal in the condiction in which it was delivered

ART. 1580. In the sale of animals with redhibitory defects, the vendee shall also enjoy the right mentioned in article 1567; but he must make use thereof within the same period which has been fixed for the exercise of the redhibitory action. ALTERNATIVE REMEDIES OF VENDEE IN SALE OF ANIMALS • The vendee has the same right to bring at his option either: o Redhibitory action o Action quanti minors • Action must be brought within 40 days from the date of delivery of the animals to the buyer ART. 1581. The form of sale of large cattle shall be governed by special laws. FORM OF SALE OF LARGE CATTLE • Act No. 4177 – Special law governing the sale of large cattle found in Section 511 to 536 of the Revised Administrative Code, as amended o Providing for the registration, branding, conveyance and slaughter of large cattle • The admin code of 1987 superseded the Revised Admin Code • PD 533 (Anti-Cattle Rustling Law of 1974) – no person, partnership, association, corporation or entity shall engage in the business of buy and sell of large cattle without first securing a permit for the said purpose from the Provincial Commander of the Province where it shall conduct such business and the city/municipal treasurer of the place of residence of such person, partnership, association, corporation or entity. The permit shall only be valid in such province • The sale must appear in a public document

 

DE LEON SALES REVIEWER

 

CHAPTER 5 OBLIGATIONS OF THE BUYER

Article 1582. The vendee is bound to accept delivery and to pay the price of the thing sold at the time and place stipulated in the contract. If the time and place should not have been stipulated, the payment must be made at the time and place of the delivery of the thing sold. PRINCIPAL OBLIGATIONS OF THE BUYER 1. To accept delivery of the thing sold 2. To pay the price of the thing sold at the time and place stipulated in the contract 3. To bear the expenses for the execution and registration of the sale and putting the goods in a deliverable state, if such is the stipulation GRACE PERIOD FOR EXTENDING TIME OF PAYMENT • An agreement to extend the time of payment in order to be valid must be for a definite time • Although no precise date is fixed, it is sufficient that the time can readily be determined • The fact that the seller did not act on the request for what amounts to an indefinite extension may be construed as denial thereof • A grace period granted the buyer in case of failure to pay the amount/s due is a RIGHT, not an obligation • When unconditionally conferred, it is effective without further need of demand either calling for the payment of the obligation or honoring the right • The grace period must not be likened to an obligation – non-payment of which (1169) would generally still require judicial or extra-judicial demand before “default” can be said to arise PERTINENT RULES In connection with the above obligation, the pertinent rules must be borne in mind: 1. In a contract of sale - the seller is not required to deliver the thing sold until the price is paid nor the buyer to pay the price before thing is delivered in the absence of an agreement to the contrary (GR) 2. If stipulated – then the seller is bound to accept delivery to pay the price at the time and place designated 3. If there is no stipulation as to them time and place of the delivery – the vendee is bound to pay at the time and place of delivery 4. In the absence of stipulation as to the place of delivery – it shall be made wherever the thing might be at the moment the contract was perfected

 

 

 

 

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5. 6.

If only the time for delivery of the thing sold has ben fixed in the contract – the buyer is required to pay even before the thing is delivered to him If only the time for payment of the price has been fixed – the buyer is entitled to delivery even before the price is paid by him

LIABILITY OF THE VENDEE FOR OBLIGATIONS OF COMPANY BOUGHT OUT 1. OBLIGATION NOT OF CONSIDERABLE AMOUNT OR VALUE • In some cases, when one company buys out another and continues the business of the latter company, the buyer may be said to assume the obligations of the company bought out when such obligations are: o Not of considerable amount or value o Especially when incurred in the ordinary course of trade and o When the business of the latter company is continued 2. OBLIGATION OF CONSIDERABLE AMOUNT OR VALUE • When said obligations are: o Extraordinary value o Company was bought out not to continue its business but to stop its operation in order to eliminate competition • It CANNOT be said that the buyer assumed all the obligations of the rival company 3. MONETARY LIABILITIES TO SELLING COMPANY’S EMPLOYEE • GR: Labor contract like collective bargaining agreements are NOT enforceable against the transferee of an enterprise o E: Unless expressly assumed or the sale or transfer was made in BF • Labor contracts are in personae and thus, binding only between the parties • Between the transferee and the transferor’s employees there is no priority of contract that would make the former a substitute employer • Principle of absorption – A bona fide buyer or transferee of all or substantially all the properties of the seller is NOT obliged to absorb the transferor’s employees o The most that the purchasing company may do, for reasons of public policy and social justice is to give preference of reemployment to the selling company’s qualified separated employees, who in its judgment are necessary to the continued operation of the business establishment Article 1583. Unless otherwise agreed, the buyer of goods is not bound to accept delivery thereof by installments. Where there is a contract of sale of goods to be delivered by stated installments, which are to be separately paid for, and the seller makes defective deliveries in respect of one or more installments, or the buyer neglects or refuses without just cause to take delivery of or pay for one or more instalments, it depends in each case on the terms of the contract and the circumstances of the case, whether the breach of contract is so material as to justify the injured party in refusing to proceed further and suing for damages

 

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for breach of the entire contract, or whether the breach is severable, giving rise to a claim for compensation but not to a right to treat the whole contract as broken. RULES GOVERNING DELIVERY IN INSTALLMENTS 1. GENERAL RULE • In an ordinary contract of sale of goods, the buyer is not bound to receive delivery of the goods in installment • He is entitled to delivery of all the goods at the same time and is bound to receive delivery of all at the same time • A buyer has no right to pay the price in installments • Neither can he be required to make partial payments • E: By agreement however, the goods may be deliverable by installments or the price payable in installments 2. WHERE SEPARATE PRICE HAS BEEN FIXED FOR EACH INSTALLMENT • Where the contract provides for the delivery of goods by installments and a separate price has been agreed upon for each installments ! it depends in each case and circumstances of the case whether the breach thereof is severable or not (severable – capable of being divided) 1. Where breach affects the whole contract – if the seller makes defective, partial or incomplete deliveries or the buyer wrongfully neglects or refuses to accept delivery or fails to pay any installment ! the injured party may sue for DAMAGES for breach of the entire contract if the breach is so material (eg breach of one installment prevents the further performance of the contract) as to affect the whole contract 2. Where breach severable – Where the breach is severable, it will merely give rise to CLAIM FOR COMPENSATION FOR THE PARTICULAR BREACH but not a right to treat the whole contract as broken 3. WHERE SEPARATE PRICE WAS NOT FIXED FOR EACH INSTALLMENT • The civil code does not expressly address the scenario where the contract provides for the delivery of goods by installment and a single price was agreed for all installments • In the event the seller fails to deliver an installment – the buyer should be able to choose between: o Fulfillment + damages o Rescission + damages • The same remedy should apply in the event that the buyer fails to pay the purchase price within the period agreed upon • However, the remedy of rescission is NOT available for slight or casual breaches of contract • The question of whether the breach is substantial depends upon the attendant circumstances

 

 

 

 

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Fule vs CA – the buyer examined the jewelry several months before the contract of sale was executed and again examined the jewelry prior to delivery

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Article 1584. Where goods are delivered to the buyer, which he has not previously examined, he is not deemed to have accepted them unless and until he has had a reasonable opportunity of examining them for the purpose of ascertaining whether they are in conformity with the contract if there is no stipulation to the contrary. Unless otherwise agreed, when the seller tenders delivery of goods to the buyer, he is bound, on request, to afford the buyer a reasonable opportunity of examining the goods for the purpose of ascertaining whether they are in conformity with the contract. Where goods are delivered to a carrier by the seller, in accordance with an order from or agreement with the buyer, upon the terms that the goods shall not be delivered by the carrier to the buyer until he has paid the price, whether such terms are indicated by marking the goods with the words "collect on delivery," or otherwise, the buyer is not entitled to examine the goods before the payment of the price, in the absence of agreement or usage of trade permitting such examination. BUYER’S RIGHT TO EXAMINE THE GOODS • Acceptance – is assent to become owner of the specific goods when delivery of them is offered to the buyer RIGHT OF INSPECTION • As a rule, the buyer is entitled to fair opportunity to inspect or examine the article tendered to determine whether it conforms to the contract • If the article or commodity does not correspond in kind, quality, condition or amount to that which he has contracted for ! the buyer may reject it ACTUAL DELIVERY CONTEMPLATED • The delivery referred to in said article is actual delivery • In other words, the ownership of the goods shall be transferred only upon actual delivery subject to a reasonable opportunity of examining them to determine if they are in conformity with the contract • The right of examination or inspection under paragraph 1 is thus a condition precedent to the transfer of ownership o E: If there is a stipulation the contrary • Paragraph 2 gives the buyer the right to inspect when the seller tenders delivery of the goods to the buyer (unless otherwise agreed). o As no distinction is made between a buyer who has previously examined the goods prior to delivery and a buyer who has not previously examined the goods prior to delivery ! the right is available to both types of buyers

 

DE LEON SALES REVIEWER

 

GOODS DELIVERED C.O.D/NOT C.O.D. (COLLECT ON DELIVERY) • Where in pursuance of the contract of sale, the seller is authorized or required to send the goods to buyer ! delivery of goods to a carrier for the purpose of transmission to the buyer is deemed to be delivery to the buyer • Although title passes to the buyer by the mere delivery to the carrier, the buyer (unless the goods are sent COD) has the right to examine the goods BEFORE paying. ! In this case, the right to examine the goods is a condition precedent to paying the price after ownership has passed • It should be noted that even in COD sale, the buyer is allowed to examine the goods before payment of the price should it have been so agreed upon or if it is permitted by usage RIGHT OF EXAMINATION NOT ABSOLUTE • The buyer does NOT have absolute right of examination since the seller is bound to afford the buyer a reasonable opportunity of examining the goods only “on request” • If the seller refused to allow opportunity for the inspection, the buyer may: o Rescind the contract and o Recover the price or any part of it that he has paid RIGHT TO BE EXERCISED WITHIN REASONABLE TIME • The seller and the buyer may agree on the time for the inspection of the goods • In the absence of an agreement – the buyer must inspect the goods within reasonable time • Such opportunity to examine must be availed within a reasonable time in order that the seller may not suffer undue delay or prejudice • No more definite rule can be laid down that such a time as is reasonable, having regard to the nature of the goods and all the circumstances of the case, is permitted WAIVER OF RIGHT TO EXAMINE • The right of inspection may be given up by the buyer by stipulation • The waiver need not be in express terms • An illustration of a bargain inconsistent with the examination of goods before payment ! is a contract by which goods are to be sent to the buyer COD. But the buyer is still entitled to examine the goods after their delivery and payment of the price. ! Here the right of examination is a condition subsequent after transfer of ownership and payment of the price. • The buyer is deemed to have waived his right to inspect in the following circumstances: o He fails to inspect within the time permitted by the contract o Where time and opportunity for inspection are given and the buyer does not inspect

 

 

 

 

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The buyer’s exercise of acts of ownership, such as the sale of goods If the buyer fails, after inspection, to give any indication to the seller that the goods are rejected or that they are not of the proper quality

PLACE OF INSPECTION • The parties may agree on the place of inspection • Example: The parties may agree that the place of inspection of goods delivered to a carrier shall be at the place of shipment or some intermediate point, or at the place of destination • If the place of inspection is not definitely fixed by the contract ! the intention of the parties shall govern o The intention may be gathered from the nature of the contract, character of the goods (perishable or otherwise), manner of shipment and packing, etc. • In the absence of any special agreement – the place of delivery is generally the place of inspection • Where goods are delivered to a carrier for transportation to the buyer at a distant point ! the buyer’s right to inspection continues until the goods are received and accepted at the final destination, in the absence of any special agreement or circumstances indicating that an intention that inspection shall be at the place of shipment, even though title passed to the buyer by delivery to the carrier at the point of shipment o In this respect, the carrier is not the buyer’s agent to pass upon the character, quality and kind of articles ! the right of inspection still remains in the buyer, together with the right to reject the goods if they do not comply with the contract o However, it has been held that the place of shipment is the place of inspection where the sale is for cash FOB place of shipment and the buyer had full opportunity for inspection there EXPENSES INCIDENT TO INSPECTION • There are divergent views on who should bear the expenses incident to inspection • Two views: o First view: That in the absence of stipulation the contrary, the seller must bear the expenses incident to inspection o Second view: While the seller was under obligation to afford the buyer an opportunity to make the examination, any expenses incurred thereby, beyond what would be necessary in putting the goods in a proper place for delivery, would fall upon the buyer • In one case, the buyer wished to inspect the schooner and asserted that the seller should go to the expense of placing the vessel in a dry dock for examination. The court ruled that the seller was under no obligation to incur an unusual expense and could not be called upon to place the vessel in a dry dock.

 

DE LEON SALES REVIEWER

 

MODE OF ACQUISITION • The buyer must exercise the right of inspection in the manner provided in the contract • In the absence of stipulation, the inspection should be made in the customary manner, that is, in the manner which is usually and customary in the particular trade to which the transaction in question belongs. • The right if inspection carries with it the right to do things without which it cannot reasonable and efficiently be accomplished (ex. the buyer may unpack the goods) REJECTION OF GOODS • Where, on inspection, the goods are proved to be unsuitable or fail to conform to the contract ! he may refuse to accept them • He is not bound to return them to the seller and it is sufficient if he notifies the seller that he refuses to accept them • The option to reject must be exercised and notice of rejection given to the seller within a reasonable time unless a definite period has been fixed by the contract • The receipt of goods under a contract of sale constitutes an acceptance of them if the right of rejection is not exercised within a reasonable time • The question of what is reasonable time within which the buyer must inspect the goods is a question of fact taking into account all the relevant circumstances Article 1585. The buyer is deemed to have accepted the goods when he intimates to the seller that he has accepted them, or when the goods have been delivered to him, and he does any act in relation to them which is inconsistent with the ownership of the seller, or when, after the lapse of a reasonable time, he retains the goods without intimating to the seller that he has rejected them. WHAT CONSTITUTES ACCEPTANCE • ART. 1585 CONTEMPLATES ACCEPTANCE OF TITLE • Acceptance of title distinguished from: o Acceptance of quality – AT and AQ are not necessarily contemporaneous. " There may be an acceptance of quality before delivery, as where the goods are selected by the buyer, with delivery and transfer of title postponed until a later time o Acceptance of possession – For example, if the buyer expressly refuses to accept title of the goods tendered, his permission to place the goods inside his premises for the mutual convenience of the parties cannot be considered an acceptance of the title

 

 

 

 

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MODES OF MANIFESTING ACCEPTANCE Article 1585 expresses a definition of acceptance. It may be manifested either expressly or impliedly. 1. EXPRESS ACCEPTANCE • Takes place when the buyer, after delivery of the goods, intimates to the seller, verbally or in writing, that he has accepted them 2. IMPLIED ACCEPTANCE • When the buyer, after delivery of goods, does any act inconsistent with the seller’s ownership (ex. when he sells or attempts to sell the goods, or he uses, or makes alterations in them in a manner proper only for an owner) • When the buyer, after the lapse of a reasonable time, retains the goods without intimating his rejection o The retention of the goods is strong evidence that the buyer has accepted the ownership of goods o While retention may be considered as an act inconsistent with the ownership of the seller, it is stated as a separate mode of manifesting acceptance as it is merely a negative indication which may be due merely to carelessness USE OF PROPERTY • GR: The use of goods by the buyer is generally considered an act inconsistent with the seller’s ownership and prevents the buyer from claiming that he has not accepted the goods • The following acts by the buyer have been held to constitute conduct inconsistent with the seller’s ownership o Placing brass inventory plate upon the machine coupled with retention for more than 6 months without rejection o Retention of motor vehicle for more than 5 months and driving it more than 3k miles o Continued use of vehicles after attempted rejection o Repairing, correcting and altering purchased incinerator o Movement of boat from one place to another, use in the buyer’s business and registration in the buyer’s name • E: A single act of use is not such an act of ownership as will indicate acceptance is such use does not affect the condition or value of the property o Ex. The effect of the use of the article may be modified by the circumstances surrounding such use, as where the use is for the purpose of trial " E: It will be regarded as an acceptance is the buyer prolongs the trial beyond a reasonable period or uses more of the goods than is fairly and reasonably necessary in making the tests

 

DE LEON SALES REVIEWER

 

OTHER ACTS OF OWNERSHIP INCONSISTENT WITH SELLER’S OWNERSHIP 1. RESALE OR MORTGAGE • GR: the act of the buyer in selling or mortgaging the goods = conclusive evidence of his acceptance and precludes a subsequent rejection or rescission o E: Where the buyer rejects the goods shipped to him for failure to comply withi his order and the seller refuses to assume responsibility or give directions as to the disposition of the property ! the buyer may resell on account of the seller w/o having accepted the goods (this is especially true as regards perishable property such as fruit or produce) 2. ALTERATION • When the buyer makes an alteration to the goods ! he is ordinarily deemed to have accepted them 3. CONDUCT AFTER REJECTION • If the buyer, after rejecting the goods, performs an act inconsistent with the rejection or with the seller’s absolute ownership over the goods ! the buyer waives or withdraws the rejection, and the case stands as though no rejection was made DELIVERY AND ACCEPTANCE, AS SEPARATE ACTS Delivery and acceptance are two distinct and separate acts of different parties 1.

2.

ACCEPTANCE AS A CONDITION TO COMPLETE DELIVERY • Acceptance is generally necessary to complete actual delivery • 1497 – the thing is understood as delivered when it placed in the control and possession of the buyer • As a rule, it cannot be said that the thing is placed in the control and possession of the buyer when the buyer has not yet accepted the goods • Delivery has been described as a composite act, a thing which both parties must join and the minds of both parties concur… delivery contemplates “the absolute giving up of control and custody of the property on the part of the seller, and the assumption of the same by the buyer ACCEPTANCE AND ACTUAL RECEIPT DO NOT IMPLY THE OTHER • Acceptance of the buyer may precede actual delivery • There may be an actual receipt without any acceptance and there may be acceptance without any receipt

Article 1586. In the absence of express or implied agreement of the parties, acceptance of the goods by the buyer shall not discharge the seller from liability in damages or other legal remedy for breach of any promise or warranty in the contract of sale. But, if, after acceptance of the goods, the buyer fails to give notice to the seller of the breach in any promise or warranty within a reasonable time after the buyer knows, or ought to know of such breach, the seller shall not be liable therefor.

 

 

 

 

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ACCEPTANCE, NOT A BAR TO ACTION FOR DAMAGES • Acceptance, as used in this article, has the meaning explained previously assent to receive delivery as transferring possession and ownership in the goods ! but it does not carry with it the additional agreement that the property in the goods shall be taken in full satisfaction of all obligations • Unless otherwise agreed, acceptance of the goods by the buyer ! does not discharge the seller from liability in damages or other legal remedy (like rescission) for breach of any promise or warranty in the contract of sale NOTICE TO SELLER OF BREACH OF PROMISE OR WARRANTY 1. NECESSITY • 1586 requires that the buyer must give notice to the seller of any breach within reasonable time to hold the seller liable for breach of promise or warranty • Time is counted not simply from the moment the buyer knows of the defect, but from the from the time when he ought to have known it • Prompt exercise of opportunity for discovering defects is, therefore, essential • The notice required is a notice given within such time as notice would be given by an ordinarily careful man, acting under the same circumstances and with respect to goods of the same character • The contract may fix the time for giving notice 2. PURPOSE • The purpose is to protect the seller against belated claims which prevent him from making prompt investigation to determine the cause and extent of his liability and also to enable him to take any other immediate steps that his interest may require 3. FORM OF NOTICE • No particular form of notice is required 4. BURDEN OF PROOF • Burden is upon the one claiming the breach of warranty to plead and prove notice within reasonable time 5. BREACH OF ANY PROMISE OR WARRANTY • 1586 applies not only to defects of quality but to breach of any promise or warranty Article 1587. Unless otherwise agreed, where goods are delivered to the buyer, and he refuses to accept them, having the right so to do, he is not bound to return them to the seller, but it is sufficient if he notifies the seller that he refuses to accept them. If he voluntarily constitutes himself a depositary thereof, he shall be liable as such. WHERE THE BUYER’S REFUSAL TO ACCEPT IS JUSTIFIED 1. DUTY OF THE BUYER TO TAKECARE OF GOODS WITHOUT OBLIGATION TO RETURN • If the goods have been sent to the buyer and he rightfully refused to accept them (as in the case where the goods are of not the kind and quality agreed upon) ! he is in the position of a BAILEE who has the goods thrust upon his without his assent

 

DE LEON SALES REVIEWER

 

He has the obligation to take reasonable care of the goods, but nothing more can be demanded fro him • He is under no obligation to return the goods to the seller DUTY OF SELLER TO TAKE DELIVERY OF GOODS • After notice that the goods have not been and will not be accepted ! the seller must have the burden of taking delivery of said goods SELLER’S RISK OF LOSS OF GOODS • While the goods remain in the buyer’s possession under these circumstances, they are at the SELLER’S RISK • The buyer is not deemed and is not liable as a depositary, o E: He voluntarily constitutes himself as such RIGHT OF BUYER TO RESELL GOODS • It usually happens that the seller, when notified that the goods are not in conformity with the contract and when requested to remove them ! fails to do so claiming that the contract has been properly fulfilled • Under these circumstances, it may be clearly the best thing to do, for the buyer in whose possession the goods are to sell them at once and leave the question whether the goods fulfilled the terms of the contract or not to subsequent determination where goods are perishable or expensive to keep or of fluctuating value, any other course is attended with loss to one party to the other • The buyer, though refusing to take title because the goods do not conform to the contract, after notifying the seller of his rejection and requesting him in vain to remove the goods ! resell them on account of the seller • Unless the sale is imperative to save the goods before notice can be given to the seller and a reply received ! a sale by the buyer constitutes acceptance • If the buyer acts within his rights in making a resale ! he is entitled to: o A lien not only for the portion of the price already paid o Any reasonable expenses incurred in keeping and caring for the goods and in reselling them •

2. 3.

4.

Article 1588. If there is no stipulation as specified in the first paragraph of article 1523, when the buyer's refusal to accept the goods is without just cause, the title thereto passes to him from the moment they are placed at his disposal. (n) WHERE BUYER’S REFUSAL TO ACCEPT WRONGFUL • GR: The delivery of the goods to a carrier is deemed to be delivery of the goods to the buyer o This is true even if the buyer refuses to accept the goods in case his refusal is without just case o The title passes to the buyer and therefore he bears the risk of loss • E: In those case where the right of the buyer to inspect the goods at the time of delivery is a condition precedent to transfer of ownership ! the ownership passes by operation of law after such inspection

 

 

 

 

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Article 1589. The vendee shall owe interest for the period between the delivery of the thing and the payment of the price, in the following three cases: (1) Should it have been so stipulated; (2) Should the thing sold and delivered produce fruits or income; (3) Should he be in default, from the time of judicial or extrajudicial demand for the payment of the price. LIABILITY OF VENDEE FOR INTEREST WHERE PAYMENT IS MADE AFTER DELIVERY • This article presupposes that delivery of the thing sold and the full payment of the price were not made simultaneously ! the thing sold was delivered first followed by the payment of the price after lapse of a certain period of time • The buyer is liable to pay interest from the delivery of the thing until the payment of the price INTEREST EXPRESSLY STIPULATED • The rate stipulated governs • The stipulation of the parties to pay interest may be oral • 1956 – “no interest shall be due unless it has been expressly stipulated in writing” ! X applicable ! only applies to contract of loan • If the parties fail to fix the rate ! the legal rate of interest shall be due FRUITS OR INCOME RECEIVED BY THE BUYER FROM THE THING SOLD • 2 CONDITIONS: o That the thing sold had been delivered o That it produces fruits or income • If the buyer would not be bound to pay interest for the use of the money, which he should have paid, the principle of bilaterality which characterizes a contract of sale would no longer exist • Since the law makes no distinction, the buyer is still bound to pay interest even if a term has been fixed for the payment of the price VENDEE GUILTY OF DEFAULT • If the buyer incurs delay in the payment of the agreed price (1169) ! the interest is due from the time of judicial or extrajudicial demand by the vendor for the payment of the price • This demand by the seller is the starting point for the commencement of default or delay on the part of the buyer • E: If the seller, instead of demanding the payment of the purchase price, files an action to nullify the contract of sale ! 1589 (3) does not apply • Under nos. 1 and 2 of 1589 – no demand is necessary PARIAL PAYMENT • 1589 applies to a situation where the seller delivers the thing to the buyer, who makes partial payment of the purchase price

 

DE LEON SALES REVIEWER

 

•

Thus, payment to pay the balance of the purchase price will not obligate the buyer to pay interest if none of the 3 cases mentioned in 1589 applies

Article 1590. Should the vendee be disturbed in the possession or ownership of the thing acquired, or should he have reasonable grounds to fear such disturbance, by a vindicatory action or a foreclosure of mortgage, he may suspend the payment of the price until the vendor has caused the disturbance or danger to cease, unless the latter gives security for the return of the price in a proper case, or it has been stipulated that, notwithstanding any such contingency, the vendee shall be bound to make the payment. A mere act of trespass shall not authorize the suspension of the payment of the price. RIGHT OF THE VENDEE TO SUSPEND PAYMENT OF PRICE WHEN VENDEE HAS RIGHT • The vendee may suspend the payment of the price in 2 cases only: 1. If he is disturbed in the possession or ownership of the thing bought or 2. If he has a well-grounded fear that his possession or ownership would be disturbed by a vindicatory action or foreclosure of mortgage • Under the circumstances provided for by 1590 ! the buyer is only entitled to retain the price that has not been paid to the vendor • He is not entitled to recover what has already been paid • Under the second case – it is not necessary that an action be brought against the vendee (well-grounded fear is enough) WHEN VENDEE HAS NO RIGHT • In the following cases, the buyer cannot suspend the payment of the price even if there is disturbance in his possession or ownership of the thing sold: 1. If the seller gives security for the return of the price in a proper case 2. If it has been stipulated notwithstanding any such contingency, the buyer must make payment 3. If the seller has caused the disturbance or danger to cease 4. If the disturbance is a mere act of trespass 5. If the buyer has fully paid the price • If the thing sold is in the possession of the buyer and the price is already in the hands of the seller ! the sale is a consummated contract and 1590 is no longer applicable • Article 1590 presupposes that the price or any part thereof has not yet been paid and the contract has not yet been consummated RIGHT OF THE VENDEE TO DEMAND RESCISSION • The buyer has no cause of action for rescission before final judgment because the seller might become the victim of machinations between the buyer and the third person • It must be noted that the disturbance must be in the possession or ownership of the thing acquire • The remedy of the buyer is rescission ! where the disturbance is cause by the existence of a NON-APPARENT SERVITUDE

 

 

 

 

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Rescission has the effect of abrogating the contract from its inception It releases the parties from further obligation to each other and restores them to their original position as if no contract has been made ! hence they must return what they received pursuant to the contract

Article 1591. Should the vendor have reasonable grounds to fear the loss of immovable property sold and its price, he may immediately sue for the rescission of the sale. Should such ground not exist, the provisions of article 1191 shall be observed. RIGHT OF THE SELLER TO RESCIND SALE OF IMMOVABLE PROPERTY • This article refers only to a sale of immovable or real property where the seller has good reasons to fear the loss of the property and its price • It contemplates a situation where there has been a delivery of the immovable property but the vendee has not yet paid the price • 1591 is applicable to both cash sales and to sales in installment • Pursuant to 1191 of the CC – the seller may sue for either: o Fulfillment + damages o Rescission + damages Upon the buyer’s failure to comply with his obligation to pay the agreed price • Rescission is only allowed where the breach is substantial and fundamental to the fulfillment of the obligation Article 1592. In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act. After the demand, the court may not grant him a new term. RULE WHERE AUTOMATIC RESCISSION OF SALE OF IMMOVABLE PROPERTY STIPULATED • GR: The seller may sue for rescission of the contract should the vendee fail to pay the agreed price • E: The sale of real property is subject to the stipulations agreed upon by the parties and to the provisions of 1592 ! which speaks of non-payment of purchase price as a RESOLUTORY CONDITION • Art. 1191 is subordinated to the provisions of Article 1592 when applies to sales of immovable property THE MERE FAILURE TO FULFILL THE CONTRACT DOES NOT OPERATE IPSO FACTO AS ITS RESCISSION

 

DE LEON SALES REVIEWER

 

•

Before a demand for the rescission of the contract (for non-payment of the price) has been made by the seller (judicially or by notarial act) ! the buyer may still pay the price: o Even after the expiration of the stipulated period for payment and o Notwithstanding a stipulation that failure to pay the price on the stipulated date ipso facto resolves the sale

A JUDICIAL OR NOTARIAL ACT IS NECESSARY BEFORE A VALID RESCISSION CAN TAKE PLACE W/N AUTOMATIC RESCISSION HAS BEEN STIPULATED • It has to noted that the law uses the phrase “even though” – emphasizing that when no stipulation is found on automatic rescission, the judicial or notarial requirement still applies • A letter informing the buyer of the automatic rescission of a contract of sale of real property does NOT amount to demand for rescission if it is not notarized • The offer to pay prior to the demand for rescission is sufficient to defeat the seller’s right under 1592. • There is no existing provision in our laws authorizing the automatic rescission of contracts of sale of real property for non-payment of the purchase price except Art 1592 NOTE: • In 1191 and 1592 – the rescission is a principal action which seeks resolution or cancellation of the contract • In 1381 (rescissble contracts) – the action is subsidiary one limited to cases of rescission of lesion as enumerated in the article • Prescriptive period for 1191 and 1591 – found in 1144 ! the action upon written contract should be brought within 10 years from the time the right of action accrues • The seller can go to court to demand judicial rescission in lieu of a notarial act of rescission • An action for reconveyance is NOT an action for rescission ! the judicial rescission of a contract gives rise to mutual restitution which is not necessarily the situation that can arise in an action for reconveyance RIGHT OF SELLER TO RESCIND NOT ABSOLUTE • In a contract of sale, the remedy of the unpaid seller is either: o Specific performance + damages o Rescission + damages • A seller, however, CANNOT unilaterally and extra-judicially rescind a contract of sale of immovable property where there is no express stipulation authoring him to extra-judicially rescind o E: 1592 • Judicial rescission of a contract us not necessary where the contract provides for automatic rescission in case of breach 1. COURT MAY GRANT VENDEE A NEW TERM • GR: The right to rescind is not absolute and the court may extend the period for payment

 

 

 

 

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E: Once a demand for rescission by suit or notarial act is made ! the court may not grant the buyer a new term " E to E: Nevertheless, in the interest of justice and equity, the court may grant the buyer a new term where he has substantially performed in good faith 2. VENDOR MAY WAIVE HIS RIGHT • The right of automatic rescission may be waived • Where the seller granted many extensions to the buyer, in all of which, the seller never called attention to the proviso on “automatic rescission” = deemed waiver • The unqualified acceptance by the seller of payments after the 6month period expires = waiver of the period and rescission 3. WRITTEN NOTICE OF CANCELLATION MUST BE GIVEN • While judicial action for the rescission of the contract is not necessary where the contract provides that it may be cancelled by violation of its terms and conditions ! there must still be a written notice sent to the defaulter informing him of the rescission • The indispensability of notice of cancellation to the buyer of real estate is underscored in RA 6552 which specifically provides that the notice of cancellation or demand for rescission of the contract must be by notarial act • A notarial act presupposes signing before a notary public and 2 competent witnesses • An action for judicial confirmation of rescission and damages = complies with the requirement of law for judicial decree of rescission • A crossclaim found in the answer = constitute a judicial demand for rescission that satisfied the requirement of the law 4. BREACH MUST BE SUBSTANTIAL • Rescission of a contract will not be permitted for slight or causal breach but only for substantial and fundamental breach as would defeat the very object of the parties • The question of whether a breach of contract is substantial depends upon the attendant circumstances o

WHEN ART 1952 NOT APPLICABLE 1. SALE ON INSTALLMENT OF REAL ESTATE • 1952 contemplates an absolute sale • X apply to sales on installment of real property in which the parties have laid down the procedure to be followed in the event the buyer failed to fulfill his obligation 2. CONTRACT TO SELL/CONDITIONALS ALE OF REAL ESTATE • X applicable to mere promise to sell (executory contract to sell) where the title remains with the vendor until fulfillment of a positive condition, such as full payment of the purchase price • Such payment is a positive suspensive condition – the failure of which is not a breach, casual or serious, but simply an event that prevents the obligation of the vendor to convey title from acquiring binding force • In an absolute sale, non-payment is a resolutory condition

 

DE LEON SALES REVIEWER

 

3.

CASES COVERED BY RA 6552 • This law governs sales of real estate on installment • The act recognized in conditional sales of all kinds of real estate the non-applicability of 1592 to such contracts to sell on installments and the right of the seller to cancel the contract upon non-payment which is simply an event that prevents the obligation of the vendor to convey title from acquiring binding force • The act in modifying the terms and application of 1592 recognizes: o The seller’s right to cancel unqualifiedly in case of “industrial lots, commercial buildings and sales to tenants” and o Requires a grace period in other cases, particularly residential lots, with a refund of certain percentages of payments made on account of the cancelled contract • The buyer has the right to continue occupying the property subject of the contract to sell and may “still reinstall the contract by updating the account during the grace period and before the actual cancellation” • RA 6552 was enacted to protect buyers or real estate on installment against onerous and oppressive conditions • The buyer in Nos 1 and 2 above – 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 o E: In the case of sale on installment of residential lots – while the seller’s right to cancel the contract to sell upon breach by non-payment of the stipulated installments is recognized by RA 6552 ! a grace period is required, with the buyer entitled to refund of certain percentages of payments in the event that the contract is cancelled • RA 6552 makes no distinction between “option” and “sale” which virtually includes all transactions concerning land and housing acquisition including reservation agreements • This law normally applies to all transaction or contracts, involving the sale or financing of real estate on installment payments, including residential condominium apartments, excludes industrial, commercial and sales to tenants under RA 3844

Article 1593. With respect to movable property, the rescission of the sale shall of right take place in the interest of the vendor, if the vendee, upon the expiration of the period fixed for the delivery of the thing, should not have appeared to receive it, or, having appeared, he should not have tendered the price at the same time, unless a longer period has been stipulated for its payment. RULE WHERE AUTOMATIC RESCISSION OF SALE OF MOVABLE PROPERTY STIPULATED • In the sale of real property - the vendor must make a demand for rescission before he can have the right to rescind the contract

 

 

 

 

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• •

In the case of personal property (which has not yet been delivered to the buyer) – the seller can rescind the contract, as a matter of right if the buyer, without any valid cause DOES NOT: 1. Accept the delivery 2. Pay the price unless a credit period for its payment has been stipulated The mere failure of the buyer to comply with the terms of the contract does not rescind the same It is necessary that the seller should take some affirmative action indicating his intention to rescind o E: The parties may, however, validly enter into an agreement that violation of the terms of the contract would cause cancellation thereof without judicial intervention or permission

REASON FOR THE RULE WITH RESPECT TO MOVABLE PROPERTY • The reason for the difference is that personal parties are not capable of maintaining a stable price in the market • Their prices are so changeable that any delay in their disposal might cause the seller great prejudice • This is not true in the case of real property which has more or less stable price in the market and the delay that might result from the requirement imposed on the vendor to demand rescission being entitled to rescind the contract will not in any way be detrimental to the interest of the seller.

CHAPTER 6 ACTIONS FOR BEACH OF CONTRACT OF SALE OF GOODS

ART. 1594. Actions for breach of the contract of sale of goods shall be governed particularly by the provisions of this Chapter, and as to matters not specifically provided for herein, by other applicable provisions of this Title. ACTIONS GOVERNING BREACH OF CONTRACT OF SALE OF GOODS • GOODS o Include all chattels personal o But NOT things in action or money of legal tender in the Philippines o Includes growing fruits or crops • Actions for breach of the contract of sale of goods are governed: o Primarily: Provisions of Chapter 6 (Art. 1595-1599) o Secondarily: Other provisions of the Title on sales so far as said provisions can apply • Provisions concerning the sale of immovable have NO application to the sale of goods

 

DE LEON SALES REVIEWER

 

ACTIONS AVAILABLE 1. Action by the seller for the payment of the price (1595) 2. Action by the seller for damages for non-acceptance of the goods (1596) 3. Action by the seller for rescission of the contract for breach thereof (1597) 4. Action by the buyer for specific performance (1598) 5. Action by the buyer for rescission or damages for breach of warranty (1599) ART. 1595. Where, under a contract of sale, the ownership of goods has passed to the buyer, and he wrongfully neglects or refuses to pay for the goods according to the terms of the contract of sale, the seller may maintain an action against him for the price of goods. Where, under a contract of sale, the price is payable on a certain day, irrespective of delivery or transfer of title, and the buyer wrongfully neglects or refuses to pay such price, the seller may maintain an action for the price, although the ownership in the goods has not passed. But it shall be a defense to such an action that the seller at any time before the judgment in such action has manifested an inability to perform the contract of sale on his part or an intention not to perform it. Although the ownership in the goods has not passed, if they cannot readily be resold for a reasonable price, and if the provisions of article 1596, fourth paragraph, are not applicable, the seller may offer to deliver the goods to the buyer, and, if the buyer refuses to receive them, may notify the buyer that the goods are thereafter held by the seller as bailee for the buyer. Thereafter the seller may treat the goods as the buyer’s and may maintain an action for the price. SELLER’S RIGHT OF ACTION FOR THE PRICE The above article provides the 3 cases when an action for the price of goods under a contract of sale can be maintained by the seller: 1. When the ownership of the goods has passed to the buyer and he wrongfully neglects or refuses to pay for the price (par. 1) 2. When the price is payable on a certain day and the buyer wrongfully neglects or refuses to pay such price, irrespective if delivery or of transfer of the title (par. 2) 3. When the goods cannot readily be resold for a reasonable price and the buyer wrongfully refuses to accept them even before the ownership in the goods has passed, if the provisions of Art. 1596 paragraph 4 are not applicable (par. 3) The seller’s right of action for the price assumes that there is a breach of contract by the buyer. EXAMPLE S sold to B a specific refrigerator for 8k. S can maintain an action for the price in any of the following cases: 1. He has delivered the refrigerator to B and the latter wrongfully fails to pay

 

 

 

 

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2. 3.

He has not yet delivered the refrigerator but the period fixed for the payment has already arrived while the period fixed for delivery is yet to come B has refused to accept delivery without just cause and S has notified B that he is holding the goods as bailee for B

WHERE OWNERSHIP IN GOODS HAS NOT PASSED • Presumption: The presumption is that the payment of the price and the delivery of the goods were intended to be concurrent acts and the obligation of each party to perform will be dependent upon the simultaneous performance by the other party o E: Unless the contrary appears • GR: The seller cannot maintain an action for the price if the ownership in the goods has not passed to the buyer o E1: Unless the price is payable on a certain day o E2: Unless the goods cannot readily be resold for a certain price and the provisions of art. 1596, par 4 are not applicable • Under Art. 1588 – the title to the goods passes to the buyer from the moment they are placed at his disposal when his refusal to accept them is without just cause ! the seller may therefore bring an action for the price upon wrongful refusal of the buyer to accept RECOVERY OF PRICE PAYABLE ON A CERTAIN DAY • If different times are fixed for the payment of the price and the delivery of the goods: o GR: The act which is to be performed first is absolutely due on that day, while the performance which is to take place on a later day is not due o E: Unless, as a condition precedent, prior performance has been rendered • BUYER GIVEN CREDIT FOR THE PRICE o It is common for sellers to give credit for the price o But it is not common for buyer to give credit for the goods o It may however happen that the buyer promises to pay the price before acquiring the ownership of even the possession of the goods ! In this case, Art. 1595, par 2 is applicable • DEFENSE TO AN ACTION FOR THE PRICE o Said paragraph 2 excuses the buyer from his obligation to pay the price when before the time of payment, the seller has manifested an inability to perform the contract of sale or an intention not to perform it o A contract of sale contemplates a double exchange o Accordingly, there is good reason for excusing the buyer from prior performance when he will not get subsequent performance from the seller o Prospective failure to receive the thing promised is a goods defense as a failure to which has actually occurred

 

DE LEON SALES REVIEWER

 

ART. 1596. Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may maintain an action against him for damages for non-acceptance. The measure of damages is the estimated loss directly and naturally resulting in the ordinary course of events, from the buyer’s breach of contract. Where there is an available market for the goods in question, the measure of damage is, in the absence of special circumstances showing proximate damage of a different amount, the difference between the contract price and the market or current price at the time or times when the goods ought to have been accepted or, if no time was fixed for acceptance, then at the time of the refusal to accept. If, while labor or expense of material amount is necessary on the part of the seller to enable him to fulfill his obligations under the contract of sale, the buyer repudiates the contract or notifies the seller to proceed no further therewith, the buyer shall be liable to the seller for labor performed or expenses made before receiving notice of the buyer’s repudiation or countermand. The profit the seller would have made if the contract of the sale has been fully performed shall be considered in awarding the damages. SELLER’S RIGHT OF ACTION FOR DAMAGES CONDITION/S (3) If the buyer without lawful cause neglects or refuses to accept and pay the goods he agreed to buyer - In an executory contract + - Where the ownership in the goods has not passed + - The seller cannot maintain an action to recover the price If the goods are not yet identified at the time of the contract or subsequently

REMEDY Action for damages for non-acceptance Action for damages

Action for damages

MEASURE OF DAMAGES FOR NON-ACCEPTANCE 1. DIFFERENCE BETWEEN CONTRACT PRICE AND MARKET PRICE • The measure of damage is the estimated loss directly and naturally resulting from the buyer’s breach of contract • Formula: Contract price - market or current price = damage • Contract price – the amount of the obligation which the buyer failed to fulfill • Market or current price – the value of the goods which the seller has left upon his hands • This covers the general rule that damages comprehend not only the actual loss suffered but also unrealized profit

 

 

 

 

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As the market price varies with time and place ! the market price is fixed at the time when and the place where the goods ought to have been accepted • If no time was fixed ! at the time of refusal to accept • Burden is upon SELLER to show what damage he has suffered ! to recover more than nominal damages, he must show that the market value of the goods is less than the contract price FULL AMOUNT OF DAMAGE • If there is no available market in which the goods can be sold at the time ! the seller is entitle to the full amount of damages which he has really sustained by a breach of contract PROXIMATE DAMAGE • Art. 1596 par. 3 – allows the seller under “special circumstances” proximate damages of a greater amount than the difference between the contract price and market price when such damages “may be reasonably attributed to the non-performance of the obligation” •

2.

3.

EXAMPLE: • S agreed to sell and deliver to B on a certain date 100 bags of sugar of certain quality for 50k. On the date designated, B wrongfully refused to accept delivery • Situation 1: 50K – 40k (MV) = 10k ! damages • Situation 2: 50k – 50k (MV equal or greater than price) = 0 ! receive nominal damages only • Situation 3: Buyer acted in BF (special circumstance) ! liable for consequential damages (ex. hospitalization expenses of seller if suffered heart attack) MEASURE OF DAMAGES FOR REPUDIATION OR COUNTERMAND In case the buyer repudiates the contract or notifies the seller to proceed no further therewith, the measure of damages which the seller is entitled would include: 1. The labor performed and expenses incurred for materials before receiving notice of buyer’s repudiation 2. The profit he would have realized if the sale had been fully performed ART. 1597. Where the goods have not been delivered to the buyer, and the buyer has repudiated the contract of sale, or has manifested his inability to perform his obligations thereunder, or has committed a breach thereof, the seller may totally rescind the contract of sale by giving notice of his election to do so to the buyer. SELLER’S RIGHT OF RECISSION BEFORE DELIVERY The above article specifies the cases when the seller may rescind the contract of sale of goods which have not yet been delivered to the buyer: 1. When the buyer has repudiated the contract of sale 2. When the buyer has manifested his inability to perform his obligations thereunder 3. When the buyer has committed a breach of the contract of sale

 

DE LEON SALES REVIEWER

 

• • •

Art. 1481 – provides for special cause of rescission of the contract of sale of goods Art. 1534 par 2. – speaks of the rescission of title If the goods have been delivered ! the seller may recover the value of what he has given (1595)

GIVING OF NOTICE REQUIRED • The right granted to the seller follows the general rule in reciprocal obligations that a party to a contract injured by non-fulfillment ! may rescind the contract + damages (1191) • Seller is required to give notice of his election to seek rescission • The way in which election must be manifested may vary in different case • Formal notice is not a requisite and bringing an action promptly for restitution is sufficient SELLER’S RIGHT OF ACTION FOR BREACH OF CONTRACT • Art. 1191 – establishes the principle that all reciprocal obligations are rescindable in the event one of the parties bound should fail to perform that which is incumbent upon him o In the contract of sale – the obligation to pay the price is correlative to the obligation to deliver the thing sold o Non- performance by one of the parties authorizes the other to exercise the right conferred upon him by the law to demand: " Fulfillment + damages " Rescission + damages o Rescission abrogates the contract from its inception and requires mutual restitution of benefits received • The right of the seller to rescind the sale for non-performance on the part of the buyer is NOT ABSOLUTE rd 1. The law subordinates it to the rights of 3 persons who are legally in the possession of the object of the contract and to whom bad faith is not imputable (IPV) 2. Rescission of contract will not be permitted for a slight or casual breach but only for such substantial breach as would defeat the very object of the parties in making the agreement 3. GR: The seller cannot unilaterally and extrajudicially rescind the contract • E1: 1597 • E2: Express stipulation authorizing the seller to extrajudically rescind the contract ART. 1598. Where the seller has broken a contract to deliver specific or ascertained goods, a court may, on the application of the buyer, direct that the contract shall be performed specifically, without giving the seller the option of retaining the goods on payment of damages. The judgment or decree may be unconditional, or upon such terms and conditions as to damages, payment of the price and otherwise, as the court may deem just.

 

 

 

 

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BUYER’S RIGHT TO SPECIFIC PERFORMANCE • The article applies only where the goods to be delivered are specific or ascertained • In reciprocal obligations – it is the injured party who has a right to choose between fulfillment and rescission + damages in either case • The right of the injured party to demand specific performance cannot be defeated by the guilty party’s choice to rescind the contract • This is also the rule in 1598 which grants the buyer, as a matter of right, the remedy of specific performance in case the seller should violate his obligation to make delivery • The seller cannot retain the goods on payment of damages because damages are imposed by law to insure fulfillment of the contract and not to substitute for it • In granting specific performance, the court may impose such terms and conditions as to damages, payment of the price and otherwise, it may deem just 1599. Where there there is a breach of warranty by the seller, the buyer may, at his election: (1) Accept or keep the goods and set up against the seller, the breach of warranty by way of recoupment in diminution or extinction of the price; (2) Accept or keep the goods and maintain an action against the seller for damages for the breach of warranty; (3) Refuse to accept the goods, and maintain an action against the seller for damages for the breach of warranty; (4) Rescind the contract of sale and refuse to receive the goods or if the goods have already been received, return them or offer to return them to the seller and recover the price or any part thereof which has been paid. When the buyer has claimed and been granted a remedy in anyone of these ways, no other remedy can thereafter be granted, without prejudice to the provisions of the second paragraph of article 1191. Where the goods have been delivered to the buyer, he cannot rescind the sale if he knew of the breach of warranty when he accepted the goods without protest, or if he fails to notify the seller within a reasonable time of the election to rescind, or if he fails to return or to offer to return the goods to the seller in substantially as good condition as they were in at the time the ownership was transferred to the buyer. But if deterioration or injury of the goods is due to the breach or warranty, such deterioration or injury shall not prevent the buyer from returning or offering to return the goods to the seller and rescinding the sale.

 

DE LEON SALES REVIEWER

 

Where the buyer is entitled to rescind the sale and elects to do so, he shall cease to be liable for the price upon returning or offering to return the goods. If the price or any part thereof has already been paid, the seller shall be liable to repay so much thereof as has been paid, concurrently with the return of the goods, or immediately after an offer to return the goods in exchange for repayment of the price. Where the buyer is entitled to rescind the sale and elects to do so, if the seller refuses to accept an offer of the buyer to return the goods, the buyer shall thereafter be deemed to hold the goods as bailee for the seller, but subject to a lien to secure the payment of any portion of the price which has been paid, and with the remedies for the enforcement of such lien allowed to an unpaid seller by article 1526. (5) In the case of breach of warranty of quality, such loss, in the absence of special circumstances showing proximate damage of a greater amount, is the difference between the value of the goods at the time of delivery to the buyer and the value they would have had if they had answered to the warranty. REMEDIES OF BUYER FOR BREACH OF WARRANTY BY SELLER • This article applies both to IMPLIES and EXPRESS warranties, whether of QUALITY or of TITLE • The remedies allowed to the buyer when the seller has been guilty of breach of promise or warranty are: 1. Accept the goods + set up the seller’s breach to reduce or extinguish the price 2. Accept the goods + maintain an action for damages for breach of warranty 3. Refuse to accept the goods + maintain an action for damages for the breach of warranty 4. Rescind the contract of sale by returning or offering the return of goods + recovery the price or any part thereof which has been paid 5. In case of breach of warranty of quality ! such loss in the absence of special cirumstances showing proximate damage of a greater amount ! Formula: Value of the goods at the time of delivery – value they would have had if they had answered to the warranty = damages • The remedies open to the buyer under the article may be grouped into 3: 1. Recoupment (No. 1) 2. Action (No. 3) or counterclaim for damages (No. 2) 3. Rescission (No. 4) • Nos. 1 and 2 should be read in connection with Article 1586 (Acceptance not a bar to damages) • The general measure of damage in case of breach of warranty of quality is provided in No. 5 of 1599 ! similar to the measure of damages under Art, 1596 par 2 • Art. 1599 does not apply if the contract of sale was not perfected

 

 

 

 

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REMEDIES ALTERNATIVE • The above remedies are alternative • Once a remedy has been granted to the buyer, no other remedy can be exercised or granted o E: When after the buyer has chosen fulfillment, it should become impossible, in which case he may also sue for rescission (1191 par. 2) RECOUPMENT IN DIMUNITION OF THE PRICE • The theory of recoupment in diminution or extinction of price in case of breach of warranty by the seller ! the seller’s damages are cut down to an amount which will compensate him for the value of what he has given • In view of the breach of warranty by the seller ! the seller is not bound to perform the contract on his part, but the buyer has received something of value for which he ought to pay • By means of recoupment, the buyer is allowed to avoid the contract and substitute in its stead a quasi-contractual obligation for the value of what he has received • The word is nearly though not quite synonymous with discount, reduction or deduction • Example for breach of warranty by way of recoupment: o Delivery of 50 boxes of apples for 20k o 15 boxes = rotten = 6k worth o 20,000 -6k =14k= Buyer is only liable for value of apples received • Recoupment refers to the reduction of extinction of the price of the SAME ITEM OR UNIT SOLD and not to different transactions or contract of sale ! the claim must arise from the same transaction

1. 2. 3.

If the buyer accepted the goods knowing the breach of warranty without protest If he fails to notify the seller within a reasonable time of his election to rescind If he fails to return or offer to return the goods in substantially as good condition as they were in at the time of transfer of ownership to him • E: Where the injury to the goods, was caused by the very defect against which the seller warranted, the buyer may still rescind the sale

RIGHTS AND OBLIGATIONS OF BUYER IN CASE OF RESCISSION 1. In case of rescission ! the buyer shall cease to be liable for the price, his only obligation being to return the goods 2. If he has paid the price or any part thereof ! he may recover it from the seller 3. Should the seller refuse the return of the goods ! the buyer has the right to hold the goods as a bailee for the seller 4. He has the right to have a lien on the goods for any portion of the price already paid which lien he may enforce a if he were an unpaid seller

ACTION FOR COUNTERCLAIM FOR DAMAGES • It is fundamental that the breach of an obligation gives rise to an action for damages • Acceptance with knowledge of the breach of warranty ! does preclude rescission ! but it does NOT necessarily preclude a right to recoupment or damages RECOUPMENT AND COUNTERCLAIM, DISTINGUISHED • The right of recoupment is to be distinguished from set-off or counterclaim • By means of counterclaim: o Both sides of the contract are enforced in the same litigation o The defendant (buyer) does NOT seek to avoid his obligation under the contract but seeks to enforce the plaintiff’s (seller’s obligation) and to deduct it from his liability for the price for breach of warranty WHEN RECISSION BY THE BUYER NOT ALLOWED • The remedy of rescission is allowed on the broad principles of justice – the buyer has not received what he has bargained for • It CANNOT be availed of, however, in the following cases:

 

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CONSUMER ACT - LIABILITY FOR PRODUCT AND SERVICES - Implementing Agency: Department of Trade and Industry ARTICLE

WHO ARE LIABLE

97. LIABILITY FOR DEFECTIVE PRODUCTS

- Manufacturer - Producer - Importer

LIABILITY OF TRADESMAN OR SELLER

Tradesman

LIABILITY DEFECTIVE SERVICES

Service Supplier

OF

LIABILITY FOR PRODUCT AND SERVICE IMPERFECTION

Suppliers of durable or non-durable consumer products are jointly liable

WHEN LIABLE

WHEN NOT LIABLE

Damages caused to consumers by defects resulting from: 1. Design 2. Manufacture 3. Construction 4. Assembly and erection formulas 5. Handling and making up presentation or packing of their products 6. Insufficient or inadequate information on the use and hazards thereof

- A product is NOT considered defective when another better quality product has been placed in the market

NOTE: Defective product – when it does not offer the safety rightfully expected of it, taking relevant circumstances into consideration including: 1. Presentation of the product 2. Use and Hazards reasonably expected of it 3. Time it was put into circulation 1. It is not possible to identify the MBPI 2. The product is supplied without clear identification of the MBPI 3. He does not adequately preserve perishable goods 1. Defects relating to the rendering of the service 2. Insufficient or inadequate information of the fruition or hazards thereof NOTE: Defective Service – When it does not provide the safety the consumer may rightfully expect of it, taking relevant circumstances into consideration including: 1. Manner in which it was provided 2. Result of hazards which may be reasonably expected of it 3. Time when it was provided Imperfection in quality that render the products: 1. Unfit or inadequate for consumption for which they are designed 2. Decrease their value 3. Those resulting from inconsistency with the information provided in the container, packaging, labels or publicity messages/advertisement

REMEDY Liable for redress

- The MBPI shall NOT be liable when its evidences: 1. That it did not place the product in the market 2. That although it placed the product in the market, the product has no defect 3. The consumer or third party is solely at fault

The party making payment to the damaged party may experience the right to recover the part of the whole of the accordance with their part or responsibility in the cause of damage effected - A service is NOT considered defective because of the use or introduction of new techniques - The service supplier shall NOT be liable when it is proven: 1. There is no defect in the service rendered 2. That the consumer or third party is solely at fault

If the imperfection is not corrected within 30 DAYS, the consumer may ALTERNATIVELY demand at his option: 1. Replacement of the product by another of the same kind, in a perfect state of use 2. Reimbursement of the amount paid, with monetary updating, w/o prejudice to any losses and damage 3. Proportionate price reduction NOTE: - Parties may agree to reduce or increase the

 

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LIABILITY FOR PRODUCT QUANTITY IMPERFECTION

Suppliers are jointly liable

LIABILITY FOR SERVICE QUALITY IMPERFECTION

Service Supplier

The net content is less than that indicated on the container, packaging, labeling or advertisement NOTE: - Immediate Supplier – Liable if the instrument used for weighing or measuring is not gauged in accordance with official standard

REPAIRS SERVICE OBLIGATION

Supplier

IGNORANCE OF QUALITY IMPERFECTION

Supplier

LEGAL GUARANTEE OF ADEQUACY PROHIBITION IN CONTRACTUAL STIPULATION

- The supplier shall NOT be liable when it is proven: 1. There is no defect in the service rendered 2. That the consumer or third party is solely at fault

Quality imperfection that render the service: 1. Improper for consumption 2. Decrease their value 3. Those resulting from inconsistency with the information contained in the offer or advertisement NOTE: Improper service – Those which prove to be inadequate for purposes reasonably expected of them and those that fail to meet the provisions of this act regulating service rendering Supplier is implicitly bound to use: 1. Adequate 2. Original 3. New Replacement Part 4. Those that maintain the manufacturer’s technical specification

term, but it shall not be less than 7 days nor more than 180 days - If replacement is not possible ! replace with different kind, mark or model + reimburse difference in price The consumer having powers to demand, alternatively, at his option: 1. The proportionate price 2. Supplementing of weight or measure differential 3. Replacement of the product by another of the same kind, mark or model, w/o said imperfection 4. Reimbursement of the amount paid, with monetary updating w/o prejudice to losses and damages if any The consumer having powers to demand, alternatively, at his option: 1. The performance of the service, w/o additional cost and when applicable 2. Reimbursement 3. Proportionate price reduction NOTE: Reperformance of services may be entrusted to duly qualified third parties at the supplier’s risk and cost

E: Otherwise authorized as regards to the letter by the consumer X exempt him from liability

X require express instrument or contractual exoneration of the supplier being forbidden - The stipulation in contract of a clause preventing, exonerating or reducing the obligation to indemnify for damages effects, as provided for in the preceding articles = PROHIBITED -If there is more than one person responsible for the cause of the damage = jointly liable for redress

PENALTIES

 

DE LEON SALES REVIEWER

-If the damage is caused by component or part incorporated in the product or service ! its MBI and person who incorporated the component or part = jointly liable Any person who violates with respect to any consumer product which is NOT food, cosmetics or hazardous substance shall UPON CONVICTION be subject to: 1. Fine of not less than 5k 2. Imprisonment of not more than 1 year or BOTH

 

 

 

 

 

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CHAPTER 6 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. CAUSES FOR EXTINGUISHMENT OF SALE The mode of extinguishing the contract of sale may be classified into: 1. Common – Those cause which are also the means of extinguishing other contracts like: • Payment • Loss of Thing • Condonation • Etc. (1231) 2. Special – Those causes which are recognized by law on sale such as: • 1484 • 1532 • 1539 • 1540 • 1542 • 1556 • 1560 • 1567 • 1591 3. Extra special – those causes which are given special discussion by the Civil Code, and there are conventional redemption and legal redemption

SUBJECT MATTER OF CONVENTIONAL REDEMPTION •

Both real and personal property may be the subject of pacto de retro sales or sales with the right to repurchase o E: Although there are certain articles which are applicable only to immovable: " 1607 " 1611 " 1612 " 1613 " 1614 " 1617

NATURE OF CONVENTIONAL REDEMPTION 1. Purely Contractual

It is a right created, not a mandate created by the law, but by virtue of an express contract Therefore, its nullity cannot affect the sale itself since the sale may be entered into without said stipulation Because it binds third persons Depends upon the will of the seller - When exercised, the right of ownership acquired by the buyer is extinguished - In a pacto de retro sale, the title or ownership of the property sold is immediately vested in the vendee a retro, subject only to the reso condition of repurchase by the vendor a retro within the stipulated period It is not an obligation, but a power or privilege that that vendor has reserved for himself For if the right to repurchase is agreed upon afterwards, there is only a promise to sell which produces different rights and effects and is governed by Art. 1479 - The person entitled to exercise the right of redemption is the owner of the property sold and not any third party - Unlike a debt which a third person may satisfy even against the debtor’s will, the right of repurchase may be exercised only by the vendor in whom the right is recognized by contract or by any person in whom the right may have been transferred On the part of the seller - Returning the price of sale and other expenses

2. Accidental Stipulation 3. Real Right when registered 4. Potestative 5. Resolutory Condition

6. Power or Privilege

SECTION 1. CONVENTIONAL REDEMPTION ARTICLE 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.

7. Reserved at the moment of perfection of the contract 8. Owner of the property

CONVENTIONAL REDEMPTION • The right which the seller reserved to himself, to reacquire the property sold provided he return to the vendee: 1. Price of the sale 2. Expenses of the contract 3. Any other legitimate payments made therefor and 4. Necessary and useful expenses made on the thing sold and 5. Fulfills other stipulations which may have been agreed upon 9. Reciprocal Obligation

 

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On the part of the buyer - Delivering the property and executing a deed of sale therefor Note: The plea that the buyer made delivery of the property to a third person to whom he believed was better entitled to possess it = X serve as an excuse for the failure to comply with said obligation

OPTION TO BUY AND RIGHT OF REPURCHASE DISTINGUISHED An option to buy is different and distinct from the right of repurchase, which must be reserved by the seller by stipulation to that effect. 1.

2.

It is a right reserved by the seller - The right of repurchase is not a right granted the seller by the buyer in a subsequent instrument, but a right RESERVED by the seller in the same instrument of sale as one of the stipulations of the contract It should be reserved in the same instrument and before the instrument of absolute sale is executed - Once the instrument of absolute sale is executed, the seller no longer reserves the right to repurchase, and any right thereafter granted the seller by the buyer in a separate instrument cannot be a right of repurchase, but some other right like the option to buy a. A deed of absolute sale and option to buy together – X considered evidencing a contract of sale with pacto de retro. Such an option does not evidence a right to repurchase, the extension of the period for the exercise for which (option) does not fall under No. 3 of 1602 b. An agreement to repurchase becomes a PROMISE TO SELL when made after an absolute sale – where the sale is made without such an agreement, the purchaser acquires the thing sold absolutely and if he afterwards grants the seller the right to repurchase, it is a new contract entered into by the purchaser, as absolute owner already of the object

RIGHT TO REDEEM AND RIGHT OF REPURCHASE DISTINGUISHED RIGHT TO REDEEM The right to redeem becomes functus officio on the date of its expiry and its exercise after the period is not really one of redemption but one of repurchase Repurchase of foreclosed property after the redemption period – X impose such obligation • The purchaser may or may not

 

DE LEON SALES REVIEWER

RIGHT TO REPURCHASE

Redemption is by force of law – the purchaser at a public auction is bound to accept redemption

 

•

resell the property but no law will compel him to do so He is not bound by the bid price - it is entirely within his discretion to set a higher price, for after all, the property already belongs to him as owner

COMPLIANCE WITH STIPULATIONS • In order to exercise the right of legal redemption, the seller must not only comply with the provisions of Art 1616 but also with other stipulations that may have been agreed upon by the parties relating to the exercise of the right ARTICLE 1602.The contract shall be presumed to be an equitable mortgage, in any of the following cases: (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. EQUITABLE MORTGAGE DEFINED • An equitable mortgage is one which: o Lacks the proper formalities, form or words, or other requisites prescribed by law for a mortgage, o But shows the intention of the parties to make the property subject of the contract denominated as a contract of sale, as a security for a debt, o And contains nothing impossible or contrary to law • The decisive factor is the INTENTION OF THE PARTIES

 

 

 

 

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THE “PACTO DE RETRO PROBLEM” • 1602 is a new provision • Provides safeguards and restrictions against the evils of sale with a right of repurchase, commonly called “pacto de retro sales” - often used to conceal a contract of loan secured by a mortgaged • The policy of the law is to discourage pacto de retro sales and thereby prevent the circumvention of the prohibition against USURY and PACTUM COMMISSORIUM • Sales with rights to repurchase as defined in the civil code are NOT favored • The problem sough to be addressed: In contracts of sale with right of repurchase the real intention of the parties is that the pretended purchase is money loaned, and in order to secure the payment of the loan, a contract purporting to be a sale with pacto de retro is drawn up o Solution: Art. 2087 and 2088 of the civil code prohibits the creditor from appropriating the things given in pledge or mortgage and ordering that said things be sold or alienated when the principal obligations become due are circumvented • The usury law is circumvented- It is well known that the practice in these so called contracts of sale with pacto de retro is to draw up another contract purporting to be a lease of property to the supposed seller, who pays in money or in crops a so-called rent. It is however, no secret to anyone that this simulated rents in truth and in fact interest on the money loaned. In many instances, the interest is USURIOUS. NOTE: • Usury law o Now legally INEXISTENT as the lender and borrower can agree on any interested that may be charged on the loan under Central Bank Circular No. 905 approved by the MB in December 3, 1982 o BSP Circular No.799 (July 1, 2013) – the legal rate of interest for any loan or forbearance of money, goods or credits and the rate allowed in judgment shall be 6% PER ANNUM in the absence of an express contract on such interest rate PACTO DE RETRO AND MORTGAGE DISTINGUISHED OWNERSHIP

EFFECT OF FAILURE TO REPURCHASE OR PAY DEBT

 

PACTO DE RETRO Ownership is immediately transferred provided there is delivery, but the ownership is subject to the condition that the seller might recover the ownership within a certain period of time

MORTGAGE Ownership is NOT transferred but the property is merely subject to a charge or lien as security for the compliance of a principal obligation, usually a loan Mortgagor does not lose his interest in the property if he fails to pay the debt at its maturity, but merely

If the seller does not repurchase the property upon the very day named in the contract, he loses all interests thereon title to which

DE LEON SALES REVIEWER

 

(respectively) OBLIGATION TO FORECLOSE RIGHT TO REDEEM

•

• •

vests upon the buyer by operation of law There is no obligation resting upon the purchaser to foreclosure.

subjects the property to foreclosure and public sale It is the duty of the of the mortgagee to foreclose the mortgage if he wishes to secure a perfect title thereto

Neither does the seller have any right to redeem the property after maturity of the debt X FAVORED

Before foreclosure, the mortgagor has a right to redeem

A seller who decides to redeem or repurchase a property sold with pacto retro is in a sense, stands as the debtor and the buyer is the creditor of the repurchase price The right of repurchase presupposes a valid contract of sale between the parties In pacto de retro, the property (real or personal) is not used a security

ILLUSTRATIVE CASES: 1. It is stipulated that upon failure of owner to redeem land by returning the loan, title thereto shall vest in the vendor = MORTGAGE 2. Under the contract, if the first party failed to redeem the land “sold as by mortgage” the other party may sell it to another = PACTO DE RETRO 3. Vendor a retro failed to exercise his right of repurchase while vendee a retro failed to pay balance of purchase price = EFFECT OF DISCREPANCY = Failure of B to pay the balance did not suspend the running of the redemption period as there is nothing to indicate that the agreement of the parties is to suspend the period until full payment of the purchase price SUBSEQUENT SALE OF PROPERTY BY VENDOR A RETRO • A sale with pacto de retro transfers the legal title to the vendee a retro • The essence of a pacto de retro sale - is that the title or ownership is IMMEDIATELTY vested in the vendee a retro, subject to the resolutory condition of repurchase of the property by the vendor a retro within the stipulated period • The sole right of the vendor a retro is that of REDEMPTION • He has no other interest left in the property which he can transfer o E: But a sale subsequently made by the seller to an innocent purchaser for value could defeat the vendee’s title and right to possession if the buyer’s right is not registered or annotated WHEN A CONTRACT WITH RIGHT OF REPURCHASE PRESUMED AN EQUITABLE MORTGAGE 1. REQUISITES 1. That the parties entered into a contract denominated as a contract of sale with a right of repurchase or purporting to be an absolute sale

 

 

 

 

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2.

That their intention was to secure an existing debt by way of mortgage of the property • The mortgagor retains ownership of the property but subject to foreclosure in case of his failure to pay his obligation 2. PRESENCE OF ANY OF ENUMERATED CIRCUMSTANCES • Art. 1602 enumerated 6 distinct and separate circumstances – the presence of any (not necessarily a concurrence) of which is sufficient to give rise to a presumption that a contract, regardless of its nomenclature, is an equitable mortgage in consonance with the rule that the law favors the least transmission of property rights • A purported contract of sale may be declared as an equitable mortgage even when only on the enumerated circumstances under 1602 is proved 3. ADMISSIBILITY OF PAROL EVIDENCE • Parol evidence becomes competent and admissible to prove that the contract was in truth and in fact given merely as a security for the payment of a loan • The cases are inconsistent with the buyer’s acquisition of the right of ownership under a true sale subject only to the vendor’s right to redeem and belie the truthfulness of the sale a retro • In case of doubt, a contract purporting to be a sale with right of repurchase shall be construed as an equitable mortgage PRICE OF THE SALE IS UNUSUALLY INADEQUATE • The SC, in determining whether the price of a property is inadequate has often referred to its ASSESSED VALUE • The zonal valuations of the BIR hardly approximate the FMV of real property • The mere disproportion of the price to the value of the property, in the absence of other circumstances incompatible with the contract of purchase of sale ! CANNOT alone justify the conclusion that the transaction is pure and simple loan • GR: Inadequacy is not sufficient to set aside a sale o E: unless it is grossly inadequate or purely shocking to the conscience or is such that the mind revolts at it and such that a reasonable man would neither directly or indirectly be likely to consent to it • In the absence of evidence as to the market value of the parcel of land at the time for its sale ! one cannot conclude that the price at which it was sold was inadequate SELLER REMAINS IN POSSESSION • If the transaction is an absolute sale of property, particularly land, the buyer ordinarily would assume immediate possession after execution of the deed of sale • Where the seller remains in physical possession of the land sold as lessee or otherwise ! the contract should be treated as an equitable mortgage • In a contract of sale, the legal title to the property is immediately transferred to the buyer ! retention by the seller of the possession of the property is inconsistent with the vendee’s acquisition of ownership under a true sale

 

DE LEON SALES REVIEWER

 

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The real intention of the parties is determinative of the true nature of the transaction E: Mere tolerated possession by the seller of the property sold where the buyer had goods reasons why he opted not to assert his superior right of possession is NOT enough to prove that the transaction between the parties was an equitable mortgage

OTHER CASES: 1. PERIOD OF REDEMPTION IS EXTENDED AFTER EXPIRATION 2. PURCHASER RETAINS PART OF THE PRICE 3. VENDOR BINDS HIMSELF TO PAY TAXES ON THE THING SOLD • The alleged buyer never declared in his name for taxation purposes the land sold • But the sole circumstance that the land sold continued to be registered and all tax declarations thereon were made in the name of the seller ! CANNOT be invoked to support the finding that a deed of sale with right of repurchase is an equitable mortgage ! at best, it mat demonstrate neglect of the buyer • In a case, although tax declaration for the property have been transferred to the buyer’s name and he has been paying for the tax ! the fact that he made no move for 30 years to oust the seller and his heirs from possession = badge of an equitable mortgage 4. THE PARTIES REALLY INTENDED AN EQUITABLE MORTGAGE INSTEAD OF A SALE • That the transaction shall secure the payment of a debt or the performance of any other obligations by way of mortgage • While there is no single conclusive test, the intention of the parties, shown by their words and action prior to, during, and after executing the agreement = decisive factor in evaluating w/n the agreement is a simple loan accommodation secured by a mortgage • This intention is shown not necessarily by the terminology but by all the surrounding circumstances EVIDENCE TO PROVE TRUE NATURE OF CONTRACT 1. The terms of the document itself can AID in arriving at the nature of the contract • Where the contract contains a stipulation that upon payment by the seller of the purchase price within a certain period, the document shall become null and void and have no legal effect = mortgage contract • In pacto de retro sale, the payment of the repurchase price does not merely render the document null and void but there is an obligation on the buyer to sell back the property • BUT the denomination of the contract as a deed of sale is NOT binding as to its nature ! what is controlling is the intention of the parties as shown

 

 

 

 

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The same equitable presumption applies when the buyer was given the right to appropriate the fruits thereof in lieu of receiving interest on the loan • An arrangement, where the ownership of land is supposedly transferred to the buyer who provides for the funds to redeem the property from the bank but nonetheless allows the seller to later on buy back the property = equitable mortgage The repurchase price paid by the apparent seller = principal of the loan Any money, fruits or other benefits received thereafter by the apparent buyer = interest on said loan and are subject to usury law Even a conveyance accompanied by the registration of the same and the issuance of a new CT in favor of the transferee = no more secured from the operation of the equitable doctrine than the most informal conveyance that could be devised • Equity looks through the form and considers the substance Documentary and parol evidence is competent and admissible to prove that the contract does not express the true intention of the parties and may be introduced to show that the agreement is merely a mortgage given as security for repayment of loan. • The nature of the agreement is placed in issue by the pleadings filed with the trial court

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CIRCUMSTANCES INDICATIVE OF INTENTION TO EXECUTE MORTGAGE A contract should be construed as a mortgage or loan instead of a pacto de retro sale when its terms are AMBIGOUS or when circumstances rather than any of those specific cases defined in no. 1 -5 of 1602 may be indicative that the real intention of the parties is to enter into a contract of loan secured by way of mortgage

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SELLER IN URGENT NEED OF MONEY • Where it appears that it was executed due to the urgent need of money of the seller, notwithstanding he was aware of the contents of the contract • Necessitous men are not free men; but to answer a present emergency will submit to any terms that the crafty may impose upon them AUTOMATIC APPROPRIATION BY BUYER OF PROPERTY SOLD STIPULATED • The stipulation in PDR sale that the ownership over the property sold would automatically pass to the buyer in case of no redemption was effected within the stipulated period ! contrary to the nature of a true pacto de retro sale under which the buyer acquired ownership of the thing sold immediately upon execution of the sale, subject only to the right of the seller of redemption • Said stipulation is PACTUM COMMISORIUM - which enables the mortgagee (buyer) to acquire ownership of the mortgaged property without foreclosure = VOID • Its insertion in the contract is an avowal of the intention of the mortgage, rather than to sell the property • Dapat kasi automatic transfer ng ownership upon execution of the sale sa PDR BUYER GIVEN POSSESSION OF CERTIFICATE OF TITLE

DE LEON SALES REVIEWER

 

Common practice of individual money lenders of taking physical possession of the CT or other documents evidencing ownership of real estate by the debtor to ensure his faithful compliance with the obligation to pay the loan • But the delay in transferring title is not one of the instances enumerated by law in which an equitable mortgage can be presumed ESCALATION OF PURCHASE PRICE EVERY MONTH STIPULATED • A stipulation in a contract sharply escalating the repurchase price every month enhances the presumption that the transaction is an equitable mortgage • Its purpose is to secure the return of the money invested with substantial profits or interest, a common characteristic of loans SELLER BORROWED FROM BUYER MONEY USED IN BUYING PROPERTY SOLD • The same presumption arises from a statement in a deed of sale with right to repurchase that the seller borrowed from the buyer the money used in buying the property from the original owner BUYER OF LOW INTELLIGENCE AND ILLITERATE • “Sanglaan ng isang Lupa na Patuluyang Ipaari” signed by father with very low intelligence = null and void SELLER CONTINUED TO PAY MONTHLY INTEREST, PROPERTY NOT TRANSFERRED TO BUYER, ETC BUYER CONTINUED TO BE INDEBTED • A test to determine whether a conveyance is a sale or merely a security for the payment of loan is the continued existence of a debt or liability on the part of the alleged mortgagor • If such relationship exists, the transaction is a mortgage; otherwise, it is a contract of sale BUYER MORTGAGED PROPERTY SOLD TO A BANK; PAID TAXES THEREON, ETC •

PRICE IN PACTO DE RETRO SALES USUALLY LOWER • The price is usually less than in absolute sale because in PDR, the seller expects to reacquire or redeem the property sold or else he may sell his right to redeem and thus recover the loss he claims suffered by reason of the inadequacy of the price • The practice is to fix a relatively reduced price to afford the vendor a retro every facility to redeem the property • Hence, the inadequacy of the repurchase price of itself cannot be considered a ground for annulling the contract or justify the conclusion that the contract is one of equitable mortgage ARTICLE 1603.In case of doubt, a contract purporting to be a sale with right to repurchase shall be construed as an equitable mortgage. ARTICLE 1604.The provisions of article 1602 shall also apply to a contract purporting to be an absolute sale.

 

 

 

 

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2. PRESUMPTION IN CASE OF DOUBT 1. DOUBT RESOLVED IN FAVOR OF EQUITABLE MORTGAGE • Equitable mortgage is favored by law • Whether the sale is absolute or PDR, it shall be presumed to be an EM even if only one of the circumstances mentioned in 1602 is present • This is so because PDR, with the stringent and onerous effects that accompany them – are not favored • A contract of reconveyance is but a necessary consequence of the exercise of a party’s right to repurchase the property subject to a contract of sale with a right of repurchase or of an equitable mortgage • The failure of the alleged buyer to take steps to consolidate ownership of real property after the seller failed to redeem within the period agreed upon may be taken as a factor in construing a sale a retro = equitable mortgage • Where the contract is deemed an EM – ownership of the property cannot be consolidated until after foreclosure of the mortgage has been undertaken o Remedy of the mortgagee (buyer/creditor) is to: " Recover the amount loaned by filing an action for the amount due or " By foreclosing the mortgage, selling the property and applying the proceeds of the sale to satisfaction of the loan obligation 2. PRESUMPTION, AN EXCEPTION TO THE GENERAL RULE • GR: Doubts affecting an onerous contract shall be settled in favor of the greatest reprocity of interests o E: Art. 1602 • Why? An EM effects a lesser transmission of rights and interests than a contract of sale, since the debtor does not surrender all rights to collect what is owing from the value of the thing given as security 3. PAROL EVIDENCE ADMISSIBLE • Parol evidence is admissible to show that a transaction purporting to be an absolute or pacto de reto sale is really one of loan with a security and therefore, a mortgage • Where there is no debt, there can be no mortgage; for if there is nothing to secure, there can be no security ! Thus, if there is no debtor-creditor relationship, but by the terms of the contract one is merely given an option to buy real property for a fixed price, there is no EM ! the optionee is not bound to buy and pay for the property 4. WHERE CONTRACT APPEARS TO BE GENUINE SALE • If from all the indications, the contract appears to be a genuine sale with Right of repurchase and none o the suspicious circumstances mentioned in 1602 is present ! the true agreement will be upheld 5. APPLICATION OF PRESUMPTION TO CONTRACT PURPORTING TO BE AN ABSOLUTE SALE • For Articles 1602 and 1604 to apply, 2 REQUISITES must concur: 1. The parties entered into a contract denominated as a contract of sale

 

DE LEON SALES REVIEWER

 

Their intention was to secure an existing debt of way of an equitable mortgage

EFFECT WHERE CONTRACT HELD AS AN EQUITABLE MORTGAGE 1. FORMAL REQUIREMENTS OF MORTGAGE DEEMED COMPLIED WITH • When a contract purporting to be sale with right of repurchase is held as an EM, the same shall be given effect as if it has complied with the formal requirement of mortgage • The supposed buyer (creditor) has the right to recover the amount loaned 2. CONTRACT SUBORDINATE TO A SUBSEQUENT REGISTERED MORTGAGE • The EM, while valid, as between the immediate parties thereto, CANNOT however prevail over a subsequent registered mortgage 3. TITLE OF PROPERTY REMAINS IN SUPPOSED SELLER • When the original transaction is subsequently declared to be an EM ! The title to the mortgaged property which had been transferred to the supposed buyer actually remained or is transferred back to the supposed seller as owner-mortgagor conformably to the doctrine that the mortgagee does not become the owner of the mortgaged property because the ownership remains in the mortgagor 4. REMEDY OF CREDITOR (BUYER) IS TO FORECLOSE • It is not proper for a court to declare the property as already owned by the mortgagee (buyer) upon failure of the mortgagor (seller) to pay his obligation within the required period as it would produce the same effect as pactum commissorium ! void for being held as contrary to good morals and public policy • The proper remedy is not an action for consolidation of ownership but to: o FORECLOSE the mortgage and o SELL the property at public auction 5. CONVEYANCE OF LAND NOT TO AFFECT MORTGAGOR’S (SELLER) RIGHT OF REDEMPTION • Neither is a person’s right as a mortgagor in equity affected by the fact that the subject property was already titled in the name of the supposed buyer based on the mistaken notion that the property was sold a retro • No conveyance of land, even if accompanied by registration in the name of the transferee (buyer) and the issuance of a new CT, can be allowed which will enable the party to escape from the operation of this equitable doctrine PACTO DE RETRO SALES NOT FAVORED • Sales with right of repurchase are NOT favored • The contract will be construed as a mere LOAN o E: Unless the court sees that, if enforced according to its terms, it is not an unconscionable one

 

 

 

 

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The presumption created in 1602 that a contract is an EM is NOT CONCLUSIVE – it may be overcome by competent and satisfactory proof to the contrary

ARTICLE 1605.In the cases referred to in articles 1602 and 1604, the apparent vendor may ask for the reformation of the instrument. WHEN VENDOR MAY ASK FOR REFORMATION • Art. 1604 seeks to prevent a circumvention of Art. 1602 by making the contract of loan appear as an absolute sale • REFORMATION – is that remedy granted by law by means of which a written instrument is made or construed so as to express or conform to the real intention of the parties when such intention is not expressed in the instrument • If the parties really intended a mortgage but the instrument states that the property is sold absolutely or with a right of repurchase ! the same may be reformed so that the contract should appear to be a mortgage and not an absolute sale or pacto de retro sale • In reformation, there has been a meeting of the minds between the parties, BUT the written instrument purporting to embody the agreement does not express their true intention by reason of mistake or fraud • Where the has been NO meeting of the minds ! the remedy is annulment ARTICLE 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. PERIOD FOR EXERCISE OF RIGHT OF REDEMPTION • Article 1606 refers to conventional redemption • X apply where the contract is not one of sale with right of redemption • For conventional redemption to take place ! the seller should reserve, in no uncertain terms, the right to repurchase3 the thing sold • The right to redeem must be expressly stipulated in the contract of sale in order than it may have legal existence • Where the contract provides “in case of sale” by the buyer of the property (sold) to the seller ! SC held that stipulation X grant the right of repurchase ! only means “should the buyer wishes to sell” which is the plan and simple import of the words, and not “the buyer should sell” CONDITION NO AGREEMENT GRANTING RIGHT If there is no agreement in contract of sale granting the seller a right to redeem

 

DE LEON SALES REVIEWER

PERIOD OF REDEMPTION There is NO right of redemption since the sale should be considered an absolute sale

 

AGREEMENT MERELY GRANTS RIGHT

4 years from the date of the contract The parties however, may subsequent to the contract, stipulate a period not exceeding the maximum period of 10 years from the date of the contract

If the parties agreed only on the right to redeem on the part of the seller BUT there is a total absence of express stipulation as to the time within which the repurchase should be made DEFINITE PERIOD OF REDEMPTION AGREED UPON

Within the period fixed provided it does not exceed 10 years

If the parties agreed on a definite period of redemption

Where the right is suspended by agreement until after a certain time, event or condition ! the period shall be counted from the time such right should be exercised, but not exceeding 10 years from the execution of the contract The vendor a retro has 10 years from the execution of the contract to exercise his right of redemption

PERIOD AGREED UPON EXCEEDS 10 YEARS Where the agreed period exceeds 10 years PERIOD FOR REDEMPTION NOT SPECIFIED

10 years

If the parties agreed that the seller shall have a right to redeem and they intend a period, which, however, is not specified FINAL JUDGMENT THAT CONTRACT IS PACTO DE RETRO

30 days from the time the FJ was rendered in a civil action, on the basis that the contract was a true sale with right of repurchase

After the courts have decided by a FJ that the contract was a pacto de retro and not a mortgage, the vendor (whose claim as a mortgagor had definitely been rejected) may still have the privilege of repurchasing within 30 days

FINAL JUDGEMENT THAT CONTRACT IS PACTO DE RETRO rd • The 3 paragraph of 1606 refers to cases involving transaction where one of the parties contests or denies that the true agreement is one of sale with right of repurchase • There must be an express finding that the transaction is one of pacto de retro • It must appear that there was a bona fides belief on the part of the vendor a retro, founded on facts attendant upon the execution of the contract,

 

 

 

 

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honestly and sincerely entertained, that it was in reality a mortgage, but merely given as a security for a loan or other obligation and because of such belief, he had not redeemed the property within the proper period In short, the judgment was rendered in a civil action where the issue was whether the contract entered into by the parties was a pacto de retro sale or an equitable mortgage The 30 day period is peremptory (absolute) because the policy of the law is not to leave the purchaser’s title in uncertainty beyond the said period ! X prescriptive period but is more of a requisite or condition precedent to the exercise of the right of legal redemption

WHEN ARTICLE 1606, PAR 3, NOT APPLICABLE 1. CONTRACT FOUND TO BE AN ABSOLUTE SALE • Art. 1606 par 3 is not applicable where the contract is found to be an absolute deed of sale, pure and simple • There could not even be a period of redemption 2. SALE KNOWN AND ADMITTED BY SELLER AS PACTO DE RETRO • Neither is said provision applicable where the sale is admittedly one with pacto de retro • If the rule were otherwise, it would be within the power of every vendor a retro to set a naught a pacto de retro or resurrect an expired right of repurchase, by simply instituting an action to reform the contract – known to him to be in truth, a sale with pacto de retro – into an equitable mortgage 3. PARTY ABANDONED POSITION THAT TRANSACTION AN EQUITABLE MORTGAGE AFTER JUDICIAL DECLARATION OF TRANSACTION AS PACTO DE RETRO SALE • It must appear that there was a bona fides belief on the part of the vendor a retro, founded on facts attendant upon the execution of the contract, honestly and sincerely entertained, that it was in reality a mortgage, but merely given as a security for a loan or other obligation and because of such belief, he had not redeemed the property within the proper period DATE FROM WHICH PERIOD RECKONED 1. DATE OF CONTRACT • Under par 1 and 2 of 1606 - the date rom which the period must be counted is the DATE OF THE CONTRACT • The date of the contract must not be taken in a very material sense • The date of the contract referred to must be THAT FROM WHICH THE CONTRACT PRODUCES ITS EFFECT • Example: o If the contracting parties agreed on a suspensive condition to determine the effectiveness of the contract ! the period within which the right of repurchase must be exercised must not be counted from the date of contract itself but from the time of the fulfillment of the suspensive condition 2. DATE OF FINALITY OF JUDGEMENT • Under par 3 of 1606 – the period to redeem is reckoned from the time the judgment becomes final

 

DE LEON SALES REVIEWER

 

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The judgment becomes final after the period to appeal had lapsed without one having been perfected The date of finality of a decision is entirely distinct from the date of its entry and the delay in the date of its entry does not affect the effectivity of the date of finality, as such is counted from the date of expiration of the period of appeal

EFFECT OF STIPULATION EXTENDING PERIOD OF REPURCHASE 1. AFTER EXPIRATION OF PERIOD OF REDEMPTION • The extension is VOID AND OF NO EFFECT because there is nothing to extend • It is legally impossible to speak of extension because that which is extinguished cannot be extended because the ownership in the buyer has become already consolidated and becomes absolute • The parties can enter into an entirely new contract involving the same property, independent of the pacto de retro sale 2. BEFORE THE EXPIRATION OF THE PERIOD OF REDEMPTION • The original term may be extended provided that the extension, including the original term, shall not exceed 10 years • Extension is VOID AS TO THE EXCESS REASON FOR LIMITING PERIOD OF REDEMPTION • Public interest • It is not a good thing that the title to the property should be left for a long period of time subject to indefinite conditions of this nature VALIDITY OF PENAL CLAUSE PROVIDING AUTOMATIC TERMINATION OF REDEMPTION PERIOD • In a contract of sale with PDR, the parties may legitimately fix any period they please, not in excess of 10 years, for the redemption of the property sold by the vendor • The determination of the right of redemption may be made to depend upon the delinquency of the seller • Example: Penal clause provides that in case of failure of vendor a retro, who will remain in possession as lessee, to pay the agreed rentals, the lease shall automatically be terminated and ownership of the buyer shall become absolute ARTICLE 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. JUDICIAL ORDER FOR RECORDING OF CONSOLIDATION OF OWNERSHIP 1. NECESSITY • If real property is involved and the seller failed to redeem within the period agreed upon ! the buyer’s title becomes irrevocable by operation of law BUT the consolidation of ownership in the buyer shall not be recorded in

 

 

 

 

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the Registry of Property without a judicial order and until after the vendor has been duly heard • In short, there must first be a judicial order and the seller must be heard before the consolidation of ownership in the buyer can be recorded in the RP • The reason is that the transaction may not be a genuine pacto de retro but only an equitable mortgage PURPOSE • Intended to minimize the evils which pacto de retro sale has caused in hands of usurpers • A judicial order is necessary in order to determine the true nature of the transaction and to prevent the interposition of buyers in GF while the determination is being made FORMER METHOD • Under the former method of consolidation by a mere extrajudicial affidavit of the buyer a retro ! the buyer could easily cut off any claims of the seller by disposing of the property after such consolidation to strangers in GF without notice • The chances of the seller a retro to recover his property would thus be nullified, even if the transaction were really proved to be a mortgage not a sale ACQUISITION OF OWNERSHIP BY VENDEE A RETRO • Acquisition of ownership by the buyer a retro is automatic – once there is a failure to redeem within the stipulated period or in the absence thereof, as provided by law ! absolute title or ownership of the property sold becomes vested or consolidated by operation of law on the buyer • Any other interpretation would be violative of the sanctity of the contract between parties EFFECT OF FAILURE OF VENDEE A RETRO TO CONSOLIDATE TITLE • The failure of the buyer a retro to consolidate his title under 1607 does NOT impair such title and ownership because the method prescribed thereunder is merely for the purpose of registering and consolidating title to the property • The judicial hearing contemplated in 1607 refers not to the consolidation itself, but merely for the purpose of registering the consolidation • The only effect of such failure is that the absolute ownership of the vendee a retro cannot be recorded in the RP

ACTION TO CONSOLIDATE OWNERSHIP 1. ORDINARY CIVIL ACTIONS • Consolidation thru ordinary civil action cognizable by the RTC wherein the seller a retro is party defendant • Does not partake of the nature of a motion, it not being merely an incident to an action or proceeding • Vendor a retro must be named respondent in the caption and title of the petition and duly summoned and heard • Failure of the court to cause the service of summons ! sufficient cause for attacking the validity of the judgment and subsequent orders on juridisctional grounds

 

DE LEON SALES REVIEWER

 

An action to consolidate ownership may be brought under Rule 63, Section 1 of ROC (entitled to declaratory relief and similar remedies) REGISTRATION PROCEEDINGS • Where the land has been sold under pacto de retro, the seller a retro may file an application for the original registration of title to land. However, should the period for redemption expire during the pendency of the registration proceedings and ownership to the property consolidated in the buyer a retro, the buyer a retro shall be substituted for the applicant and may continue the proceedings •

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ARTICLE 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. NATURE OF RIGHT TO REDEEM 1. A REAL RIGHT • The right to repurchase is of a real character and should not be considered personal • It may be exercised against every possessor whose right is derived from the buyer a retro even if the second contract makes no mention of the right of repurchase o E: Mortgage Law and Land Registration Law with respect to third persons – The seller a retro cannot exercise his right of redemption against a subsequent transferee in GF if his right is not properly registered or annotated • Example: 1. S sold land (unregistered) with a right of repurchase to B who sold it to C ! S may still repurchase land from C 2. If land is registered under TS and right of S is not annotated on B’s CT and sold to C ! S cannot exercise his right to redeem against C who registered the land free from all liens and encumbrances noted on the CT 2. A RIGHT, NOT AN OBLIGATION • It is a right and not an obligation, therefore consignation is not required to preserve the right to redeem • Thus the allegation that the offer to redeem was not sincere because there was no consignation of the purchase price is devoid of merit • But to actually redeem, there must of course be payment or consignation 3. RECONVEYANCE IS AN OBLIGATION • The obligation to reconvey the land upon proper demand for redemption is an obligation ad rem that attaches to redeemable lands in the hands of whomsoever should be in possession thereof o E: the action is barred by some defense or excuse recognized by law • The nature of conventional and the legal rights of redemption is identical o E: for the source of the right

 

 

 

 

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If the actual possessor is ultimately adjudged to reconvey the property to the plaintiff-appellants ! he may proceed against the appellees to enforce their warranty against eviction, if and when proper; but this right of the present possessor is not one belonging to the would be redemptioners

ARTICLE 1609.The vendee is subrogated to the vendor's rights and actions. RIGHTS ACQUIRED BY VENDEE A RETRO 1. BUYER SUBROGATED TO SELLER’S RIGHTS • Subrogation – transfers to the person subrogated the credit with all the rights thereto appertaining • The above article is logical because a pacto de retro sale transfers ownership to the buyer although subject to the condition of repurchase • As owner, the buyer, for example may: 1. Transfer or alienate his right to a third person 2. Mortgage the property 3. Enjoy the fruits thereof 4. Recover the property against every possessor 5. Perform all other act of ownership subject only to the right of redemption of the seller • Of course, the seller cannot transfer ownership if he is not the owner 2. RIGHT TO EJECT SELLER • Prior possession of the buyer a retro of the property is not a condition precedent in an unlawful detainer action against the seller a retro, who after having failed to redeem, and title in the buyer a retro had been consolidated, refused to vacate the property ARTICLE 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. RIGHT OF SELLER’S CREDITORS TO REDEEM • This article is a practical application of Art 1177 permitting credtors to exercise the right and actions of their debtor after exhausting his properties to satisfy their claims • The right to redeem being property, it is answerable for the debts of the seller provided that the seller’s properties are first exhausted • The exhaustion must be established to the satisfaction of the buyer • 1610 refers to all kinds of creditors, whether ordinary or preferred o E: Those in who favor exists a mortgage or antichresis upon the very property sold recorded prior to the sale ! all these latter creditors have to do is foreclose their rights, ignoring the rights of the buyer ARTICLE 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.

 

DE LEON SALES REVIEWER

 

REDEMPTION IN SALE OF PART OF UNDIVIDED IMMOVABLE • The purpose of the above articles is to discourage co-ownership which is recognized as undesirable, since it does not encourage the improvement of the property co-owned • A co-owner ma demand the partition of the thing owned in common in so far as his share is concerned (Art. 494) o If the thing is essentially indivisible – it may be allotted to the co-owner who shall indemnify the others o If the co-owners cannot agree that the thing be allotted to one of them – it shall be sold and its proceeds be distributed • In either case, the buyer who acquires the whole of an undivided immovable part which is subject to a right of repurchase ! had the right to demand that the seller a retro, who likes to exercise his right of redemption, REDEEM THE WHOLE PROPERTY ARTICLE 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. ARTICLE 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 repurchase of the whole thing sold; and should they fail to do so, the vendee cannot be compelled to consent to a partial redemption. REDEMPTION IN JOINT SALE BY CO-OWNERS/ CO-HEIRS OF UNDIVIDED IMMOVABLE • The co-owners of an undivided immovable sold by them jointly or collectively in the same contract with right to repurchase ! can exercise such right only as regards their respective shares • Similary, the co-heirs of the seller of an undivided immovable ! can exercise the right of redemption only for the respective portions they have inherited • The buyer a retro CAN REFUSE PARTIAL REDEMPTION ! he may require all sellers or all the heirs to redeem the entire property or to agree to its redemption by any one of them o This right is given to the buyer in line with the object of the law which is to put an end to co-ownership whenever possible • Under 1620, the right of a co-owner who chooses not redeem accrues to the benefit of others ! the extent of the share of the redeeming co-owner is not taken into account except as provided in the second paragraph thereof EFFECT OF REDEMPTION BY CO-OWNER OF THE ENTIRE PROPERTY

 

 

 

 

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While a buyer a retro, under 1613, may not be compelled to consent to partial redemption ! the redemption by 1 co-owner of the property in its totality does not vest in him ownership over it Failure on the part of all the co-owners to redeem it entitles the buyer a retro to retain the property and consolidate title thereto in his name But this provision does not give to the redeeming co-owner the right to the entire property ! it does not provide a mode of terminating co-ownership Neither does the fact that the redeeming co-owner had succeeded in securing title over the parcel of land in his name terminate the existing coownership ! while the co-owners are liable to the redeeming co-owner for reimbursement as an for their shares in redemption expenses, the redeeming co-owner cannot claim exclusive right to the property owned in common o Registration of property is not a means of acquiring ownership ! it operates a mere notice of existing title, that is, if there is one

ARTICLE 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. REDEMPTION IN SEPARATE SALES BY CO-OWNERS OF UNDIVIDED IMMOVABLE • Although it is the policy of the law to avoid indivision, it would be unjust if the sale was made separately and independently, to require the co-owners to come to an agreement with regard to the purchase of the thing sold, and certainly, it would be worse to deprive them of their right in case they fail to agree • The very purpose of this article is to prevent injustice ARTICLE 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. REDEMPTION AGAINST HEIRS OF VENDEE • The seller a retro can exercise the right to redeem against the heirs of the buyer a retro with respect only to their respective shares whether the thing be undivided or it has been partitioned o E: If by partition, the entire property has been adjudicated to one of the heirs ! the seller can exercise the right to redeem against said heir for the whole

 

DE LEON SALES REVIEWER

 

ARTICLE 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. OBLIGATION OF VENDOR A RETRO IN CASE OF REDEMPTION THE SELLER A RETRO MUST RETURN TO THE BUYER A RETRO: 1. The price 2. Expenses of contract and other legitimate expenses 3. Necessary and useful expenses 4. Other items agreed upon by the parties THE SELLER A RETRO MUST RETURN TO THE BUYER A RETRO: 1. THE PRICE • The law speaks of the “PRICE OF THE SALE” and not the value of the thing • It is lawful for the parties to agree that the price be returned will be more or less than the original sum paid by the buyer 2. EXPENSES OF CONTRACT AND OTHER LEGITIMATE EXPENSES • If the expenses for the execution and registration of the sale were paid by the buyer ! the same shall be reimbursed by the seller • But they need not be paid at the very time of the exercise of the right since they are unknown amounts ! they may be paid later • The same is true of necessary and useful expenses 3. NECESSARY AND USEFUL EXPENSES • Necessary expenses - are those incurred for the preservation of the thing or those which seek to prevent the waste, deterioration or loss of the thing o X those which are ordinary and simple expenses of preservation because these expenses are incident to the enjoyment of the thing and should be borne by the buyer • Useful expenses – those which increase the value of the thing or create improvement thereon, such as house o Refunded to the buyer a retro because he is considered a possessor in GF • The seller is NOT given an option to require the buyer to remove the useful improvements on the land subject of the sale a retro unlike that granted the owner of land under 546 and 576 • The seller must pay for the useful improvement introduced by the buyer, otherwise, the buyer may RETAIN possession of the land until reimbursement o E: Homestead law – considering the purpose of the law on homestead, 1616 should be construed in conjunction with 546 and 547 ! to allow the seller a retro of a homestead the right of retention until payment of useful expenses is made by the redemptioner (seller) would be to render nugatory the right of repurchase granted by law to a homesteader because all a buyer

 

 

 

 

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a retro can do to prevent repurchase is to built something on the homestead beyond the capacity to pay of the homesteader who seeks to repurchase ! in short, no right to retain by buyer a retro despite non-payment of useful expenses by the seller a retro OTHER ITEMS AGREED UPON BY THE PARTIES • Art. 1616 of the CC is not restrictive or exclusive, barring additional amounts that the parties may agree upon • Said provision should be construed together with Art 1601 requiring the seller to comply with provisions of 1616 and other stipulations agreed upon by the parties

OFFER TO REDEEM AND TENDER OF PAYMENT GENERALLY REQUIRED 1. OFFER TO REDEEM MUST BE BONA FIDE • There mere declaration of the seller of his intention to exercise the right of repurchase is NOT sufficient to preserve the right of redemption • The law requires that the offer must be a bona fide one and accompanied by actual and simultaneous tender of payment or consignation of the full amount agreed upon for repurchase 2. WHEN TENDER OF PAYMENT NOT NECESSARY • Neither is it necessary to tender payment of the repurchase price if the buyer has already flatly refused to reconvey • This rule is premised on the ground that under such circumstance the buyer will also refuse the tender of payment • Where the seller had consigned or deposited in court the redemption price when the action was filed ! prior tender could be excused • If the tender is made after the period of repurchase has expired ! its acceptance would only amount to promise to sell on the part of the buyer because the right of repurchase having expired, there was no more right that could have been preserved CONSIGNATION OF PRICE GENERALLY NOT REQUIRED • It is not a legal requisite for the seller to make consignation or judicial deposit of the price if the offer or tender is refused • He has a right, not an obligation to repurchase • It is enough that a sincere and genuine tender of payment is made and refused, although consignation may serve to prove additional security for the seller to indicate the veracity of his desire to exercise the right of repurchase 1.

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WHERE THE RIGHT OF REPURCHASE JUDICIALLY DECLARE • Where the right of the seller a retro to repurchase has ben judicially declared to exist ! the effect of judgement is to definitely fix the relation of the seller (d) and buyer (c), as that of debtor and creditor, respectively, in the amount and within the period fixed in the judgment • Should the buyer (creditor) refuse to accept the amount of redemption price offered ! the seller (debtor) must deposit in court IN CASE OF ABSENCE OF THE BUYER A RETRO • In such case, the right of redemption may still be exercised as a seller who decides to redeem a property sold with pacto de retro • Seller (debtor), buyer (creditor) of the purchase price

DE LEON SALES REVIEWER

 

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The seller can and should exercise his right of redemption against the buyer by filing a suit against him and making a consignation with the court the amount due for redemption ! not that deposit or consignation is legally essential to preserve his reserved right of redemption but because he should be regarded as having done that which should have been done to terminate the right of the buyer over the property where the redemption price is already due and payable In short, if wala yung buyer (creditor), pwede na lang i-consign ni seller (debtor) yung payment ng amount due for redemption sa court

ARTICLE 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. RIGHT OF THE PARTIES AS TO FRUITS OF LAND • This article applies only when the parties have not provided for any sharing arrangement with respect to the fruits existing at the time of redemption • It refers only to natural and industrial fruits • Civil fruits are deemed to accrue daily and belong to the buyer in that proportion If there were fruits at the time of the sale and the buyer paid for them

Buyer must be REIMBURSED at the time of redemption as the payment forms part of the purchase price There shall be NO reimbursement for those existing at the time of redemption They shall be apportioned proportionately between the redemption and the buyer, giving the buyer a share in proportion to the time he possessed the property during the last year counted from the anniversary of the date of the sale to compensate the buyer for his expense B is entitled to reimbursement OR to the fruits for the last year because having paid for them, the effect if the same as if there were no crops on the land when it was sold (same as third rule)

If no indemnity was paid by the buyer for the fruits If the property had no fruits at the time of the sale and some exist at the time of redemption

If there were fruits at the time of the sale and the buyer paid for them

EXAMPLE:

 

 

 

 

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S sold to be with right of repurchase for 500k a parcel of land on June 5, 2008 with 3 year redemption period. 1. At the time of the sale, there was existing crops on the land + B paid additional amount of 50k for them ! If S should exercise his right of redemption, he must return to be P550k 2. If B did not pay for the crops ! S must return only 500k 3. If there were no crops at the time of the sale and some exist at the time of redemption on June 5, 2011 ! B is entitled to the crops during the last year (June 5, 2010- June 5, 2011) 4. If there were crops at the time of the sale + B paid for them ! B is entitled to reimbursement OR to the fruits for the last year because having paid for them, the effect if the same as if there were no crops on the land when it was sold ARTICLE 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. RIGHT OF SELLER A RETRO TO RECOVER A THING SOLD FREE FROM CHARGES • The buyer a retro may alienate, encumber or perform other acts of ownership over the thing sold • But the ownership being revocable upon redemption ! all acts done by him are also revocable o E: Leases which the buyer may have entered into in GF according to the custom of the place where the land is located • Thus, he may borrow money mortgage the property but when the seller a retro redeems, the buyer a retro is obliged to redeem the mortgage SECTION 2. 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. LEGAL REDEMPTION DEFINED • Thing – both immovable and movable property • Art. 1619 TRANSFER OF OWNERSHIP BY ONEROUS TITLE • Subrogation – transfers to the person subrogated the rights pertaining to another • Legal redemption may taken place in: o Purchase o Dation in Payment

 

DE LEON SALES REVIEWER

 

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o Any other transfer of ownership by onerous title X take place in: o Barter o Transmission of property by hereditary title o Mortgage or lease

DATION IN PAYMENT DEFINED • Is the transmission of the ownership of a thing by the debtor to the creditor as the accepted equivalent of the performance of an obligation • In this special mode of payment, the debtor offers another thing to the creditor who accepts it as equivalent of payment of an outstanding debt NATURE OF DATION IN PAYMENT • SALE OF THING o Nature of sale o The creditor is really buying the thing or property of the debtor, payment for which is to be charged against the debtor’s debt o The essential elements of contract of sale must be present: " Consent " Object certain " Cause or consideration o Governed by the law on sales • NOVATION OF AN OBLIGATION o Objective novation of the obligation where: " The thing offered as an acceptance equivalent of performance of an obligation is ! considered as the object of the contract of sale " Debt ! considered as the purchase price BASIS AND NATURE OF RIGHT OF LEGAL REDEMPTION 1. LEGAL REDEMPTION PRECEEDS FROM LAW • The nature of conventional and legal rights of redemption is identical EXCEPT for the source of right o Convention redemption – voluntary agreement of the parties o Legal redemption – precedes from law • Legal redemption may be converted into one of conventional redemption o Ex. Where there was voluntary agreement of the parties of the extension of the redemption period at the request of the sellers followed by the commitment of them to pay the redemption price at a fixed date ! legal redemption is converted by the parties into one of conventional redemption such that it generated binding contract when approved by the buyer ! in such case, the period of redemption is that agreed upon by the parties 2. PREDICATED ON BARE STATUTORY PRIVILEGE • The right of legal redemption is not predicated on proprietary right but on a bare statutory privilege to be exercised only by the person name in the status

 

 

 

 

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The statute does not make actual ownership at the time of sale or redemption a condition precedent, the right following the person and not the property The property subject sold to redemption may be redeemed by the judgment debtor or his successor-in-interest in the whole or any part of the property In an extra-judicial foreclosure – the mortgagor, his successor-in-interest, judgment creditor or any person having lien on the property subsequent to the mortgage may redeem the same

3. MERE PRIVILEGE • Legal redemption is in the nature of a mere privilege created partly for reason of public policy and partly for the benefit and convenience of the redemptioner to afford him a way out of what may be a disagreeable or inconvenient association which has been thrust • It is intended to minimize co-ownership • It works only one way in favor of the redemptioner • Not having parted with anything, he can compel the purchaser to sell, but cannot be compelled by him to buy INSTANCES OF LEGAL REDEMPTION 1. Civil Code: • 1620 – LR of co-owner • 1621 – LR of adjacent owners of Rural land • 1622 – Right of Pre-emption or Redemption of Rural Land • 1634 – Legal redemption in sale of credit or other incorporeal right in litigation • 1088 - Should any of the heirs sell his hereditary rights to a stranger before the partition, any or all of the co-heirs may be subrogated to the rights of the purchaser by reimbursing him for the price of the sale, provided they do so within the period of one month from the time they were notified in writing of the sale by the vendor o Refers to sale of hereditary rights and not to specific properties for the payment of debts of the decedent’s estate o In the administration and liquidation of the estate of a deceased person, sale ordered by the probate court for payment of debts are final and not subject to legal redemption o Unlike in ordinary execution sale, there is no legal provision allowing redemption in sale of property for the payment of debts of a deceased person 2. Special Laws SPECIAL LAW RA 7160 CA 141

 

DESCRIPTION Redemption by the owner of real property sold for delinquent taxes Repurchase by homesteader of homestead sold under the Public Land Act

DE LEON SALES REVIEWER

 

PERIOD within 1 year from date of sale within 5 years

Rules of Court, Rule 39, Sec. 30 Act No, 3135, Sect 3

Redemption by judgment debtor or redemptioner of real property sold on execution Redemption by mortgagor after mortgaged property has been

within 12 months

Judicially foreclosed and sold - within 90 days before confirmation of sale by the court Extrajudicial foreclosure sale - within 1 year from the date of registration of the sale

RA 3844

Redemption by an agricultural lessee of landholding sold by the landowner

Within 180 days from notice in writing which shall be served by buyer on all lessees affected and the DAR upon registration of the sale Note: This right have priority over any other right of redemption, like the right of redemption of a coowner under Art 1620

NOTE: (Illustrative Case decision) • A CHECK may be used for the exercise of the right of redemption, the same being a right and not an obligation. The tender of a check is sufficient to compel redemption but is not in itself a payment that relieves the redemptioner from him liability to pay the redemption price. In other words, while we hold that the private respondents properly exercised their right of redemption, they remain liable for the payment of the purchase price (Fortunado vs CA) ARTICLE 1620.A co-owner of a thing may exercise the right of redemption in case the shares of all the other co-owners or of any of them, are sold to a third person. If the price of the alienation is grossly excessive, the redemptioner shall pay only a reasonable one. Should two or more co-owners desire to exercise the right of redemption, they may only do so in proportion to the share they may respectively have in the thing owned in common. 99         © Michelle Duguil,

PURPOSE OF THE GRANT OF RIGHT TO CO-OWNERS • To reduce the number of participants until the community is done away with, as being a hindrance to the development and better administration of the property • This reason exists while the community subsists and the participants continue to be so whether they be the original co-owners or their successors • As legal redemption is intended to minimize co-ownership, it can no longer be invoked where there had been actual partition of the property so that coownership no longer exists REQUISITES OF RIGHT OF LEGAL REDEMPTION OF CO-OWNER 1. There must be co-ownership of a thing 2. There must be alienation of the shares of all other co-owners or any one of them 3. The sale must be to a third person or stranger (not a co-owner) 4. The sale must be for partition 5. The right must be exercised within the period provided in 1623 6. The buyer must be reimbursed for the price of the sale • The right of co-owner to legal redemption is based on his status as such independently of the size of his share • As legal redemption is intended to minimize co-ownership, it can no longer be invoked where there had been an actual partition of the property so that coownership no longer exists • Redemption by a co-owner within the period prescribed by law inures to the benefit of all co-owners EXAMPLES: 1. • ABC = co-owners of undivided property worth 500 k • A sold his interest to D for 200k • B&C may exercise right of redemption ! pay 100k each (the proportion of their respective shares) • If the price of 200k is excessive ! it may be reduced by the court 2. • •

ABC inherited property from X ! X mortgaged prop during his lifetime to D If C redeems whole property with his own personal funds ! C = sole owner; inure to benefit of all co-owners; co-ownership X terminated

BY WHOM AND AGAINST WHOM RIGHT MAY BE EXERCISED 1. A co-owner has the legal right to sell, assign or mortgage his ideal share in the property held in common • By the very nature of the right of LR, a co-owner’s right to redeem is rd invoked only after the shares of the other co-owners are sold to a 3 party or stranger 2. Co-owners have no right of legal redemption against each other

 

DE LEON SALES REVIEWER

 

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Should any one of the heirs sell his hereditary right to a stranger before partition ! any or all of the co-heirs may be subrogated to the rights of the purchaser by reimbursing him for the purchase price • Provided it be done within 1 month from the time they were notified in writing of the sale by the seller • Once the portion corresponding to each heir is fixed ! the coheirs become co-owners and their right of legal redemption should be governed by 1620 and 1623 The right of legal redemption is not granted solely and exclusively to the original co-owners but applies to those who subsequently acquire their respective shares while the community subsists • There is nothing in 1620 which, expressly or by inference, limits the right of redemption to the original co-owners

WHEN RIGHT CANNOT BE INVOKED • Art. 1620 applies only if the co-ownership still exists • It presupposes the existence of a co-ownership at the time the conveyance is made by a co-owner and when it is demanded by the other co-owners of co-owner 1. THING OWNED IN COMMON PARTITIONED • The right given to a co-owner by Art 1620 in case any other co-owners sells his share to a third person cannot be invoked where the sale was made after the properties owned in common had been partitioned, judicially or extra-judicially • If a plan of partition has been agreed upon though not approved at the time of the sale ! its approval by the court relates back to the date of the plan and property sold after such date is not subject to legal redemption 2. SHARES OF ALL CO-OWNERS SOLD • The provision covers the cases where some or one of the co-owners sell their shares in the property owned in common but NOT to the case where all the co-owners have sold their shares • Legal redemption may only be exercised by the co-owner/s who did not part with his or their pro-indiviso share in the property held in common 3. THING OWNED IN COMMON HAD BEEN OFFERED FOR SALE BY ALL COOWNERS • Neither can the right be invoked where the petitioners together with the other co-owners had previously offered for sale the entire property and ! after the respondent agreed to purchase the same and advanced a considerable amount of money, ! said petitioners wanted to renege on their agreement to sell, and instead offered to redeem from the respondent portion of the property sold by other co-owners to the respondent PRICE OF REDEMPTION 1. IN GENERAL • The redemption price is generally the purchase price paid by the owner to the selling co-owner(s) 2. REASONABLE PRICE • The law requires the redemptioner to pay only a reasonable price if the price if the price of the alienation is grossly excessive

 

 

 

 

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This is to prevent collusion between the buyer and the selling co-owner The right of the redemptioner to pay a reasonable price under 1620 does not excuse him from the duty to make proper tender of the price that can be honestly deemed reasonable under the circumstance, without prejudice to final arbitration by the courts, nor does it authorize said redemptioner to demand the buyer to accept payment by installments • There is no legal redemption in case of mere lease PRICE UNDERSTATED IN THE DEED OF SALE • The practice of understating the consideration of transactions for the purpose of evading tax and fees due the government is violative of public policy and injurious to public interest and must be condemned and the parties guilty thereof must be made to suffer the consequences of their illadvised agreement to defraud the state AMOUNT ACTUALLY PAID BY THE BUYER • On the other hand, if by false representation the buyer obtains from the redemptioner an amount greater than the price which he actually paid ! the co-owner who made the repurchase can recover from the buyer the difference in an appropriate action • Ex. 100k (paid my repurchaser co-owner) – 80k (amt paid by buyer) = 20k recover from buyer by repurchaser co-owner • •

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ARTICLE 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 RIGHT OF LEGAL REDEMPTION OF ADJACENT OWNERS OF RURAL LAND 1. Both the land of the one exercising his right of redemption and the land sought to be redeemed must be rural 2. The lands must be adjacent 3. There must be an alienation 4. The piece of rural land alienated must not exceed 1 hectare 5. The grantee or buyer must already own any other rural land 6. The rural land sold must not be separated by brooks, drains, ravines, roads and other apparent servitudes from the adjoining lands • When the land exceeds 1 hectare, the adjacent owners are not given the RLR because this may lead to the creation of big landed estates • The right cannot be exercised against a vendee if he is also an adjacent owner

 

DE LEON SALES REVIEWER

 

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The last paragraph of 1621 refers to a situation where the buyer of a piece of rural land is not an adjoining owner Burden of proof on the existence of a barrier between the two estates – is he who wants to defeat the right of redemption on the ground that the 2 estates are not contiguous to each other The right of redemption of adjacent owners cannot be exercised by any of them among themselves, but only by them against a stranger

MEANING OF RURAL LAND • Rural o Relating to or constituting tenement in land adopted or used for agricultural or pastoral purposes o It is on which, regardless of site, is as opposed to urban lands, which are principally for the purpose of residence RURAL LAND principally used for the purpose of obtaining products from the soil

URBAN LAND Principally for the purpose of residence

Purpose for being agricultural, fishing or timber exploitation

Dwelling, industry, or commerce

USE OF PROPERTY A DETERMINING FACTOR • The above definition is correct in so far as the word is ordinarily and commonly used or understood • However, in giving an adjoining owner, the right to redeem, “ a piece of rural land” ! the word rural land must be construed in consonance with the meaning intended by the framers of the law • The reason for the law in question is to foster the development of agricultural areas by adjacent owners who desire the increase for the improvement of their own land • The use and destination of the land and the customs of each town will be the data that ought to be taken into account to decide firmly the case where the qualification appears doubtful • The small parcel of land, one hectare or less in area, must be dedicated to agriculture before the owners of adjoining lands may claim a right of redemption under 1621 PREFERENCE AS BETWEEN TWO OR MORE OWNERS OF RURAL LANDS • In case 2 or more adjacent owners desire to exercise the right of redemption: 1. The law gives preference to the owners of the adjoining land of SMALLER AREA 2. BUT if both lands have the same area ! to the one who FIRST REQUESTED the redemption • Under 1620, the co-owners exercise their right of redemption pro-rata

 

 

 

 

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PURPOSE OF THE GRANTS OF RIGHT TO OWNERS OF ADJOINING RULE LANDS 1. TO BENEFIT ADJACENT OWNERS AND PUBLIC WEAL AS WELL • The object of the lawmaker in allowing the redemption by adjacent owners is to prevent an adjoining real estate belonging to another owner or owners, the area of which x exceed 1h, from passing into the hands of a person other than someone among the adjacent owners whereby the property of the latter would be divided without benefit to the public weal and perharps to the prejudice of the adjacent owners themselves who are interested in preserving the integrity of their respective properties and making use of the alienated property for the improvement and development of their own land 2. TO AVOID DIFFICULTIES IN CULTIVATION • An estate of not more than 1 h does not generally produce enough to keep one family • If it is purchased by one of the adjacent owners whereby public interest is favored, the production increases, the private interests of the redemptioner are respected, and no ostensible harm is occasioned either on the seller or the buyer 3. TO PROTECT AGRICULTURE • Protect agriculture by the union of small agri lands and those adjoining thereto under one single owner for better exploitation • If the land adjacent to which is sought to be redeemed is not agri, then the redemption is in vain – it does not answer the purpose behind the law • Both lands must be rural • In short, the purpose is to encourage maximum development and utilization of agricultural lands ARTICLE 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. 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 preemption or redemption, the owner whose intended use of the land in question appears best justified shall be preferred. RIGHTS OF PRE-EMPTION AND LEGAL REDEMPTION OF ADJACENT OWNERS OF URBAN LANDS PRE-EMPTION REDEMPTION The act or right of purchasing before Exercised AFTER the sale has been others perfected against the buyer It is exercised BEFORE the sale or The recognition of the right of resale against the would-be seller redemption will result in the rescission of the sale

 

DE LEON SALES REVIEWER

 

REQUISITES (4) 1. That the piece of land is urban land 2. The land is so small that a major portion thereof cannot be used for any practical purpose within a reasonable time 3. It was bought merely for speculation 4. The land is about to resold or that its resale has been perfected • Before any party may avail of the right of pre-emption or redemption, it is necessary that all these elements be ALLEGED IN THE COMPLAINT and PROVED AT TRIAL SIZE OF LAND • The adjoining owner must prove that the portion 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 • Case: 86sqm = X considered small because a house can still be constructed on it PRICE • Reasonable price • Case: An adjoining owner who owns 140sqm lot was held not entitled to redeem a 612 sqm lot which was much bigger in area-wise PREFERENCE AS BETWEEN TWO OR MORE ADJACENT LANDS • In case 2 or more adjoining owners desire to exercise the right of legal redemption ! the law prefers him whose intended use of the land appears to best justified • Determinative factor: The intended use that appears best justified, not whether the land was acquired for speculative purposes MEANING OF URBAN LAND • X necessarily refer to the nature of the land itself sought nor to the purpose to which it is somehow devoted, but to the character of the community or vicinity in which it is found • In this sense, even if the land is somehow dedicated to agriculture, it is still urban in contemplation of 1622 if it is located within the center of population or the more or less populated portion of a city or town URBAN AND RURAL LANDS DISTINGUISHED URBAN City or Town

LOCATION

 

 

 

RURAL - Of pertaining to the country Rural property – determined from the character of the locality, streets, lots, buildings, improvements and MV of the property as also of the neighboring or surrounding

 

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properties PURPOSE

Dwelling, industry commerce, residential

Agriculture, fishing, timber exploitation

MEANING OF “TO SPECULATE” • To enter into a business transaction or venture from which the profits or return are conjectural because the undertaking is outside the ordinary course of business, to purchase or sell with the expectation of profiting by anticipated, but conjectural fluctuations in price • Often in a somewhat depreciative sense, to engage in hazardous business transaction for the chance of an unusually large profit, as to speculate in coffee, in sugar or in a banks tock • Example: o X mere speculation if: In less than 8 months from date of its purchase, the buyer developed land into a subdivision for resale PURPOSE OF THE GRANT OF RIGHT TO OWNERS OF ADJOINING URBAN LANDS • Whereas, the objective of the right of redemption of adjoining rural land is to encourage the maximum development and utilization of agricultural land • The evident purpose of 1622 is to discourage speculation in real estate and the consequent aggravation of housing problems in centers of population • Minimize co-ownership • Once the property is subdivided and distributed among the co-owners, the community ceases to exist and there is no more reason to sustain any right of pre-emption or redemption ARTICLE 1623. The right of legal pre-emption or redemption shall not be exercised except within thirty days from the notice in writing by the prospective vendor, or by the vendor, as the case may be. The deed of sale shall not be recorded in the Registry of Property, unless accompanied by an affidavit of the vendor that he has given written notice thereof to all possible redemptioners. The right of redemption of co-owners excludes that of adjoining owners. EXERCISE OF RIGHT OF PRE-EMPTION OR REDEMPTION • Art 1623 stresses the need for NOTICE IN WRITING in the 2 species of legal redemption in 1620, 1621, 1623 • The redemptioner should tender payment of the redemption money within 30 days from written notice of the sale by the co-owner • One who purchases an undivided interest in a property is charged with notice that this acquisition is subject to redemption by any other co-owner within the statutory 30-day period o The right of redemption of co-owners = is preferred over adjoining owners

 

DE LEON SALES REVIEWER

 

The law attaches more importance to the necessity to put an end to tenancy in common than to the purpose of encouraging the development of agriculture Co-ownership - ownership whenever the ownership of an undivided thing or right belongs to different persons o There is no longer co-ownership when the different portions owned by different people are already concretely determined and separately identifiable, even if not yet technically described o When there is no more co-ownership ! the provision on the right of redemption of a co-owner under 1623 is no longer applicable o

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PERIOD OF EXERCISE 1. ABSOLUTE AND NON-EXTENDIBLE • The 30 day period is peremptory, absolute and non-extendible • Reason why there is a much stronger reason against relaxing the period in favor of legal redemption: o The right of legal redemption is a pure creature of the law, regulated by the law, and works only one way in favor of the redemptioner o While in pacto de retro, there is a contractual relation founded on valuable consideration, a contract by which the party from whom the repurchase is sought has been benefitted • Even if the person entitled to redeem is a minor, the running of the period is NOT interrupted • **Under the Code of Agrarian Reform – the right of pre-emption of an agricultural lessee may be exercised within 180 days from notice in writing which shall be served by the landowner (vendor) on all lessees affected and the DAR 2. A CONDITION PRECEDENT • The 30 day period is NOT a prescriptive period but is more of a requisite or condition precedent to the exercise of the right of legal redemption • It is a period set by law to restrict the right of the payor exercising the right of legal redemption • In other words, if no offer was made within the prescribed period, no action will be allowed to enforce the right of redemption 3. REASON FOR RULE • To discourage the keeping for a long time of property in a state of uncertainty, beyond the 30 day period, a situation which is obviously unjust to the purchase prejudicial to public interest • Nevertheless, the interpretation of 1620, 1621 and 1622 ! in favor of the redemptioner and against the buyer o The redemptioner can compel the buyer to sell to him but he cannot be compelled by the buyer to buy the alienated property • The purpose is to reduce the number of participants until the community is terminated being a hindrance to the development and better administration of the property

 

 

 

 

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NOTICE BY SELLER OR PROSPECTIVE SELLER (MANDATORY) The period of 30 days is counted from the notice in writing given by the prospective seller or by the seller, as the case may be 3. NOTICE MUST BE GIVEN BY THE SELLER Reasons: o The seller of an undivided interest is in the best position to know who are his co-owners that under the law must be notified of the sale o Notice by the seller removes all doubts as to the fact of the sale, its perfection and its validity, the notice being a reaffirmation thereof, so that the party notified need not entertain the doubt that the seller may still contest the alienation • The deed of sale shall not be recorded in the Registry of Property unless the same is accompanied by an affidavit of the vendor that he has given notice thereof to all possible redemptioners (Primary Structures Corp. vs Valencia) 2. NOTICE MUST BE IN WRITING • Mandatory • To remove uncertainty as to the sale, its terms and its validity and to quiet any doubts that alienation is not definitive • Without it, the period of 30 days within which the right of legal pre-emption or redemption may be exercised, does not start 3. FORM OF WRITTEN NOTICE • 1623 does not prescribe any particular form of notice so long as the reasons for a written notice are present or otherwise satisfied • So long as the redemption is informed in writing of the sale and the particulars thereof, the 30 days for redemption start running 4. CONTENTS OF WRITTEN NOTICE OF SALE • Notice of the perfected sale and the actual execution and delivery of the deed of sale • A sale may not be presented to the RD for registration unless it be in the form of a duly executed public instrument • The law does not however say that lack of such notice will make the sale void ! effect only is that it shall not be recorded in the Registry of Property 5. ACTUAL KNOWLEDGE (EXCEPTION TO WRITTEN NOTICE REQUIREMENT) • Written notice is no longer required if the other co-owners have actual knowledge of the sale • Examples: o Furnishing of deed of sale o A sworn statement or clause in a deed of sale to the effect that a written notice of sale was given o Co-owners did not question the continued possession of the buyer o The executor of the deceased who sold property was granted such authority by all the heirs o Co-owner signed the deed of extra-judicial partition and exchange of shares o Where the co-owner was actually present and even acted as an active intermediary in the consummation of the sale of property •

 

DE LEON SALES REVIEWER

 

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o Redemptioners lived on the same lot on which the buyer lived o Receipt of summons by co-owner Primary Structures Corp. vs Valencia – GR: Written notice to co-owners is mandatory notwithstanding actual knowledge of the other co-owners o E: Alonzo Case – exceptional case in view of the peculiar circumstances of the case (MEDJ MALABO TO, IBA-IBA SINASABI NG SC SHET)

HOW RIGHT EXERCISED 1. TENDER OR CONSIGNATION • A formal offer to redeem must be accompanied by a valid tender of the redemption price • The filing of judicial action + the consignation of the redemption price within the period of redemption = formal offer of redeem 2. TENDER OF PRICE • That the legal redemption is only required to pay a reasonable price is no obstacle to the requirement of tender • The statutory period fixed for the exercise of the right of legal redemption would be rendered meaningless and of ease evasion, unless the redemption is required to make an actual tender in GF of what he believes to be the reasonable price of the land sought to be redeemed • A prior tender by the redemptioner of the price he considers reasonable affords an opportunity to avoid litigation, for the landowner may well decide to accept a really reasonable owner, considering that he would thereby save the atty’s fees and the expenses of protracted litigation 3. CONSIGNATION IN COURT • A formal offer to redeem accompanied by a tender of redemption price is: o NOT essential where the right to redeem is exercised thru the filing of judicial action and the simultaneous deposit of the redemption price with the Sheriff within the period of redemption o It is only essential to preserve the right of redemption for future enforcement even beyond such period od redemption (LABO ULI) • The filing of an action itself, within the period of redemption is equivalent to a formal offer to redeem • Should the court allow redemption, the redemptioners should then pay the amount already adverted to • The reason for allowing judicial consignation is that the redemptioner might not know the buyer’s whereabouts or the latter might even conceal himself to prevent redemption

 

 

 

 

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