printed recommended (38pages) utopia sales reviewer

7/27/2019 PRINTED Recommended (38pages) Utopia Sales Reviewer

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The Fraternal Order of UTOPIAAteneo de Manila University

School of LawEst. 1964

CHAPTER IINTRODUCTION

I. Definition of Sales

BUYER 2.) Subject Matter a) transfer ownership

SALE 1.) Meeting of the Minds b) delivery

SELLER 3.) Price c) pay

*It may be absolute or conditional.

Note: The condition should only refer to the obligation to pay the price and NOT:

a. The obligation concerning the subject matter (a&b above)which is the essence

of a K of sale. (Gaite)

b. The whole contractin which the case it is K to sell (Villanueva believes that a Kto sell and the K of sale are of the same genus and both covered by Art. 1458.However, recent rulings in the SC hold that they are different.)

Genius of Villanueva: Gaite gave 2 parameters in order for a condition in K of sale to be

valid:

a. The condition must go into the payment of the price, and NOT the subject matter

because you will be put as under the essence of K of sale.

b. The only time it can exist is when it is clearly stipulated.

II. Elements

1. Consent or meeting of the minds (to transfer of ownership in exchange for price)2. Determinate subject matter3. Price certain in money or its equivalent (Coronel)

III. Stages

1. Negotiation

2. Perfection3. Consummation

Note: Technically, only 2 and 3 are the only lives of a K, since in negotiation there is no K

yet.

IV. Nature of the Contract Created

1. Buyer to give

Price

2. Seller to give

Deliver

Transfer ownership

SALES REVIEWER - 1 -


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Note: It is important to know that a sale is the obligation to give because being such, abreach of it can have the remedy of (a) specific performance and (b) rescission. An

obligation to do cannot be subject to specific performance, ONLY rescission. Becausespecific performance in to do may amount to involuntary servitude, which is prohibited in

the Constitution.

V. Characteristics of a K of Sale (it is enough that these characteristics exist at

perfection)

1. Nominate and Principal

Nominate means it has a particular name by law and governed by specific

provision (Title on Sale)

Title given to a K is not significant; rather its the substance which is.

Although a K of sale may be attached to another K, the test of being a

principal is whether it can stand on its own and does not depend on another K

for its validity or existence.2. Consensual

This is a very important characteristic. Every K has two lives, perfection and

consummation. What perfects a K of sale is mere consent or meeting of theminds. Performance (e.g. paying the price or delivering the subject matter)goes into the consummation and is totally irrelevant to perfection.

As distinguished from:

1. Solemn K which requires not only consent, but also a particular

form of the K

2. Real K which requires not only consent, but also delivery

Upon the perfection of a K of sale, only the 3 obligations (2 for buyer and 1

for the seller) begin to exist. It doesnt matter if there is no payment made

yet nor transfer of ownership by delivery, nor ownership itself of the subjectmatter.

Being consensual, he who alleges the existence must prove it by competent

evidence, as well as essential element thereof.3. Bilateral

As distinguished from unilateral, both parties here are obligated. (Seller:

transfer and deliver; Buyer: pay)

The importance of this is that the power to rescind un a K of sale is implied

and need not be stipulated in the K.

4. Onerous

Means that the consideration given is a valuable consideration (as

distinguished from donation where the obligation is gratuitous)

Test of being onerous: It is objective. Any consideration in the normal

commercial transaction, supports and transaction. In other words, valuable

consideration is one which, from the objective point of view, on its own has

rent values.5. Commutative

As distinguished from aleatory, it means that equal value is exchanged for

equal value.

It refers to consideration as compared to the subject matter, in contrast to

onerous which refers only to consideration.

Commutativeness is a subjective test. But it must not go into absurdity,

otherwise even if you feel that it is commutative, the substance of the K maysay otherwise. Inadequacy of the price may show vice in consent, in which



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the said sale may be annulled, but such annulment is not for inadequacy ofprice, but rather for vitiated consent. Art. 14.

6. Title and Mode

Title legal basis by which to affect dominion or ownership

Mode legal means by which dominion or ownership is created, transferred,destroyed, or modified.

Sale, by its creation, is just a title. It does not even touch dominion. Sale only

provides the legal justification in the future on the part of the buyer to be able

to claim ownership.

Sale by itself does not transfer or affect ownership; the most a sale does is to

create the obligation to transfer ownership. It is tradition or delivery, as aconsequence of sale that actually transfers ownership.

VI. As Distinguished From

1. Donation

Sale Donation

Consideration Onerousconsideration is price

which is valuable

Gratuitousconsideration is

liberality

Type Consensualperfected by mereconsent

Solemnmust comply with theformalities by law for perfection

2. Barter

One of the parties binds himself to give one thing in consideration of the

others promise to give another thing.

Rules to determine whether its a K of sale or a barter:

i. It is a barter where the value of the thing given as part of

consideration exceeds the amount of money given or its equivalent.

ii. It is a sale, where the value of the thing given as part of theconsideration equals or is less than the amount of the money given.

For practical legal purposes, the distinction between a sale or barter are

practically academic since aside from the two separate rules applicable tobarter (Arts. 1639-1640), as to all matter specifically provided for, barter

shall be governed by the provision on sales.

Instance when knowing the differences is important:

i. Statute of Frauds does not apply to barterii. Right to legal redemption to an adjoining owner covers only resale

iii. Tax purpose

3. Contract for Piece of Work (POW)

Sale POW

Parties Buyer and seller Principal client and contractor

Subject Matter Service

Obligations a) to pay (buyer)

b) to deliver possession (seller)c) to transfer ownership (seller)

a) to pay (principal)

b) to perform service(contractor)

Kind of Obligation To give To do

Breach Can be subject to specific Cannot be subject to specific



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performance performance

How will you differentiate a sale from a K of POW? (Here you will see the genius of

Villanueva, makes you proud to be a brotherEXCELLENCE)

i. Art. 1467 gives us two sets of distinction:

Habituality test manufacturing in ordinary course ofbusiness makes it a sale. When the manufacturer engages in

the same activity in the ordinary course of business and doesnot need to apply extra ordinary skills and equipment that

would classify the underlying transaction as a K of sale.

Timing test manufacturing upon special order of customersmakes it a K of POW.

ii. In Celestino, the habituality test was upheld. BUT the SC interpreted thatthe test in 1467 is not one of timing or habit but a nature of work to be

performed test. It must be of the nature that the products are notordinary products of the manufacturer, and they would require the use of

extraordinary skills or equipment to make it a K of POW.

iii. In EEL, the SC held that the habituality test is not controlling. The business

of EEI was a staple undertaking, one that was considered ordinary andusual in their operations, and yet what they did was a POW. Then they heldthat the timing test in 1467 is actually a nature of the object test,

meaning could the company manufacture the product in mass, would it

make business sense to do so.iv. In CIR, Tolentino talked about the intent test (more important test). If the

parties intend that an object will be delivered without considering the workor labor of the part bound, it is a sale. But if the basis is the work that will

be employed, it is a POW.v. With all the tests enumerated, what should be used?

vi. The habituality and timing tests seem to have been abandoned. What iscontrolling then is the nature of the object test and the intent test. Both

must be applied.vii. HOWEVER, what if a seller offers 10,000 inclined erasers to a buyer who

buys them because of the sellers reputation, and upon agreement, theseller reaches under the table and offer the erasers, would that be a sale or

a POW? (The tests seems to answer that it is the POW, because it does notmake business sense to manufacture 10,000 erasers and obviously the

intent here is for the sellers skills.)

viii. Genius: The answer is a Sale. Why? Because a breach of a K of POW looks

at the service, obviously, you cannot pay for service which has already beendone as in this case. So that means that we are back to the timing test in

1467 (only if it is manufactured upon special order, will it become a POW).We have come into a full circle.

4. Agency to Sell

Sale Agency to Sell

Buyer himself pays for the objects price. The agent is not obliged to pay the price,merely to deliver the price received from the

buyer.

Seller warrants No personal liability as long as acting within

his authority and the name of the principal(however, an agent may bind himself to the



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Not unilaterally irrevocable.

warranties of the seller).

Essentially revocable even in the presence of

an irrevocability clause.

Profits belong to the seller. Any profit received must pertain to the

principal, the agent disqualified fromreceiving personal profits.

Must comply with the Statute of Frauds to beenforceable.

Valid and enforceable in whatever from itmay be entered into.

Nothing that is not written within the 4

corners of the K can bind the parties or can

be the basis for damages.

Agent must always follow the principal.

Essence: Transfer of title, and such transfer

puts the transferee in the attitude or positionof an owner and makes him liable to the

transferor as debtor for the agreed price.

Essence: delivery into an agent is not as his

property, but as property of the principalwho remains the owner and has the right to

control the sale and the proceeds.

Characteristics of an Agency

1. Prepatory meaning it is entered into in order to achieve other ends and otherrelationships

a. Types of Prepatory Ks

1. Agency to sell and agency to buy give rise to a K of sale

2. Distributorship agreement or an agreement to enter into a series of

Ks of sale in this case, there is no price yet so it is NOT a K of sale2. Involves a personal obligation therefore, it is not subject to specific

performance (like distributorship agreement)

3. Fiduciary based on confidence and trust, so it is not transmissible. (Deathextinguishes the K, except in agency coupled with an interest.)

4. Revocable because of its fiduciary nature. Any attempt to make it irrevocable is

void. Except in an agency coupled with an interest (when an agency is constituted as

part of the mechanism for mortgage).

Principal in a K of Agency

These are essential clauses contemplated by law, such as if these are present the

name of the K is not controlling. The acts of the agent bind the principal, the agent acts beyond his commission.

Agent has no legal basis to receive anything on his own. Everything an agent

receives must be accounted for and returned to the principal. Agent is never liable

for the price. An agent cannot two principals, for this would violate the agency relationship.

Genius: To determine whether it is a sale or one of agency, look at 2 things: delivery

and transfer of ownership. If these are made to be assumed in whole or in part by

the agent, meaning if he bears the risk with regard to it, he cannot be an agent. An

agent is never liable in whole or in part of the subject matter. The price of any stipulation makes the price the liability of the supposed agent or

makes him exposed to the risk of the price (e.g. an increase), then he could nothave been an agent since an agent is not liable for any portion of the price.

5. Dacion en Pago

A genus of sale and is governed by the law on sales.

Shows us that a sale is both perfected and consummated. Dacion en pago

represents a perfected and consummated contract of sale.



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Differences

Sale Dacion en pago

Principal Accessory

Consensual Real

Title Mode

6. Lease

Sale Lease

Dominion is absolutely disposed by the sellerin favor of the buyer upon the payment of

the price.

Temporary disposition in favor of the lesseewith the payment of rentals, but after the

period of lease, the things revert back to theowner.

CHAPTER II

PARTIES TO A CONTRACT OF SALE

General Rule: Any person who is authorized under the law to oblige himself, may enter

into a contract of sale.

Exceptions:

1. Minors and incapacitated persons

They do not have capacity to obligate themselves

Effect of sale: Voidable

Consequences:

o Capacitated person cannot seek annulment on the basis of the other

partys incapacityo The incapacitated person, when properly represented is one who has

legal standing to annul the contract.

Remedies for a voidable contract:

o Specific performance

o Ratification

o Rescission can be availed of by both parties; but minors need only to

restitute up to the extent he has been benefited

Exceptions: necessaries (everything that is indispensable for sustenance and

refers only to things)

To be a valid contract, it is required that:

o The K was perfected

o There was delivery of the necessaries

o

The minor must be the buyero Social standing must be considered

2. Sale by Married Couple

Sale to third party

Void if done without the consent of the other spouse.

Sale between spouses

o Void (this applies even in legal redemption, compromises and

renunciation)

o Exception



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When a separation of property was agreed upon in marriagesettlement

When there has been a judicial separation of property agreed

upon between them

o Rational

To prevent defraudation of creditors by transferring property toanother spouse.

So dominant spouse wont take advantage of the weaker spouse.

Avoid an indirect violation of the prohibition against donationbetween spouse.

Note: This also applies between common law spouses.

3. Relative incapacity mandated by law. (This applies even to sale on legal

redemption, compromises and renunciation because what you cant do directly, youcannot do directly.)

Applies to:

o Guardian with respect to the property of the ward

o Agents with respect to the property under his administration (unless

consented)

o Administrator and executor with respect to the property of the estate

o Public officer or employees with respect to the property of the state

o Public officer or employees with respect to property rights under

litigation

o Lawyers with respect to the property of his client who is the subject of

litigation

Effect of sale: Void because it is against against public policy (Rubias)

The first 3 cases are ratifiable and the ;last 3 are non-ratifiable

o Ratifiable by entering into a new K after relationship is ended;

allowed because after the relationship is ended, the remaining evil is a

private one.

o Non-ratifiable even if prohibited relationship is not there, they

cannot be allowed to agree into a new K because there is still publicinterest involving the sale reflecting the public institution itself.

Philtrust doctrine:

o When a property is sold to a third person and it goes back to the

person prohibited, that transaction is presumed void. But you canshow proof that there was no collusion, making the sale valid. (Lapse

of time is material but not conclusive.)

o Even if the courts allow the sale which is prohibited, it is still void.

o Even if the sale is beneficial to the other party, it is still void because

what is considered is merely the relationship in the K not the existence

of fraud or advantage.

Naval doctrine: Hereditary rights are vested entirely in the heirs upon the

death of the decedent. They are not among those covered under theprohibition since with regard to administrators and executors, the propertymust be property of the estate.

o Genius rebuttal of the Naval doctrine:

o Although they are vested directly on the heirs and not under the

estate, the value of these rights are inextricably necessary to the value

of the estate under the administration of the administrator. Thereforeif he squanders or destroys the value of the estate, he actually

destroys the value of the rights.



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o Hereditary rights are never within the estate being administered

because these are right pertaining directly to the heir. But even if youare buying just the right, its like buying the property already. You

must not be allowed to do indirectly, what you cant do directly. TheSC based its decision that a hereditary right is technically not property

itself. With regard to lawyer-client relationship, the requisites are:

o Lawyer-client relationship

o Object is property under litigation

o Any kind of litigation whether adversarial or not

o Does not necessarily mean actual litigation

o During the pendency of the case

o This also applies to the case of judges

o The period is from the filing of the complaint until there is absolutely

no judicial proceeding of whatever nature pending with respect to the

property. Even if it is final, executory and unappealable but there issomething pending before the courts even a motion for execution, the

period has not ended. Note: Contingency fee arrangements (always subject to the supervision of the

courts):

o Payment based on a certain percentage of the property in litigation

valid. No property is being assigned here.

o Payment is a portion of the value of the propertiesvalid. Held to be

so by the SC because the greater good it advances is greater than thepublic policy sought to be protected by Art. 1491. This contingency

arrangement is in the nature of a dacion en pago, and is thereforeunder the law on sales.

CHAPTER III

SUBJECT MATTER OF THE SALE

Requisites (these must exist at the time of PERFECTION):

1. It must be existing, or it may be future or even contingenta. Requisites:

i. Must be existing; or

Present object

Emptio speisale of a mere hope or expectancy (BUT the sale

of a vain hope or expectancy is void.)

Present object subject to a resolutory conditionupon the

happening of the condition, the parties shall return to eachother what they have received

ii. Must come to existence (TEST: must be of such that it can come aboutunder the present technological and scientific conditions of man)

Future thing having a potential of existence

Emptio rei speretaefuture thing subject to a suspsensive

condition (but if thing does NOT come into existence, the K is

extinguished)b. The absence of this requisite makes the K void under Art. 1409 (3).

Remember that said provision talks about the QUALITY of the object, whetherit has the capability to exist, and not necessarily that it is existing.



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2. It must be licit.

a. Licitlegal, when it is not outside the commerce of man and includes all

rights which are not intransmissible.

b. Absence of this requisite makes the K void under Art. 1409 (1).

3. It must be determinate or at least determinable

a. Determinatespecific or that which has been:i. physically segregated

ii. Particularly designatedb. Determinablea generic thing which has:

i. The capacity of being made determinateii. Without need of further/new agreement between the parties

In accordance with the principle of the obligatory force of Ks,

that it is free from the whims and caprices, imagination or lackof it on the part of the parties

When both parties can imagine the same type of SM in their

minds, almost the same in all other descriptions even as to a 3 rd

party, then it satisfies this requirement.

Quantity is NOT important, ONLY when it is still possible to determine the quantitywithout the need of a new K between the parties (National Grains which was fuckedup by Johannes Schuback)

Seller may NOT be the owner of the thing at the time of perfection. It is only at the

time of delivery that it is essential that the owner owns the thing.

If a seller is NOT the owner of the thing he sold, the buyer cannot ask for specific

performance because obviously, the seller here cannot perform. The only remedy leftis rescission. BUT when at the time of perfection, the seller sells a subject matter

over which he is not the owner, the subsequent acquisition of title by a seller

validates the sale and title passes to the buyer by operation of law, provided therehas been previous delivery of the subject matter by the seller to the buyer.

Yu Tek doctrine: Justice Trent ruled that there was no K of sale, even though the thingwas obviously determinable. BUT he was speaking in the point of view of the SM (Tounderstand this, imagine yourself to be a SM, and not one of the parties in the sale). Such

that there can be no K of sale as to any genus of the thing until it is physically segregatedfrom the rest. In short, there was no sale as to the SM, but there was a sale between the

parties.

Legality of Sale:1. As to subject matter:

a. Various special laws declare certain sales of things illegal and therefore VOID(e.g. drugs)

2. Simulation of SM makes the K of sale VOID (when there is no intention whatsoeverto give or receive the SM)

When motive nullifies the sale: Consideration is, as a rule, different from the motive of

the parties, and when the primary motive is illegal, such as when the sale was executedover a parcel of land to illegally frustrate a persons right to inheritance and to avoid

payment of estate tax, the sale is void because illegal motive predetermines the purpose ofthe K. (Olegario)

CHAPTER IV

PRICE



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1. Consideration in a K of sale which plays a secondary role to the SM.

2. Seller cannot unilaterally increase previously agreed purchase price.

Requisites:a. It must be real

a. When at the time the minds of the parties met, the seller expectedand intended to receive the price and the buyer intended to pay for

itb. Must be with valuable consideration (NOT NOMINAL)

If this is not present, it might be another K (e.g. donation)

There is a presumption that every K of sale entered into is with

valuable consideration. BUT if the party whos saying there s notrue consideration, the burden of proof SHIFTS. (Ong and

Bagnas)

When price is simulated/fictitious, or there is the absence of

an expectation to receive payment by the seller and anintention to pay on the buyer, the K of sale is VOID, but it

might be another kind of K.

When there is a false price, or there is a price but it is not theone agreed to by the parties but another price, the K of sale isVALID, but subject to reformation.

b. Must be in money or its equivalenta. or its equivalent must mean having the same characteristics as

moneyb. If not in money, its a VOID K of sale, but it may be another K like

barter or dacion, which is still governed by the law on sales, so it isas if there is a valid K of sale (this shows that price merely plays a

secondary role).c. In Republic vs. Phil. Resources Development, the buyer was allowed

to pay in GI sheets. Did the SC do away with requirement no. 2? NO.

The payment of the thing other than money was done at theconsummation of the K of sale. At the time of perfection, it was onlyin money.

c. Must be certain or ascertainable

a. Certainwhen the amount is designated in pesos and centavos

b. Ascertainableto be ascertainable, the price must be:

i. Fixed in reference to other things.

ii. Can be mathematically computed using a formula.

iii. Must have been designated to be fixed by a 3 rd party (this is a

suspensive condition, so if the 3rd party refuses to fix the price,

the K is inefficacious).

a. If the 3rd person:

i. Acted in bad faith

ii. Acted by mistake.the courts can fix the price (this is the only time the

courts can fix the price).

Note: Absence of 1 & 2 makes the K a no contract situation and the absence of 3makes it inefficacious or it cannot be given effect, unless the party mutually agree on

a new price. But if the other party has already sued the other party, the court cannotcompel the parties to agree to a price.



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Note: Also, even if the price has NOT been agreed upon, but the SM has alreadybeen delivered and appropriated, the buyer has to pay a reasonable price, depending

on the circumstances of each case.

d. Manner of payment

a. Applies only when it is clearly implied in perfection that the money isNOT present value. The general rule is that it is presumed that the

manner of payment is the present value.b. Because if you do not agree upon the terms of payment, your minds

have not met because you have not agreed upon the same value.

Inadequacy of price (Erenote vs. Bezone)1. Does not make the K void, EXCEPT:

a. Gross inadequacy to the point of being nominal (there is therefore no realprice).

b. Judicial salesi. Requisites:

Inadequacy must be so gross to the point of being

unconscionable There must be proof that had the thing been resold, there

would be a better price.

ii. Exception: when there is a right of redemption.

2. In sales a retro, gross inadequacy of price raises a presumption of equitablemortgage.

CHAPTER VFORMATION OF CONTRACT OF SALE

I. Policitacion of Preparatory Stage

Heirarchy of species in policitacion

1. Invitations

An advertisement is an invitation to make an offer unless it appears

otherwise, which would make it an offer.

2. Offer/Acceptance

It creates no relationship until it is accepted.

Kinds:

a. General an offer to sell or an offer to buy direct ed toeverybody

b. Specific an offer made to a particular person and cannot betaken advantage of or availed of by any other person other

than the offeree

Characteristics (it is important to remember this shit!)

a. It is within complete control of the offerorb. It cannot exist indefinitely

c. An offer with a period expires after the periodd. An offer with a condition ceases to exist when the condition

happense. An offer can ONLY be accepted absolutely and is indivisible



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f. A modification is a counter-offer and destroys the first offer

3. Right of First Refusala. Under Ang Yu:

A transaction covering a specific property wherein a lessee is

given an option to purchase the leased property in the eventthe lessor should desire to sell the same

It is similar to an option contract because it has a SM and

consent. But different because it lacks price and separate

consideration. Furthermore, in an option contract, theprospective buyer has the option. In right of first refusal, the

person who has the right cannot exercise it at will. He mustwait for the future sale.

It is always conditional. The condition being sale of the property

in the future.

It is not even a contract, therefore not subject to specific

performance and a breach of the right may only amount to

recovery of damages under Art 19.

b. Under Equatorial and Paranaque: However, if the right of the first refusal is embedded to a

contract of lease, they become enforceable and therefore,

subject to specific performance.

Even though there is no price, upon breach of the right (when it

is sold to a 3rd person), the price will be based on the price itwas sold.

The lessee will have the right to specific performance and ask

for rescission of the sale. Provided there is a ground for

rescission which is bad faith on the part of the buyer (if thebuyer was in good faith, he will be protected)

NOTE: Paranaque further held that a buyer cannot be in good faith whenthere is a right of first refusal in a property because everybody who buys theproperty must examine it first.

4. Option Contracts

A unilateral promise that grants to the optionee the privilege or right

to purchase the SM at a certain price within a period, for a separate

consideration.

An option is not a Contract to Sell. It is only half a K to sell because it

is either a unilateral obligation to sell or a unilateral obligation to

purchase.

The consideration in an option contract must be separate and distinct

from the purchase price. It can be anything of value. Nietes Doctrine: An option contract is exercised by mere notice3 to the

seller. Tender and consignation by the optionee is not needed.

2 Kinds of Option Contracts (the SM and price must have all the

requisites):

a. Valid option contracti. Supported by a consideration separate and distinct from

the price



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ii. If it is accepted prior to the time it was withdrawn, it willgive rise to a valid K of sale

b. Void option contract

i. There is lack of separate consideration

ii. Although it is void as an option contract, it is valid as an

offer (Sanchez doctrine)NOTE: However, in Montilla and Diamante, the SC held that an option

contract without a separate consideration creates no contract.

Principle of Double Acceptance in order that a void option contract will

give rise to a sale:

1st acceptance this is needed to give rise to a void contract

while it is valid as an offer

2nd acceptance giving rise to the contract of sale since the offer

was accepted

Pre-Ang Yu doctrine: When an option K is supported by a separate

consideration, and is accepted as an option, the moment the option is

exercised within the period, it gives rise to a K of sale. If the offeror

withdraws the offer within the period, it will give rise to damages for

breach of K. Post-Ang Yu doctrine (plus the stupid cases of Equitable, Paranaque

Kings): An offeror can withdraw the offer anytime within the option period

regardless of the fact if there is a separate consideration or not. If it iswith consideration it will give rise to damages under breach of K. If there

is no consideration, it will give rise to tort under Art. 19 because there was

no valid option K.

Therefore, Ang Yu actually reduces the option K to mean nothing because

a valid option contract and a void option contract ahs been placed in the

same category which can be destroyed at the will of the offeror.

NOTE: Although Ang Yu fucked up option contracts, its all obiter.

5. Mutual promise to buy and sell

This is a Contract to Sell

II. Perfection :Offer and Acceptance

Perfection of a K of Sale

Upon the meeting of the minds as to a valid SM and price which has all the requisites

The offer must be certain and the acceptance absolute:

1. Certain offer Price and SM with all the requisites

2. Absolute acceptance:

a. Absolute absolute offer is accepted without any qualification orcounter-offers

b. Non-absolute (Villonco doctrine):i. Do minimis the change in acceptance is so insignificant that

there is substantial absolute acceptance (e.g. Offer is pay in2,000 days but acceptance is 1,999 days); or

ii. Nature of change - the change does NOT go into the SM orconsideration (e.g. Offer is that payment should be done with

the buyer in long pants but the acceptance is that buyer willpay in shorts)



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NOTE: However, if the offer was pay and then cut your hair, and the acceptance did not

include cutting the fair, this already goes into consideration and constitutes a counter-offer

When there is a suspensive condition, there is no perfected K of sale until the

condition is fulfilled, In Romero, the SC held that an injured party can waive thecondition and ask for specific performance or sue for rescission and refuse to

proceed if the condition is imposed on the performance of an obligation.

In sale by auction, only when the auctioneer announces by the fall of the hammer

or in customary manner is the sale perfected.

Earnest Money

1. Part if the purchase price which is proof of the perfection of the contract

2. However, in Spouses Doromal, the SC held that the proof is rebuttable and evidencecan be shown that the parties intended to treat earnest money differently.

Genius Villanueva: This is because under Roman Law, earnest money served as liquidated

damages such that withdrawing from the sale means forfeiture of the earnest money now is

still acceptable. This is why Doromal provides that earnest money is not a conclusive proofof the perfection of the contract, because the parties might intend it to be earnest money

under the concept of Roman Law.

Differences between earnest money and option money:

Earnest Money Option Money

Part of the purchase price Given as a distinct consideration

Given already while there is a sale (but takenote of Spouses Doromal)

Applies to a sale not yet perfected

When given, buyer is bound to pay the balance When given, buyer is not required to buy

III. Form of Sales

General Rule: Form is not important for the validity of sale.

Exceptions:

1. Power to sell a piece of land or interest therein must be in writing, otherwise the salethereof by the agent (even if the sale itself is written) is void

2. Sale of large cattle must be in writing

3. Sale of land by non-Christians is void if not approved by the Provincial governor

Statute of Frauds

General Rule: Form is important for enforceability

Coverage:

1. A sale agreement which by its terms is not to be performed within a year from themaking thereof

2. An agreement for the sale of foods, chattels, or things in action, at a price not lessthan P500

3. The sale of real property or of an interest therein



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Exceptions to the Coverage

1. Note or memorandum (it may be contained in 2 or more documents)

Requisites for a note or memorandum

a. In writing

b. Must contain the signature of the contracting party against whom the

contract is sought to be enforcedc. Must describe the SM and Price which has all requisites

NOTE: In an auction sale, even if the 2nd requisite is not met, if the auctioneerenters the sale in the entry book, the sale is taken out of the provisions of the

Statute of Frauds

2. Partial performance

The partial performance must either go to the SM or the price (not the

consideration!!!)

Tender of payment is not considered partial performance because there is no

involvement of the party against whom the sale is to be enforced (this is an

important element for partial performance to be valid)

However, tender of payment, accompanied by other acts such as building of

improvements, possession and payment of taxes, may be considered partial

performance (Ortega doctrine) Claudel Doctrine: If the rights of the 3rd parties are involved, partial execution

is not good enough for the sale to be taken out of the Statute of Frauds.

There must be a memorandum. Why? Because there is no complicity on thepart of 3rd parties who were not involved in the original transaction.

NOTE: Claudel applies only to movables where possession is presumed

ownership unlike in immovables where title is the basis.

3. Waiver

This refers exclusively to the failure of the party to object to oral testimony

presented in court.

The cross-examination on the contract is deemed a waiver

NOTE: In case the transaction falls under the exceptions, parol or oral evidence may

be introduced to prove the existence of the contract.

CHAPTER VI

PERFORMANCE OR CONSUMMATION OF THE CONTRACT OF SALE

I. Obligations of the Buyer and the Seller

Consummation: the state where either parties begin to perform their respective

obligations. On the part of the seller, to deliver the thing and transfer ownership. On the

part of the buyer, to pay the price.

NOTE: Always remember that in this stage, it is necessary that there is already a VALIDcontract of sale. In other words, if you have not mustered what constitutes a valid contract

of sale, youll get lost.

A. Obligations of the Seller

1. To take care of the SM with proper diligence of a good father of the family

Unless another standard of care is required

Applied only when the SM is determinate



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2. To deliver the fruits and accessories

But until actual delivery, the buyer only has a personal right to the fruits

(meaning the seller can sell the fruits and the one buying the fruits has a

better right)

Applied only when the SM is determinate

3. Deliver the SM (Tradicion) Twin effects of tradition:

a. transfer of ownershipb. seller is deemed to have fulfilled his obligations

Note: tradicion is a mode only when there is an underlying valid K of sale

Two Types of Delivery

a. actual or physical - thing sold is placed in the control and possession of the buyerb. constructive - seller transfers ownership without transferring physical possession

(achieved by mere consent of the parties)i. execution of public instrument

ii. symbolic delivery - delivery of a thing which is a representation of the SM

(both parties must agree that the thing is a representation of the SM)iii. constitutum possesorium - when at the time of perfection, the seller had

possession of the SM in the concept of an owner and pursuant to the sale,

hold physical possession thereof no longer in the concept of an owner

iv. tradition brevi manu - before the K of sale, the would-be buyer was already in

the possession of the would be SM, and pursuant to the sale, he would nothold possession in the concept of an owner

v. tradition longa manu delivery by agreement such as when the seller pointsthe property

vi. delivery by negotiable documents of title

vii.seller allows buyer to exercise rights on the property

Requisites of a valid constructive delivery (specially in public instruments)a. there must be no stipulation that the execution of a public instrument will not

produce the effect of delivery

b. at the time of the execution of the public instrument, the SM was subject to the

control of the seller (Addison doctrine)

c. such capacity, although existing at the time of the execution, must continue within areasonable time (Villablanca doctrine)

Exception to the Addison and Villablanca doctrines:

When the public instrument was executed and there was no actual physical

possession, constructive delivery would still be ineffective if from the nature of the

contract, the buyer knew that there were adverse claims/occupants in the property

eh accepted the responsibility to set them out (Power doctrine)

Delivery through Carrier1. FAS Free Alongside Ship

Seller pays all charges and is subject to risk until the goods are placed

alongside the vessel

2. FOB Free on Boarda. shipping point delivery of the goods to the carrier, inside the vessel, is

equivalent to delivery of the buyer



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b. destination only when vessel has arrived at the points of destination andactual signals to the buyer that the goods are there that there is deemed to

be delivery to the buyer

3. CIF Cost, Insurance Freight

The amount quoted by the seller and agreed to by the buyer covers not only

the cost of the merchandise but also insurance and freighta. majority school of thought the carrier is an agent of the buyer (like FOB

shipping point)b. minority school of thought the seller covers all the insurance and freight

making the carrier his agent (like FOB destination)

NOTE: These classifications are bullshit. Let me explain. They provide for very weak

presumptions. The moment there is anything to the contrary to indicate the real intention ofthe parties, be it oral or written, then that intention governs regardless of the classification

they placed on the transaction (General Foods Doctrine)

Types of Tradicion Concepts When it Comes to Immovables:

REMEMBER: In every sale of an automobile, it is essential for validity that there be a

description (metes and bounds of the area must be given)

1. Sale per unit of measure sale of real estate made with a statement of its area,

at the rate of a certain price for a unit measure (e.g. P3000 per square meter)a. Effect: If it turns out that the area delivered is less, there is substantial

breach. Remedies would be specific performance or rescission (But lack ofarea must not be less than 1/10 or else it would be considered substantial

compliance2. Lump sum sale not at a rate of a certain sum for a unit of measure (e.g. P20M for

that lot)

a. Effect: If it turns out that the area is less, there is not a ground for rescission

since the only obligation is to delivery everything within the boundary

Sta. Ana Doctrine: Just because a statement of the measurement of the area is given,with the corresponding price, does NOT mean that it is a sale per unit of measure. The

default rule is that it is a lump sum sale ONLY when it is expressly provided that the sale isat a certain price per unit of measure is it such kind of a sale.

Two Special Species of Sale in Movables

1. Sale on Return

There is already a sale but it is subject to a resolutory condition

This is an exception to the general rule that once tradicion is effected,

ownership is transferred

2. Sale on Approval

This is an exception to the general rule that once tradicion is effected,

ownership is transferredNOTE: To be construed as a sale on return or sale on approval, there must be a clear

agreement to such effect. It must be in writing and cannot be proved by parole evidence(Industrial Doctrine).

B. Obligations of the Buyer

1. Pay the price

2. Accept delivery of the thing sold



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If the buyer refuses to accept delivery, the seller only has to place the SM at

the disposition of the buyer. Even if the latter has no possession and control,tradition is completed and the risk of loss is on the buyer. Acceptance by the

buyer is NOT an integral part of delivery.

II. Double Sales

A. Movables

Ownership shall be confirmed to the person who takes 1 st possession in good

faith

B. Immovables

Ownership shall be confirmed in accordance with the following hierarchy:

1. to the person who 1st registered under PD 1529 (Torrens System)

2. To the person who is 1st in time and has priority in right provide the followingrequisites concur (Radiowealth and Carumba):

3. In accordance with Art. 1544 of the NCC:

4. 1st in time, priority in right

NOTE: The rules on Double Sales do not apply if one of the contracts is a contract to sell. In

a contract to sell, the condition goes into the essence of the contract, such that if it doesnthappen, the contract is extinguished. In a contract of conditional sale, to which the rule on

double sales apply, the condition attaches to the obligations, and the non-happening ofwhich constitutes a breach which may be a ground for recession.

Genius of Villanueva: Theoretically, recession is the only remedy in case there is a breach

of the conditions of a conditional contract of sale. This is because specific performancecannot be availed of since the obligation has been extinguished. However, if the non-

happening of the condition is due to the sellers fault, then the condition is deemed fulfilled

and specific performance can be a remedy.

CHAPTER VII

DOCUMENTS OF TITLE

Documents of Title: includes any bill of lading, dock warrant, quedan or warehousereceipt or order for the delivery of goods, or any other document used in the ordinary

course of business in the sale of transfer of goods, as proof of the possession or control ofthe goods, or authorizing or purporting to authorize the possessor of the document to

transfer or receive, either b endorsement or by delivery, goods represented by suchdocument.

A type of constructive delivery

It must always be in writing

The SM is always fungible

Two Functionsa. the document itself is a representation of possession and description which are

covered thereby

b. it is the medium by which the goods described therein are delivered

Two Types



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1. Negotiable containing the words of negotiability and written words like non-negotiable does not destroy its being negotiable

2. Non-negotiableBasic Rule: Protect the purchaser in good faith for value. Even if the negotiation is a

violation of the ownership of the principal owner, a purchaser in good faith is always

protected.

Effects of Negotiation of a Negotiable DTa. acquisition of such title to the goods as the person negotiating the document to him,

had or had ability to convey a purchaser in good faith for valueb. acquisition of such title to the goods as a person to whose order the goods were to

be delivered by the terms of the document had or had ability to convey to apurchaser in good faith and for value

c. acquisition of the direct obligation of the bailee issuing the document to holdpossession of the goods for him according to terms of the document as fully as if

such bailee had contracted with him

Effects of transfer or assignment of a non-negotiable DT

The assignee acquires thereby as against he transferor:

a. title to the goods, subject to the terms of any agreement with the transferor

b. the right to notify the bailee who issued the document of the transfer thereof, andthereby to acquire the direct obligation of such bailee to hold possession of the goods

for him according to the terms of the document

Warranties on negotiation or assignment:a. referring to the DT itself

i. DT is genuine

ii. Right to negotiate or transfer the DT

iii. That there is knowledge of any defect which would impair the validity or

worth of the document

b. referring to the goodsi. the goods exist

ii. they are of merchantable qualityNote: Other than the breach of these warranties, there is NO cause of action to recover

on the seller.

Rules on Levy/Garnishment of Goods Covered by DT

NEGOTIABLE NON-NEGOTIABLE

Judgment creditors of the original

owner cannot actually levy or executeupon the goods since ownership and

possession of the document itself isequivalent to the holder having actual

ownership and possession.

Judgment creditors of the original owner can levy or

execute upon the goods since possession andownership of the DT does NOT necessarily bring title

over the goods. It is the notification of the bailee ofthe assignment that it is the operative act that will

transfer the goods, not allowing the levy.

CHAPTER VIII

SALE BY A NON-OWNER OR BY OEN HAVING A VOIDABLE TITLE



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WARNING: In the following discussion, note the difference between the time ofperfection(where the seller may not be the owner) and consummation.

General Rule: 1505, which states that where the goods are sold by a person who is not the

owner thereof, the buyer acquires no better title to the goods than the seller had. In other

words, NO title, NO transfer. (The SC even held that a transfer by someone who does notown the SM is void.

Exceptions:

1. When the owner is estopped by his conduct from denying the sellers authority tosell.

2. When the contrary is provided for in recording laws (PD 1529)

This applies only to registered lands

Chain of Title Theory: there must be 2 links in order for this exception to

apply. The 1st link is the 1st sale, where the buyer still has the opportunity to

look behind the title of the seller. The 2 nd link is the 2nd sale, where no amountof looking behind the title will a defect be seen since the name of the title

corresponds to the person selling.

3. 1434: When the person who is not the owner of a thing sells or alienates or deliversit, and later the seller or grantor acquires title thereto, such title passes by the

operation of law to the buyer or grantee

4. When the sale is made under statutory power of sale or under the order of a court of

competent jurisdiction

Because the seller in these cases is NOT the owner.

5. When the sale is made in a merchants store

Requisites to be a merchant store:

a. there must be goods stored therein and in display

b. the store is actually engaged in buying and selling6. 1506: Requirements in order that the sale is valid as to the buyer

a. seller must have voidable title at the time of execution

b. title has not been avoidedc. buyer in good faith and for value

d. there must have been tradition

7. Special right of resale

Even when the title to the goods has already been transferred to the buyer,

the unpaid seller can enter into another sale and deliver the goods to a 3 rd

person even if the former already lost ownership

This will be elaborated under remedies

Article 559: Possession of movable property acquired in good faith is equivalent to title.But one who has lost or been unlawfully deprived of a movable may recover it from the

person in possession of the same.

This rule is in accordance with the general rule in 1505 that when there is no title,

there is no title.

But if the possessor acquired the movable in a public sale, the owner cannot obtain

its return without reimbursing the price.

If the buyer acquired the movable from a merchants store, the owner cannot

recover anymore even if he was unlawfully deprived or it was lost.

Unlawfully deprived does NOT apply if the owner voluntarily participates in a sale

and was the victim of fraud (EDCA Doctrine). What it means is the taking without the

owners consent or participation (e.g. theft and robbery)



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Rules on Sale by a Co-OwnerGeneral Rule:

If he sells the entire the sale is void, but valid as to his spiritual share

If he sells a definite portion the sale is void, but valid as to his spiritual share (if

indeed the buyer would have still bought such share had he known that the definiteportion sold would not be acquired by him

Exceptions:1. it does not apply when the SM is indivisible by nature or intent (Mindanao Doctrine)

2. when the sale of a particular portion of a thing owned in common is with the consentof the co-owners (Pamplona Doctrine)

3. A co-owner who sells one of the 2 lands owned in common with another and howdoes not turn of the proceeds of the sale to the other co-owner, the latter may by

law and equity lay exclusive claim to the remaining parcel of land (Imperial Doctrine)

CHAPTER IX

LOSS, DETERIORATION, FRUITS AND OTHER BENEFITS

Application1. applies only when the SM is determinate

2. applies to both movables and immovables

History

Civil Law Common Law

Ownership is transferred by tradicion Ownership is transferred by the perfection of

the contract

Risk of loss is borne by the buyer upon

perfection

Res perit domino the owner bears the loss

The Bocobo Commission adopted the Res Perit Domino rule and at the same time, retainedthe civil law concept that ownership is transferred by tradition. The result is a fuck-up.

Effects

1. before perfection risk of loss shall be borne by the would-be seller since he ownsthe thing

2. at the time of perfection if the thing is lost, the contract shall be without anyeffect and therefore the seller bears the risk of loss

3. after perfection but before delivery a. Loss

Tolentino and Baviera Paras and Padilla

Loss is with the seller because his estate has

become less due to the loss. Buyer does not have to

pay because a sale is reciprocal by nature and theseller cannot comply with his obligation anymore.

The contract has become inefficacious.

Loss is with the buyer since even

though the SM is lost, he is still

obliged to pay the price. His obligationto pay was not extinguished.

Villanueva: The Tolentino & Baviera stance is more logical.



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b. Deterioration, fruits & improvements risk of deterioration and benefitsof fruits and improvements shall be borne by the buyer. Although the seller

has ownership, the benefits and improvements are for the benefit of thebuyer. (So, in effect, the res perit domino rule applies only in loss and not in

deterioration, fruits and improvements._

NOTE: Just remember this simple formula by the Genius Villanueva: the risk of loss,

deterioration and improvement shall always be for the account of the person who has bothtitle and beneficial interest over the SM. When the title and beneficial interest do not merge

in the same party, the risk of loss, deterioration and improvement will be for the account ofthe person who has beneficial interest.

4. after delivery risk is borne by the buyer who owns the thing

Except:a. when the delivery of the goods has been made to the buyer and the

ownership has been retained by the seller merely to secure the performanceby the buyer of his obligations in the contract (even if the buyer does not own

the thing, the risk of loss is still hers)

b. actual delivery had been delayed through either partys fault (risk of loss iswith the party at fault)

CHAPTER X

REMEDIES OF PARTIES FOR BREACH OF CONTRACT OF SALE

I. In case of Movables

A. Remedies of the Seller

1. Specific performance and rescission

2. Special remedies of an unpaid seller

Definition of an Unpaid Seller

a. When the whole of the rice has not been paid or tenderedb. When a bill of exchange or other negotiable instrument has been received as

conditional payment, and the condition on which it was received has beenreceived has been broken by reason of dishonor of the instrument, the

insolvency of the buyer or otherwise.Note: This includes an agent of the seller.

Rights of the Unpaid Seller

a. applies even if the seller has lost ownership (there has been constructive delivery)

b. applies even if the buyer has entered into a 2 nd salec. the first 2 remedies must be first availed of before the next 2 remedies can apply:

i. possessory lien

Requisites:

1. where the goods have been sold without any stipulation as to

credit2. where the goods have been sold on credit, but the term of

credit has expired



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3. where the buyer has become insolvent

Instances when unpaid loses his possessory lien

1. he delivers the goods to a carrier or other bailee for the

purpose of transmission to the buyer without reserving theownership in the goods or the right to the possession thereof

2. the buyer or his agent lawfully obtains possession of the goods3. by waiver thereof

Note: there is no need to notify the buyer and the right may beexercised even if the unpaid seller is an agent or bailee

ii. stoppage in transitu allowed only if the buyer becomes insolvent whichmust be proved (insolvent - buyer is unable to pay his debts as they fall due)

When are goods in transit?

1. from the time they are delivered to a carrier or other bailee forthe purpose of transmission to the buyer, until the buyer or his

agent in that behalf, takes delivery of them from such carrier orbailee

2. if the goods are rejected by the buyer, the carrier or other

bailee continues in possession of them, even if the seller hasrefused to receive them back

When are goods not in transit?

1. if the buyer or his agent obtains delivery of the goods beforetheir arrival at the destination

2. if after arrival of the goods, the carrier or other baileeacknowledges to the buyer or his agent that he holds the goods

on his behalf and continues in possession of them as bailee ofthe 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 of other bailee wrongfully refuses to deliver the

goods to the buyer or his agent

How is the right exercised?1. by obtaining actual possession of the goods

2. by giving notice of his claim to the carrier or other bailee in

whose possession the goods are:

a. at the point of notice, the carrier has no choice but to

hold the goods for the disposition of the seller

b. if the notice was given to the carriers principal, enough

time must be given for the principal to inform the carrier

When are the rights inapplicable?

1. when the goods are NOT in transit2. when there is a waiver of the right

iii. special right to resell

Requisites for the right to apply1. the goods are of perishable nature

2. where the seller expressly reserves the right of resale in casethe buyer should make default

3. where the buyer has been in default in the payment of the pricefor an unreasonable time

Effects

1. destruction of ownership of the 1st buyer even without court

intervention



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2. even an innocent 3rd person will not be protected if the 1st buyersells the goods to such 3rd person

3. the unpaid seller can sell the goods to another even if he is notthe owner of the goods

4. any deficiency in the 2nd sale will be paid by the 1st buyer

Unpaid seller cannot directly or indirectly buy the goods (1533)Note: Giving of notice is not essential for the validity of the resale. It is

relevant only in an issue involving the question of whether the buyer hadbeen in default for an unreasonable time before the resale was made.

iv. special right to rescind

Requisites for application

1. it was expressly reserved in case the buyer should make

default, or

2. the buyer has been in default in the payment for an

unreasonable time

Effects

1. destruction of ownership of the 1st buyer even without court

intervention2. even an innocent 3rd person will not be protected if the 1st buyer

sells the goods to such 3rd person

3. seller may recover from the buyer any loss caused by thebreached contract

Difference between ordinary rescission and special right to

rescind: Generally, ordinary rescission needs court intervention. The

special right to rescind does NOT need court intervention.Note: Giving of notice is not essential for the validity of the resale. It is

relevant only in an issue involving the question of whether the buyer hadbeen in default for an unreasonable time before the resale was made.

(However, in view of the UP case, notice must be given every time there is

rescission.)

B. Remedies of the Buyer

1. Specific performance and rescission

2. Furthermore, the buyer may suspend payments in anticipation of breach unless theseller gives security for the return of the price in a proper case

C. Recto Law and Art. 1484

1. Rationale: to remedy the abuses committed in connection with the foreclosure ofchattel mortgages and was meant to prevent mortgagees from seizing the

mortgaged property, buying it at a foreclosure sale for a low price, and then brining

suit against the mortgagor for a deficiency judgment2. Coverage

a. sale of personal property payable on installmentsb. levy doctrine: to be under Art. 1484, there must be 2 or more installments

c. The SC in Zayas applied the Recto Law in financing. However, the peculiarcircumstances in Zayas was that there was an original sale contract and the

credit was merely assigned to the financing company. In other words,financing per se is not covered by the Recto Law. There must be an

underlying contract of sale.



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3. RemediesNote: The vertical barring effect states that once a remedy is chosen among the

3 enumerated here and it takes effect, the seller cannot choose another remedy

a. Specific performance

When deemed chosen: Filing of an action for specific performance incourt

Horizontal barring effect: NONE. You can recover the whole unpaid

balance. (This is true even if the action instituted has the same effect

as foreclosure, as wherein a mortgage property has been attached andsold, since it is NOT technically a foreclosure.)

Choosing specific performance vertically bars the other remedies

EXCEPT if after choosing specific performance the same has become

impossible, rescission may be availed of.

b. Rescission

When deemed chosen

1. filing an action for rescission in court

2. taking actual possession or filing replevin coupled with amanifest intention of rescission.

Horizontal barring effect

1. Seller cannot seek further action on the purchase price (sincehe already has possession of the SM and rescission by its

nature involves mutual restitution returning any amount

previously paid, unless there is a stipulation that theinstallments paid shall not be returned which is valid insofar as

it is not unconscionable under the circumstances.

2. Furthermore, damages may be awarded to the extent of theloss

c. Foreclosure

When deemed chosen: upon actual sale; before that, the seller canstill collect the installments due (specific performance)

Horizontal barring effect: once foreclosure is chosen, the seller

cannot anymore recover any unpaid balance of the price (that is theessence of the Recto Law)

Unpaid balance of the price: is all encompassing and includes not

only the purchase price but stipulations in the contract for damages,

interests and attorneys fees (Eustaquio Doctrine)

Eustaquio Doctrine: does not apply to a perverse buyer-mortgagor

or one who refuses to surrender the chattel to the seller to allow the

latter to foreclose. In such a case, the seller is allowed to recover

expenses and attorneys fees incurred in trying to obtain possession.(Ridad Doctrine).

Cruz Doctrine: It is not true that after foreclosure, Art. 1484

prohibits further action only against the purchaser. It applies also

against recovering the deficiency (e.g. by foreclosing on the other

mortgages made by the buyer) from 3rd parties.

Borbon Doctrine: This is a situation which is the reverse in Cruz. To

circumvent Cruz, what if foreclosing on the other mortgages is

instituted? This CANNOT be done. The reason is not because of thebarring effect in 1484, but because of the principal in credit



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transactions that seeking specific performance is deemed a wavier ofthe foreclosure of the chattel mortgage.

II. In case of Immovables

A. Remedies of the Seller

1. Specific performance and rescission2. An anticipatory breach entitles him to rescission

3. Failure of the buyer to pay the purchase price entitles the seller to rescind thecontract of sale upon judicial or notarial demand (1529). But the SC in some cases

refused to allow rescission even if proper on equity grounds.

B. Remedies of the Buyer

1. Specific performance and rescission2. Suspension of payment because of disturbance or reasonable grounds to fear such

disturbance

3. In case of subdivision and condominium projects, the developer may not forfeitprevious payments if the buyer desists from paying installments due to the failure ofthe developer to develop the subdivision or condominium. The notice of demand for

refund and notice of intent not to remit further payments can be made at the sametime.

C. Maceda Law

1. Rationale: protects buyer of real estate on installment payments against onerous

and oppressive conditions

2. Coverage: (both contracts of sale and contracts to sell)

a. Residential real estate

b. Residential condominium units

Note: By express provision of law, the Maceda Law not only covers rates but alsofinancing. Also, the meaning of installments in the Levy doctrine applies also here.

3. Items not covered:a. Commercial real estate

b. Industrial real estatec. Non-residential condominium units

d. Agricultural landsNote: Art. 1529, 1191 and the law on suspensive conditions govern the first 3. CARP

governs the last.

Rights under the Maceda Law

At least 2 years Installment Period Less than 2 Years Installment PeriodStatutory Grace Period:

To pay without additional interest, the

unpaid installments with a grace period

of 30 days for every 1 year ofinstallment paid.

Right to make use of the grace period

can only be exercised every 5 years of

the contracts life and its extension.

Statutory Grace Period:

To pay without additional interest, the

unpaid installments with a grace period

of 60 days from the date of theinstallment became due.



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Jurisprudential Grace Period:

The seller could cancel the contract only

after 30 days after receipt of the notarial

notice of cancellation or rescission by thebuyer. Within the 30 days, buyer may

still pay. (But in this case, interest andpenalties may be included unlike in the

statutory grace period.)

Jurisprudential Grace Period:

The seller could cancel the contract only

after 30 days after receipt of the

notarial notice of cancellation orrescission by the buyer. Within the 30

days, buyer may still pay. (But in thiscase, interest and penalties may be

included unlike in the statutory graceperiod.)

If the contract is cancelled, seller shallrefund 50% of the total payments made

after 5 years of installment, an additional5% every year but not to exceed 90% of

total payments.

Note: It is only after the refund is thecancellation or rescission complete. Unlike

when it is less than 2 years where the

cancellation or rescission is complete uponthe lapse of the jurisprudential 30-day graceperiod.

Any stipulation contrary to the Maceda Law is null and void.

The notice of rescission or cancellation may be by notarial act, meaning it need not

be judicial. (However, note that the McLaughlin implies that the notarial act is not

needed if it is a notice of cancellation).

In determining whether it is more or less than 2 years, the number of years is not

controlling. What determines the period is the application of payments, whether theycover 2 years or not.

CHAPTER XIRESCISSION: CONTRACT OF SALE VS. CONTRACT TO SELL

WARNING: The following discussion is a poor attempt to synthesize the sales on rescission.

Proceed at your own risk.

Rescission

A remedy by the party in reciprocal obligations where there is a breach on the part of

the other party

This does not cover the rescission which pertains to rescissible contracts where lesion

is the main consideration

The breach of contract which falls under rescission must be substantial breachbecause of the doctrine that substantial compliance is deemed to be full compliance

The effect of rescission is mutual restitution (but stipulations which say that

installments paid shall not be returned is valid insofar as they may not beunconscionable under the circumstances)

Only the injured party (which may be a 3rd person) may demand for rescission

Distinction between a contract of sale and a contract to sell



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Contract of Sale Contract to Sell

Perfection gives rise to reciprocaldemandable obligations

Perfection only give rise to reciprocal suspensiveconditional obligations (non-demandable until

the condition happens). Consequently, the non-happening of the condition extinguishes the

obligation.Delivery transfers ownership. Even after the happening of the suspensive

condition (which is full payment of the price)ownership is still not transferred, until a contract

of sale is entered into and there is delivery.

Non-payment of the price by the buyer

or the non-delivery of the SM by theseller would constitute resolutory

conditions and may be a basis forrescission.

Non-happening of the suspensive condition,

which is payment of the price, prevents theobligation to sell n the part of the seller from

materializing at all.

Rescission can be availed of only in case

of substantial breach.

Principle of substantial breach has no application

since the non-happening of the condition,substantial or not, ipso jure prevents the

obligation from arising.

NOTE: Remember this concept, it will be

relevant in the following discussion.

Provision granting a party a right to

rescind will be superfluous since by law,it is inherent in this contract.

Rescission is irrelevant. Non-happening of the

condition of full payment prevents the sale frommaterializing, so there is nothing to rescind.

Under the law and jurisprudence, a contract which contains a stipulation that

ownership is reserved in the seller and not to pass to the buyer until full payment ofthe purchase price is a contract to sell.

Also, the SC in Dignos, held that in a contract to sell, there must be a right granted

to the seller to extra-judicially rescind or cancel the contract in case of default.Absence of such a stipulation makes the contract one of sale.

Note: However, in some cases, the SC held that the contract is a contract to sell even in theabsence of such stipulation.

Rules on rescission and what law governs

1. 1191 is the general rule in rescission2. 1191 does NOT apply to contracts to sell. No positive action is required in a contract

to sell because the non-happening of the condition destroys the contract. Therefore,there is nothing to rescind.

3. Also the following are NOT under 1191:a. movables under the Recto Law since such law governs

b. immovables4. Immovables are governed generally by 1529 which states that in the sale of

immovable properties, even though it may have been stipulated that upon failure topay 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 nodemand for rescission of the contract has been made upon him either judicially or by

notarial act. After the demand, the court may not grant him a new term.



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5. However, those immovables covered under the Maceda Law are governed by suchlaws. Furthermore, the Maceda Law also covers Contract to Sell and allows rescission

to such contracts (which is a complete turn-around of the general rules in 1-4 above)

Rules on rescission and substantial breach

1. The general rule is that rescission is proper when there is substantial breach2. Since 1191 and 1529 does NOT apply to a contract to sell, even if there is substantial

breach in a contract to sell, rescission is not proper because the non-happening ofthe condition of full-payment prevents the sale from materializing. There is no

contract to rescind at all.3. However, the SC in cases falling under the Maceda Law (where being a contract of

sale and a contract to sell fall under the same law), applied substantial complianceprinciples to contracts to sell. This is because the Maceda Law promotes a higher

value. (So take not of the coverage of the Maceda Law.)4. We can conclude therefore that only those contracts to sell which fall under the

Maceda Law may be rescinded and where substantial compliance principles areapplicable.

Rules on rescission and when it takes effect1. it is generally judicial and requires court action except when it is extra-judicial (the

contract contains the stipulation: in case of default by 1 party, the other party may

rescind by mere written notice (without need of going to court)

2. those under 1529 (take note of this provisions coverage above) require that there

be a demand for rescission either by judicial or notarial act)

3. since rescission is not applicable to contracts to sell, logically, notice need not be

given when the contract is a contract to sell

4. under the Maceda Law, for rescission to take place, there need only be the expiration

of the 30-day grace period after notarial notice of rescission or cancellation has been

given to the buyer (but take note that the case value refund must be paid forrescission to take effect when installments have been paid for more than 2 years)

5. Furthermore, since under the Maceda Law, contracts to sell may be rescinded (which

is against rule number 3), the SC in UP and Palay held that even in contracts to sell,a minimum requirement for rescission is notice to the buyer (this refers to situations

where rescission is allowed in contracts to sell like those under the Maceda Law)

Note: The rationale why notice is required even in contracts to sell may be seen in 1545,since the law grants the seller the option to waive the breach, and still accept payments,

then notice must be given to the buyer that the seller is not waiving.

Note: What complicated matters is that the SC used the principles of justice and equity tomake rescission applicable to contracts to sell, even though by their nature, rescission is not

a remedy in those types of contracts. Also, the Maceda Law was made applicable to bothcontracts of sale and to sell, which produced a number of mix-up principles.

CHAPTER XII

CONDITIONS AND WARRANTIES

Reason: Why they are lumped together:

1. to provide how each behaves differently in sales

2. to distinguish it from warranties



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Distinguish:

Conditions Warranties

When a condition is imposed in theperfection of the contracts, failure to comply

means a failure of the contract tomaterialize. When the condition is imposed

on the performance of the contract, theinjured party may either refuse to proceed

with the sale or waive the condition. Non-happening of the condition is not a breach,

so there can be no damages.

Non-fulfillment of a warranty constitutes abreach and damages may be awarded

Applies to a buyer and seller Applies only to the seller because it pertains

to the SM

Goes into the root of the existence of the

obligation

Goes into the performance of the obligation

Must be stipulated May form part of the contract by expressprovision of the law

Applicable to other contracts Applies only to sales contracts

The only time a condition amounts to a breach is when there is an express promise

that the condition will happen. The condition becomes a warranty and damages maybe awarded in case of breach.

It is important to discuss warranties because rescission on the part of the buyer can

ONLY happen if there is a breach of the sellers warranties.

Kinds of Warranties

1. EXPRESS (it is essential to look at the wordings to determine the extent of the

warranty)

a. It must be an affirmation of fact or any promise by the seller relating to the

thing, SM of the saleb. The natural tendency of such affirmation or promise is to induce the buyer to

purchase the same; and

c. The buyer purchases the thing relying thereonNote: A statement of opinion (sellers talk) is not a warranty, UNLESS The seller is an

expert and such was relied upon by the buyer.

2. IMPLIED

Every contract has these warranties and the 3 requisites in express

warranties need not be present

By express stipulation, an agent of the seller may bind himself to such

warranties

a. Warranty that the seller has a right to sell and transfer ownership

Applies only in the consummation stage

It is an essential warranty and CANNOT be waived

It goes into the obligation to transfer ownership

b. Warranty against eviction

Goes into the obligation to deliver possession



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Warrants that the buyer shall enjoy legal and peaceful possession of

the SM

Requisites to say that there is a breach of the warranty:

i. buyer is dispossessed of the property in whole or in partii. by final judgment

iii. based on a cause of action prior to the sale or an act imputableto the seller

iv. seller must be made either a co-defendant or a 3rd partydefendant

Note: However, even if all the requisites are present, but there isacquisitive prescription prior to the sale and is completed after the

transfer, the seller shall not be liable for eviction. This is because thebuyer did not do anything to prevent the prescription.

Waiver of the warranty:

i. Seller in bad faith (aware of the claims) any waiver is VOID

ii. Seller in good faith (no knowledge of the risk)- General: seller shall ONLY pay the value of the thing sold at

eviction (NO DAMAGES)

- Specific: if buyer knew of the specific risk, the seller will notbe liable, but only as to that specific risk

Genius of Villanueva: In effect therefore, there is no such thing as

waiver of this warranty. A general waiver is no waiver at all becausethe seller still has to pay. In a specific waiver, there is nothing to

waive because when you know that a problem exists and you still buy,theres nothing to waive.

This warranty applies to judicial sales

c. Warranty against non-apparent servitudes

Applies only:

i. with the servient estate

ii. the immovable sold is encumbered with any non-apparentburden or servitude not mentioned in the agreement

iii. the nature of the servitude is such that it must be presumed

that the buyer would not have acquired it had he been awarethereof

When not applicable: 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

Prescriptive Period (depends on the ground):

i. action for rescission or sue for damages 1 year fromexecution of the deed

ii. action for damages 1 year from the knowledge of burden orservitude

d. Warranty against hidden defects

Applies only when:

i. the thing is new

ii. it is an intangible

iii. the defect is hidden

iv. the defect should go to the utility of the thing or it will renderthe SM unfit for the purpose it was purchased



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v. had the buyer been aware of the defect, he would not havepurchased

Effect: Buyer may elect between withdrawing from the contract and

demanding a proportionate reduction of the price with damages ineither case

Loss of the thingi. if due to the defect

- seller was aware: seller shall bear the loss, return the price,refund expenses for the contract and damages

- seller was not aware: same liability except NO damagesii. if NOT due to the defect

- seller was aware: buyer may demand the price he paid lessthe value which the thing had when it was lost plus

damages- seller was not aware: same liability except no damages

waiver of the warranty

i. seller is in bad faith still liable, the waiver is void

ii. seller is in good faith loss will not make the seller liable

Prescriptive period: 6 months from the delivery of the thing sold This applies only to judicial sales

e. Redhibitory defects on animals

Applies only to movables

Redhibitory defect of such nature that expert knowledge is not

sufficient to discover it

General Rule: defect in one animal does not affect the other even if

they were bought as a team UNLESS it appears that the buyer wouldnot have bought if there was a defective one

This warranty does NOT apply to animals sold at fairs or public actions